A member of the Ukrainian State Border Guard stands watch at the crossing between Ukraine and Belarus on Feb. 13, 2022.
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Tensions between Russia and Ukraine are finally beginning to hit markets in a significant way.
European stocks in particular are feeling the heat as the continent prepares for the possibility of war on its doorstep. Germany’s blue-chip DAX index tumbled more than 3% early Monday.
It isn’t just those geographically close to the action—Asian stocks fell overnight and U.S. futures pointed lower. Oil prices remained high as Brent crude futures hovered around $94.50 a barrel.
But the impact the threat of conflict is having on the U.S. bond market is worth watching.
An unusual tug of war is developing as the cusp of war tempts investors to buy U.S. Treasuries—a bona fide safe haven—but surging inflation encourages selling.
After topping 2% last week when U.S. inflation reached another four-decade high, the yield on the 10-year U.S. Treasury slipped below 1.92% early Monday.
It isn’t just investors who will be closely monitoring the bond market; it will certainly turn heads at the Federal Reserve. Markets are now forecasting a 56% chance of a 50 basis-point hike in March, according to CME’s FedWatch tool. It was above 94% at one point late last week.
The Fed’s ‘nimble’ approach means it is likely to raise interest rates largely in step with what the market is pricing in. A conflict in Eastern Europe, potentially involving countries around the world, is a big enough risk event to keep bond yields, and therefore rate increases, in check.
A soft landing looked an impossibility for the Fed, with forecasts over the number of rate increases this year only going in one direction. It isn’t out of the question now.
—Callum Keown
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Markets Await Outcome of Russia-Ukraine Tensions
Warnings that Russia could initiate a military action in Ukraine “any day now” turned attention to how the markets could react, especially in energy prices, Treasury bonds, and stock market volatility. President Joe Biden reaffirmed a commitment to Ukraine’s territorial integrity in a Sunday call with President Volodymyr Zelensky.
- Zelensky told Biden that U.S. support would allow Ukraine to prevent panic among its residents, and asked Biden for concrete guarantees of Ukraine’s security, saying European security is impossible without the security of Ukraine. Dutch airline KLM canceled flights to Ukraine until further notice.
- The Dow Jones Industrial Average ended Friday down more than 500 points on renewed buying in traditional safe-haven assets. An outbreak in fighting could prompt the Federal Reserve to be more cautious on raising rates, but it could also mean a spike in oil prices, MarketWatch reported.
- Phil Flynn, an analyst at Price Futures Group, said war between Russia and Ukraine would almost assure $100-a-barrel oil.
- Investors don’t like uncertainty, but it doesn’t have to be damaging to stocks long-term. In 2014, when Russia annexed Crimea, the S&P 500
fell 2% from peak to bottom, but it ended that year up 11%.
What’s Next: An attack would add “more credence to our view that the Fed will be more dovish than the market currently believes,” because of the uncertain outlook, said Jay Hatfield, chief investment officer at Infrastructure Capital Management. The Fed is expected to begin raising rates in March.
—Janet H. Cho
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Super Bowl Ad Spots Crowded With Crypto, EVs
Coinbase Global , Crypto.com, and FTX are among the first-time Super Bowl advertisers that shelled out millions of dollars for 30 seconds of airtime on the biggest advertising day of the year, all aiming to appeal to crypto superfans as well as newcomers.
- FTX, a trading platform, planned to give away millions of dollars of Bitcoin during the game in a strategy that includes an ad with retired quarterback Tom Brady. Crypto.com’s ads feature actor Matt Damon saying “fortune favors the brave.”
- Other new advertisers include Rakuten Rewards, a shopping rewards platform, Greenlight Financial Technology, a children’s budgeting app maker, and Caesars Sportsbook, a mobile sports gambling operator.
- Super Bowl returnees include Frito-Lay’s Flamin’ Hot Cheetos and Doritos, in an ad featuring musicians Megan Thee Stallion and Charlie Puth, Kellogg ’s Pringles, Avocados From Mexico, and Anheuser-Busch InBev ’s Clydesdales, with the tagline, “In the home of the brave, down never means out.”
