(Bloomberg) — Stocks face a challenging open Monday after the U.S. raised the prospect of working with allies to ban imports of Russian oil, a step that could stoke the rally in crude and intensify inflationary pressures.
Secretary of State Antony Blinken said Sunday the U.S. and its allies are looking at a coordinated embargo following Russia’s invasion of Ukraine, while ensuring appropriate global supply. Equity futures earlier were already pointing to declines in Japan and Hong Kong and a muted start in Australia.
The dollar was mixed against key peers in early trading. Demand for havens has taken a greenback gauge to the highest since 2020 and spurred a rally in sovereign bonds. Yields retreated in Australia and New Zealand.
The Swiss franc, another bolthole in times of stress, slipped after a governing board member of the Swiss National Bank said it’s ready to intervene to tackle rapid strengthening.
Oil has topped $115 a barrel, climbing along with grains and metals on concerns of supply disruptions due to Russia’s military action, ensuing sanctions and a reluctance to trade with a resource-rich nation that’s becoming a global pariah. Traders are also assessing a drop in Libyan output.
An index of commodities jumped the most last week on record, raising the specter of escalating price pressures. The global economy was already struggling with high inflation due to pandemic-era snarls.
The Federal Reserve and other key central banks face the tricky task of tightening monetary policy to contain the cost of living without upending economic expansion or roiling risky assets.
“For the U.S. economy, we now see stagflation, with persistently higher inflation and less economic growth than expected before the war,” Ed Yardeni, president of Yardeni Research, wrote in a note. “For stock investors, we think 2022 will continue to be one of this bull market’s toughest years.”
Fed Bank of Chicago President Charles Evans said Friday the central bank should increase interest rates to close to its “neutral” setting this year, implying as many as seven quarter-point hikes.
“Central banks are facing an exogenous stagflationary shock they cannot do much about,” Silvia Dall’Angelo, senior economist at Federated Hermes, wrote in a note.
In Russia, President Vladimir Putin signed a decree allowing the government and companies to pay foreign creditors in rubles, seeking to stave off defaults while capital controls remain in place. Sanctions will determine if international investors are able to collect payments, the Finance Ministry said.
China signaled more stimulus is on the cards by setting an economic growth target above forecasts. Premier Li Keqiang vowed at the opening of the National People’s Congress, the Communist Party-controlled parliament, to take bold steps to protect the economy as risks mount.
https://www.bnnbloomberg.ca/stocks-face-oil-risks-amid-talk-of-russia-embargo-markets-wrap-1.1733378
Live oil quote: https://www.investing.com/commodities/crude-oil
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