|
|
U.S. EQUITIES SLUMP AS UKRAINE WAR RAMPS UP
Market players struggled to keep up with a whirlwind of economic developments last week as Russia’s war in Ukraine roiled global markets, sent commodities prices soaring, and Western allies shut off Russia’s access to essential goods and services.
Markets also are adjusting to the U.S. Federal Reserve’s expected quarter-point interest-rate hike next week.
The Dow Jones Industrial Average slid for a fourth consecutive week, down 0.5 percent Friday to end the week 1.3 percent lower. The Standard & Poor’s 500 index cast off 0.8 percent on the day, also losing 1.3 percent last week. The NASDAQ skidded 1.7 percent at the end of the week to finish 2.8 percent lower over the five trading days.
The NASDAQ is now 17 percent lower than its January high; the S&P’s loss brought it close to 10 percent below its high for the year, a line that would signal a correction has begun.
Commodity prices, already at 40-year highs, are soaring even higher because of the war’s uncertainties (see related stories in this issue).
Meanwhile, rising energy costs and looming scarcities of key materials threaten economic growth.
TREND FORECAST: While The Street is forecasting stagflation, stagnant growth and rising inflation, we forecast Dragflation… negative economic growth and rising inflation: the economy drags down as inflation goes up.
As a result, investors have taken shelter in safe havens such as government bonds and gold, driving up Comex gold futures to a record high of $2,078.80 per ounce, before backing off to close at $2,058 per ounce.
TREND FORECAST: As Trends Journal subscribers well know, we have long noted that gold is the world’s #1 safe-haven asset. While prices have dramatically spiked higher over the past two weeks—and in all likelihood there will be a pullback—this latest flight to safety has positioned gold to maintain levels in the current range.
Before the Ukraine War, our downside for gold was in the mid-$1,700 range per ounce. Considering the geopolitical uncertainty combined with unprecedented spiking inflation, our downside on gold is in the $1,840-per-ounce price range.
And now, despite the U.S. dollar growing stronger, which makes the cost of buying gold higher, rising inflation and expectations that the Federal Reserve will slow down on its interest rate hikes, will be positive for gold and silver since low interest rates will not keep inflation from rising. Again, the higher inflation rises, so, too, will gold prices.
Bonds
The yield on 10-year treasury notes dipped to 1.772 percent, its biggest weekly drop since March 2020 as investors flocked into the market.
Bond yields fall as prices rise on strong demand.
Abroad, the European Stoxx 600 index tumbled 7 percent last week, with bank stocks hit especially hard. As we have noted, Europe will bear the brunt of shortages and higher prices resulting from NATO’s sanctions on Russia.
The Japanese Nikkei 225 gave up 2.2 percent, Hong Kong’s Hang Seng was down 2.5 percent, its lowest close since March 2020.
TREND FORECAST: While Wall Street is warning of the dangers of stagflation, a stagnant economy and rising prices, the real danger is Dragflation, a declining economy and rising prices.
The Ukraine war will drive prices far higher and more quickly, shrinking the global economy without easing shortages, or lowering prices, of key materials such as metals, computer chips, and the long list of commodities that we have noted.
OIL: As noted above, Brent Crude closed today at around $130 per barrel. There are a wide range of forecasts of oil prices spiking much higher, including JPMorgan Chase’s prediction that Brent could end this year at $185 a barrel if Russian oil is still off the market.
Today, West Texas Intermediate, which sets the domestic price for U.S. oil, was up $5.27, closing at $124.77. Oil prices have not been this high since 2008.
European gas futures prices ended last week almost 90 percent higher than the week before, close to €200 per megawatt hour; Europe gets about 40 percent of its gas from Russia, a fifth of that volume flowing through Ukraine. (See WAR IN UKRAINE ECONOMIC OVERVIEW for additional oil trends analysis.)
TREND FORECAST: Last year, at this time, Brent Crude was selling at about $63 per barrel. Prices have more than doubled. As we have long been forecasting, should oil prices stay above the $115-per-barrel range, it will greatly push inflation higher, and push global economies much lower. And as we’ve noted, oil prices have hit their highest levels since 2008… The Panic of ’08. And now, 14 years later, the Panic is on!
BITCOIN: As we have long been noting, while positive on bitcoin, our chief safe haven assets are gold and silver. Among the reasons for this forecast is that precious metals are solid, “in your hands,” tangible commodities, while crypto currencies are digital assets.
Last Tuesday, bitcoin jumped 5.2 percent hitting $43,870 per coin… following its best one-day jump since May, gaining 11 percent. Today, as we go to press, bitcoin was trading at $38,667.
TREND FORECAST: Last week, there was speculation, which we discounted, that bitcoin was moving up because the prices were too low and that the Russian government used cryptos to evade sanctions… and that with the banks in Ukraine and Russia frozen bank accounts and/or limited withdrawals of people buying cryptos so they can move their money out of their respective countries.
As we have been noting for over five years, a major factor in forecasting the future price of bitcoin and other crypto currencies is dependent upon government regulations and those government regulations and actions taken against Russia and crypto-holders, as evidenced by the statement from Coinbase, has become a reality:
“In the past few weeks, governments around the world have imposed a range of sanctions on individuals and territories in response to Russia’s invasion of Ukraine. Sanctions play a vital role in promoting national security and deterring unlawful aggression, and Coinbase fully supports these efforts by government authorities. Sanctions are serious interventions, and governments are best placed to decide when, where, and how to apply them.
“No compliance program is perfect, including ours. But to play our part in these critical economic sanctions, Coinbase implements a multi-layered, global sanctions program.”
(For more crypto trends and forecasts, please see our TRENDS IN CRYPTOS section.)