- General Motors
’ ad starring Mike Myers’ Dr. Evil touts GM’s plans to bring 30 electric vehicles to market by 2025. BMW ’s ad uses Salma Hayek Pinault and Arnold Schwarzenegger to promote its all-electric BMW iX. And Kia ’s ad features a robot dog chasing its Kia EV6.
What’s Next: Travel sites including Booking Holdings and Expedia Group returned after taking a year off, hoping to benefit from the uptick in travel demand as the economy reopens. Turkish Airlines
’ spot featured Morgan Freeman musing about how air travel reunites the world.
—Janet H. Cho
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This Week: Earnings from Walmart, Marriott, Shopify
Nearly 60 S&P 500 companies report earnings this week, including Walmart , Marriott , Airbnb , Shopify , and Nvidia . Investors will hear news about the retail, hospitality, real estate, and energy sectors.
- The Census Bureau will report U.S. retail spending data for January on Wednesday. Economists expect a 1.9% monthly increase, after a 1.9% decline in December. E-commerce platform Shopify reports earnings Wednesday, and discount retail giant Walmart reports Thursday.
- On the hospitality front, both Marriott International and Airbnb report earnings on Tuesday, while Hilton Worldwide Holdings reports on Wednesday.
- On Wednesday, when the National Association of Home Builders releases its Housing Market Index for February, economists expect a reading of 83, about the same as January. Analysts expect 1.7 million in adjusted annual housing starts for January when the Census Bureau reports data on Thursday.
- Devon Energy , an Oklahoma City-based oil and gas producer and best-performing stock in the S&P 500 index last year, reports results after Tuesday’s close. The energy sector is already up 26% this year, beating the S&P 500’s 7% drop.
What’s Next: Shares of farming equipment manufacturer Deere , nicknamed the “Tesla of farming,” are up nearly 15% this year and recently notched an record high. Deere, which reports earnings Friday, expects fiscal-year 2022 profit of between $6.5 billion and $7 billion.
—Nicholas Jasinski and Janet H. Cho
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U.S.-Canada Land Crossing Reopens After Protest
Canadian officials have reopened the Ambassador Bridge connecting Windsor, Ontario, and Detroit, Michigan, a route responsible for 30% of annual two-way trade between Canada and the U.S. that has been shut down by protesters for nearly a week.
- The White House consulted with Canadian officials, including a video teleconference between Biden and Prime Minister Justin Trudeau on Friday.
- Canadian police cleared a roadway of protesters and made more than one dozen arrests. Demonstrators protesting Canada’s Covid-19 vaccine mandates and restrictions have blocked access both ways across the bridge since Monday.
- The automotive industry could lose over $51 million because of the shutdown, according to estimates from the Anderson Economic Group, Barron’s reported.
- Ford Motor , General Motors, and Toyota Motor have had to curtail production. Statistics Canada said $28 billion in motor vehicles and auto parts were transported both ways over the Ambassador Bridge last year, The Wall Street Journal reported.
What’s Next: The blockade and others around Canada, including in the capital of Ottawa, could dent the economy. Citigroup economist Veronica Clark estimated that the shutdowns will be a 0.2 percentage point drag on the country’s gross domestic product for February.
—Liz Moyer
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Lockheed Martin Ditches Aerojet Deal After FTC Opposition
Lockheed Martin said on Sunday that it had scrapped its plan to acquire rocket engine maker Aerojet Rocketdyne Holdings for $4.4 billion, following opposition from U.S. antitrust enforcers.
- The termination of the deal marks the second significant victory for the Federal Trade Commission in recent days. Nvidia last week canceled its $40 billion planned acquisition of U.K. chip designer Arm, after the FTC challenged the deal in December.
- The world’s biggest defense contractor announced plans to buy Aerojet Rocketdyne in December. The FTC sued to block the proposed deal in January, saying it would give Lockheed the ability to deny other defense contractors access to critical components needed to build competing missiles and space systems.
- In a statement on Sunday, Lockheed said its decision to abandon the deal was made in the wider interest of shareholders.
What’s Next: Aerojet could still become a takeover target for private-equity firms and smaller defense companies, according to analysts. The company said it remained “confident” about its future performance and would provide further details on its strategy when it reports full-year 2021 earnings on Tuesday.
—Lina Saigol
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