12th March – 18th March 2022 | Another week in the markets
|S&P 500||Nasdaq||VIX||DJIA||Russell 1000||NYSE|
|Nifty 50||Gold||Silver||Brent crude||USD-INR||EUR-INR|
Global stock indices recovered this week but the market sentiment is still cautious as there is no end in sight for the war and oil prices have continued to surge.
- Federal Reserve raises interest rates to slow down inflation
- Oil supply shortage fears intensify as the IEA releases its March report
- Microsoft faces antitrust complaints from three cloud-computing competitors in Europe
- The growth of retail sales sharply decline in the US amidst inflation and uncertainty
- Russia meets its external debt obligation of $117 million despite the harsh sanctions imposed on it
Taking stock | Your move, inflation | Supply shocks oil prices | Cloudy with chances of antitrust | Retail growth slows | War, but no default | Invest wisely
The US stock market saw a three-day rally this week with three of the major stock indices – S&P 500, Dow Jones, and Nasdaq Composite, experiencing their best weekly performance since November 2020. A reason behind this market rally was that oil prices settled at around $100 a barrel. Oil prices, however, are rising again now and post this short-lived rally, stocks have returned to their pre-Ukrainian invasion levels.
Your move, inflation
On Wednesday, the Federal Reserve officials voted to increase the interest rates for the first time since 2018 to combat the soaring inflation in the US. The central bank, which has kept its benchmark federal funds rate close to zero since the pandemic, increased it by 0.25%. Six additional rate hikes are also lined up for the year. This is the most aggressive pace of increase in rates in over 15 years but a measure needed to slow inflation which is at a 40-year high. Another four hikes are forecasted in 2023. This eventually will translate to higher interest rates on loans for customers and businesses.
Supply shocks oil prices
On Thursday, oil prices surged 8% as fears of a supply shock intensified. This was in response to the International Energy Agency (IEA) raising concerns over a supply shortage that will come into effect in the coming weeks. The global oil market will see a decline of 3 million barrels of oil per day starting next month due to the western sanctions on Russian oil exports, revealed IEA in its March report.
Oil benchmarks have had their most volatile period the last few weeks since 2020. Brent crude oil saw a spread of more than $40 in the last eight trading sessions with the per-barrel price seeing a high of $139 and a low of $98.
Cloudy with chances of antitrust
OVHcloud, a French cloud computing company, has filed an antitrust complaint against Microsoft with the European Union’s competition regulator, the European Commission. The complaint focuses on how Microsoft licences its products, such as the Office suite, in a way that makes it expensive for users to use cloud services that compete with Microsoft’s Azure cloud.
A report was filed by OVHcloud last summer as well that claimed Microsoft’s software doesn’t work well on other cloud services. OVHcloud is not the only European rival of Microsoft that has filed antitrust complaints. Two other cloud computing service providers, whose names have not been disclosed, have also reported how Microsoft undermines fair competition and restricts consumer choice.
Retail growth slows
While retail sales in the US increased in February, the seasonally adjusted rate was drastically lower, 0.03%, as compared to January’s 4.9% increase. The Commerce Department on Wednesday revealed that consumers have cut back on online spending along with spending on discretionary items such as furniture and electronics, while spending on gasoline and vehicles has increased.
The real disposable incomes have been falling in the country since mid-2021 and the personal savings rate is lower than the pre-pandemic level. Given this, along with the general surge in prices currently, the real consumption growth is likely to slow down further in the coming months.
Personal savings rate in the US over the last few months:
Source: US Bureau of Economic Analysis
War, but no default
It was unclear whether Russia would be willing and able to fulfil its interest payment obligation on two sovereign dollar bonds after the sanctions imposed on it by the west. However, on Friday Russia’s Finance Ministry said it had met its coupon payment obligation of $117 million, which was confirmed by the creditors. Had Russia defaulted on this payment, it would have been its first external debt default in over a century. The news of the payment coming through raised the prices of Russian bonds. However, the country has to pay more than $4.5 billion in coupons and maturities through the year. Since the US treasury has immobilised a huge portion of Russia’s foreign currency reserves, the question now is, where will that money come from?
In times of uncertainty, focusing on building a portfolio that is spread across geographies is the way to go. By investing in stocks outside of the domestic market, you can diversify your investments and limit exposure to undue risks. This way if one stock market takes a major hit, your investments in other stock markets will ensure that your portfolio’s overall returns are not impacted significantly. This is because stock markets in different countries don’t always move in tandem.
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