Wall Street rebounds as ground situation in Ukraine intensifies

FAN Editor

Stocks were up Wednesday morning, recovering from jitters the day before over Western sanctions on Russia in response to President Vladimir Putin’s authorization to send soldiers into eastern Ukraine.

The S&P 500 rose 0.8% as of 9:45 Eastern Time, rebounding from its brief fall into correction territory. The Dow Jones Industrial Average was up 0.7%. The tech-heavy Nasdaq was up 1%.

Oil prices dipped slightly following increases stoked by unease about possible disruption to Russian supplies.

“Current U.S. sanctions on Russia are less-than-feared by the market,” Anderson Alves of ActivTrades said in a report. Alves noted Western governments have more “acute options” including reducing Russia’s access to the SWIFT system for global bank transactions.

Analysts, however, warn investors of a false sense of security.

“While our baseline forecast for the S&P 500 still envisages that it ends 2022 around 14% higher than its current level, there are clearly downside risks,” Nicholas Farr of Capital Economics told investors in a report. “Indeed, experiences from past conflicts suggest if the Russia-Ukraine crisis were to escalate into a full-blown war, there would still be significant scope for equities to fall.”

Impact on the global economy of sanctions on Russia as tension escalates over Ukraine 04:49

With violence escalating in the eastern part of Ukraine, the nation’s government called up military reservists and on Wednesday, the National Security Council met in Kyiv and asked lawmakers to approve a national state of emergency, which would give authorities more powers to “strengthen security of public places and locations that are critical for the public,” Oleksiy Danilov, Ukraine’s national security chief, said.

Although many Americans may prefer that the U.S. stay out of the conflict between Russia and Ukraine, the brewing violence and political fallout are already hurting their wallets. Gasoline prices, which have hit eight-year highs on the uncertainty, could surge even further if the hostilities escalate or if U.S. lawmakers pass another round of sanctions

Investors are keeping an eye on Russian aggressions and any retaliatory sanctions from the U.S., in anticipation of stiffer penalties on Russia taking a greater toll on markets.

“Our sense is that this saga is far from over and most of our contacts expect both additional sanctions in the days ahead as well as a targeted legislative package,” Isaac Boltansky, managing director and director of policy research at BTIG, wrote in a February 23 report. 

“If Russian attacks escalate as expected, we should expect swift action that could include the United States expanding the scope of its sanctions to other Russian banks and an effort to impose export controls. The export control effort could prove both more impactful and more complicated,” Boltansky said.

On Tuesday, the S&P 500 lost 1%. That put it 10.3% below its January 3 all-time high and into a correction, or a decline of at least 10% but less than 20%. The Dow lost 1.4% and the Nasdaq composite sank 1.2%.

Markets were rattled after Putin recognized the independence of rebel-held areas in Ukraine and sent in troops in defiance of U.S. and European pressure.

Wheat prices rose on concern about supplies from Russia and Ukraine being disrupted. Prices of nickel and aluminum, for which Russia is a major supplier, also rose.

Return of Iran nuclear deal?

In energy markets, benchmark U.S. crude fell 86 cents to $91.49 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.28 on Tuesday to $92.35. 

Russia is a major energy producer and the tensions over Ukraine have brought wide swings in volatile energy prices — on top of the inevitable risks of a broader conflict which would pull down economic activity across Europe and globally.

The White House is considering another release from the Strategic Petroleum Reserve, the Washington Post reported Tuesday, and U.S. officials are planning to divert more natural gas to Europe. 

There is also an expectation by some that the current crisis in Ukraine could provide an opportunity to resurrect the U.S.-Iran nuclear deal.

“There is a belief among our contacts that ongoing Russian tensions could prove to be a tailwind for the effort to restart the Iranian nuclear pact, thereby allowing Iran to return to international oil markets after three years,” Boltansky said. 

The 2015 accord limiting Iran’s nuclear program in return for relief from U.S. and international sanctions, ended after then President Trump pulled the U.S. out of the deal in 2018.

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