US stock index futures opened in different directions, but the pressure due to the ongoing geopolitical conflict returned to the markets very quickly, as the situation between Russia and Ukraine continues to escalate, and the Federal Reserve System may raise interest rates much more this week than expected. Dow Jones Industrial Average futures gained 262 points or 0.8% at the open, and S&P 500 futures rose 0.4%. But the high-tech Nasdaq 100 fell 0.1%.
Many experts expect that the financial consequences for the Russian economy will be due to tough sanctions, the impact of which will be noticeable after the central bank goes or does not go to pay off external government debt and bonds to its holders. Refusal to pay is tantamount to default. However, investors are somewhat optimistic, as it became known that Ukraine and Russia have resumed negotiations. Representatives of Ukraine stated that the country's goal is to ensure a ceasefire and the immediate withdrawal of Russian troops, as well as other security guarantees.
As for commodity prices, they fell slightly after the highs that were recorded last week. US WTI crude futures fell almost 6% to $102.83 per barrel, while Brent crude fell 5.2% to $106.86 per barrel. Gold futures fell to 1959.30 dollars per ounce, and palladium futures fell by 8.8% to 2550 dollars per ounce.
It is clear to everyone that the recent rise in commodity prices is very significant for the global economy and if these changes persist for a long period, the economic damage will be very significant - especially for countries that do not have their raw materials - consider the entire EU.
A sell-off was also recorded in the US Treasury bond market. The yield on 10-year bonds jumped by more than 8 basis points to 2.08%, the highest level since July 2019. 2-year bonds rose 7 basis points to 1.82%.
Let me remind you that this week the Fed is expected to raise the interest rate on federal funds by a quarter of a percentage point. Investors are also waiting for the central bank to make new forecasts on rates, inflation, and the economy. Given the uncertainty due to the escalation of geopolitical tensions and crazy inflation, the central bank may signal a more aggressive policy. However, some believe that the Fed will be cautious about interest rate policy in 2022, given the conflict in Ukraine.
As for the premarket:
Talk of a possible delisting in the United States of Alibaba and JD led to the sale of securities of these companies. The impact of new COVID-19 outbreaks in the Chinese technology center Shenzhen is also affecting the mood of buyers. Alibaba fell 4.7% in the premarket, and JD.com - by 5.1%.
Ford Motor has released a forecast according to which sales in the United States are expected to fall by 12% this year. The publication says that Ford has lost 100,000 units this year due to a shortage of spare parts. Despite this news, Ford gained 1% in the premarket.
Rio's securities fell 2.9% in the premarket after the mining company offered to buy 49% of Canada's Turquoise Hill for about $2.7 billion. The price is more than 32% higher than the closing price of Turquoise Hill on Friday.
As for the technical picture of the S&P 500
Buyers of a trading instrument need to act more aggressively if they expect growth at the beginning of this week. The meeting of the Federal Reserve System, the results of which will be announced on Wednesday, will restrain the risk appetite. An increase in interest rates is not good news for the stock market. Bulls will probably try to gain a foothold above $4,258 today, which they missed last Friday. If this cannot be done today, the pressure on the trading instrument will increase, which will lead to a decrease in the area of $ 4,206. The breakdown of this range depends on the outcome of the negotiations between Russia and Ukraine. Bad results will bring back a bear market with the prospect of updating the lows already: $4,160 and $4,113. Fixing above $4,258 will leave hope for a market recovery. With the growth, we can expect new active sales already in the region of $4,319 and $4,383. Much will depend on the further development of the situation in Ukraine.
