Nasdaq recovers, Oil is stand out on political tension

Stocks were mixed in morning trade as Wall Street continues to digest Q2 earnings reports while monitoring geopolitical tensions in the Black Sea Region – higher oil and food prices could further challenge the Federal Reserve’s ability to hit its 2% inflation mandate through higher commodity prices. Oil was today’s best performer, up 1.4%.

Bottom-line: Risk-on.

TODAY’S MAJOR NEWS

Market expects 25 basis point hike next week

The Federal Reserve's policy decision next Wednesday is widely expected to see a 25 basis point rate hike, targeting 5.25-5.50%, after a pause at the last meeting. Encouraging data has portrayed a robust economy with some signs of reduced inflation. The market will also focus on tech sector results from Microsoft next week, after uninspiring second quarter updates from Tesla and Netflix hit the Nasdaq index on Thursday.

Russia bombards Ukraine ports

Russia targeted Ukraine port infrastructure for a fourth consecutive night overnight, making it clear that it fully intends to stop movement of grain and other food products through the ports. Russia seems to be following a two-phased plan to do so. First, it is attacking the ports to disable them to the best of its ability, while second, it is creating fear among shippers to keep them from approaching Ukrainian waters. It’s doing so by stating that all ships moving toward Ukrainian waters will be considered as possible carriers of military equipment that would make them potential targets, but it’s also following those statements with reports that it is practicing targeting moving ships and training personnel on taking over ships. This is a clear escalation of the war that will be addressed in a special meeting of the UN Security Council today.

Volatile food and oil prices

The escalation in the Black Sea has brought a fresh round of volatility to world food prices, with added support from India’s ban on rice exports. This raises risks for world food inflation once again, impacting economies around the world, in addition to impacting the ability of people to eat. This week’s developments are not immediately resulting in widespread food shortages, but they significantly reduce the safety net should something happen to reduce Russian wheat shipments. Coinciding with this, Russia will be reducing crude oil exports by 500,00 barrels per day starting next month on top of the 1-million-barrel reduction started this month by Saudi Arabia, on top of the reductions already in place by OPEC+.

TODAY’S MAJOR MARKETS

Equity markets

• Markets fell recovered this morning, led by a 0.4% rise in Nasdaq and the S&P 500, with Russell 2000 unchanged
• The KBW Bank Index gave up 0.7% after a strong week
• Global markets fell, with the Nikkei 225 and DAX down by 0.6% and 0.2%respectively, while the FTSE was up 0.2%
• The VIX, Wall Street’s fear index, was unchanged at 13.5

Currencies and Bonds

• The dollar rose 0.2% against a basket of currencies, at 101.1
• Euro and Sterling cross rates were unchanged, but the Yen rose 1.1%
• Bonds edged higher, with yields on 2- and 10-year Treasuries at 4.85% and 3.83% respectively

Commodities

• Crude oil prices rose 1.4% to $76.7 per barrel
• Silver fell 0.5% to $24.8 per ounce, while gold fell 0.3% at $1,966 per ounce
• The grain and oilseed sector is weaker going into the weekend as farmer selling increases and speculative traders take profits, watching Black Sea headlines and updated Midwest crop forecasts

Analysis by Arlan Suderman, Chief Commodities Economist: Arlan.Suderman@StoneX.com

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com