Putin escalates the Ukraine war

17th September – 23rd September 2022 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
3,693.23	10,867.93	29.92	29,590.41	2,027.81	13,796.99
-4.65%	-5.07%	13.76%	-4.00%	-4.89%	-5.33%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
17,327.35	$1,651.70	$18.84	$85.54	81.25	78.74
-1.16%	-1.33%	-1.77%	-5.79%	1.95%	-1.35%

Source: MarketWatch

Hello Saturday,

This week the US stock and bond market suffer a heavy sell-off, central banks around the world raise interest rates, and Putin escalates the Ukraine war. 

• The Federal Reserve raises rates by 75 basis points, Fed funds rate may reach 4.5% by end of the year
• The World Bank predicts a global recession in 2023 and a string of financial crises 
• Gold prices down by over 19% since March peak despite surging inflation 
• Putin calls for 300,000 reservists and renews nuclear war threat 
• Companies like Meta look to cut costs primarily through layoffs 

Taking stock | Out of the frying pan into the fire | Chain reaction | Reverse gold rush | Nuclear winter is coming? | Layoff season has come | Invest wisely

Taking stock

With heightened fears of a global recession, US stocks suffered a brutal week. The Dow slid 1.62% on Friday and closed below 30,000 for the first time since June, S&P dropped 1.72%, and Nasdaq lost 1.8%. With the Federal Reserve tightening the monetary policy and hiking interest rates, investors are losing confidence, resulting in heavy selling.  

Out of the frying pan into the fire

In September’s policy meeting this Wednesday, the Federal Reserve raised interest rates by 75 basis points for the third consecutive time this year. This sets the Fed’s main interest rate between 3% and 3.25%. Earlier, the central bank had indicated that the rates could climb up to 3.4% by the end of this year. Now, however, the Fed’s new projections show the policy rate rising at a much faster pace, reaching the 4.25% – 4.50% range by the end of 2022 and 4.50% – 4.75% by the end of 2023. 

Wall Street CEOs are not fully aligned with Fed’s guidance since many believe that inflation’s pace is already going down. Several also believe that 4% is the highest Fed funds rate that the US economy can withstand, considering the slowing economic growth and higher unemployment such interest hikes bring in tow. But the Fed expects to begin cutting rates only in 2024, ending the year at 3.9% and 2025 at 2.9%. Until then, the monetary policy is going to be aggressive to bring down the inflation rate to the target 2% level. 

Chain reaction

After the US central bank increased rates, about half a dozen central banks around the world, from Norway and Indonesia to the UK and South Africa followed suit. With central banks worldwide simultaneously hiking interest rates to curb record-high inflation levels, early warnings from international officials and analysts came flooding in. According to a recent World Bank report, the world may be entering a global recession in 2023 and emerging markets and developing economies may face a string of financial crises.

Reverse gold rush 

Gold tends to rally when inflation levels are high, as this precious metal is seen as a store of value. It also rallies in times of geopolitical and economic uncertainty as it did when it reached its peak in March after Russia invaded Ukraine. However, since then, gold prices are down more than 19% despite inflation being at record-high levels globally. Investors are preferring to hold other investments over gold. 

Why is this reverse gold rush happening though? A part of this is the Fed hiking interest rates. As the Fed increases rates, the dollar continues to grow stronger – the hike this week pushed the US dollar to a two-decade high, and the dollar index is up 16% so far this year. When the USD is this strong, it impacts the commodities market by making it expensive for foreign investors to buy precious metals like gold. This pushes down demand and hence prices. Another reason for falling gold prices is that government bonds, which are gold’s rival safe-haven investment option, become more attractive as yields jump in reaction to tightening monetary policy. 

Nuclear winter is coming?

On Wednesday, Putin ordered Russia’s first mobilisation since World War Two by calling on 300,000 reservists. This is to back Russia’s plan to annex a large chunk of Ukraine and is the biggest escalation of the Ukraine invasion since it began in February this year. Putin also reiterated that Russia is ready to use nuclear weapons if required, resuming the threat of a nuclear war. After Putin ordered the mobilisation, several Russian men headed to the borders to flee the country, raising the prices of one-way air tickets out of Moscow to nearby countries to $5,000. At the same time, around 10,000 volunteers showed up to enlist in Russia’s special military operation in Ukraine. With Russia upping the ante, more volatility in the global markets can be expected. 

Layoff season has come

Given the impending global recession, more than half of US companies plan to cut costs by laying off employees. According to a recent PwC survey that polled 700 executives and board members of companies across the country, 52% of companies have already implemented a hiring freeze, about half the companies are planning layoffs, and four out of 10 companies revoked job offers or did away with bonuses for new employees. This is true for small companies and industry giants alike. Meta Inc., which is planning to cut costs by 10% over the next few months, is primarily doing so through layoffs. 

Invest wisely 

Amidst volatile markets, you can avoid panic-selling and emotional decisions if you are committed to your investment strategy. A helpful way to do this is by undertaking goal-based investments. When your investments are linked to your medium-term and long-term goals, it’s easier to stay on track despite short-term market fluctuations and scares. With the help of the Appreciate App, you can set your goals, invest in a range of high-performing global securities to meet them in the desired timeline, and stay committed by investing through Systematic Investment Plans (SIPs). Download the Appreciate app today!

Warm regards,
Another week
in the markets