Good morning. Today we’ll examine why the Fed’s battle with rising costs bodes poorly for the stock market, and what G7 nations plan to do in response to Russia’s impending debt default.
Let’s get into it.
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1. Central banks won’t save the stock market. In a note on Monday, Barclays analysts wrote that a central bank “put” is missing in the market as policy makers around the world battle high inflation. The bank said the investing landscape has become more complicated as investors come to terms with the idea that monetary policies will not be enacted with the goal of staving off a sharp decline in the stock market.
Russia’s invasion of Ukraine has created a “double whammy” of lower growth prospects and surging inflation, and economists are responding accordingly with lower growth forecasts, said Barclays.
Top economist Mohamed El-Erian, meanwhile, warned the Fed isn’t equipped to handle the inflation problem posed by the war in Ukraine. He said Americans will see another year of uncomfortably high prices, particularly in food and gas.
According to El-Erian, the war could drive US inflation above 10%. The economist is among several pundits that have said the Fed is behind the curve in its response, and that whatever path it takes now will be potentially painful for the economy and markets.
“Till the end of November they were calling it transitory, but also to be fair to the administration, there will be a Putin inflation component,” he said.
In other news:
2. US futures are in the red. Investors are mulling the potential damage to the economy from war in Ukraine, a Covid outbreak in China and the
raising rates. Oil prices are down 5% so far today. Here’s what’s going on across the markets.
3. Earnings on deck: Aspen Group, Blue Ridge Real Estate, and Northwest Pipe Co., all reporting.
4. Scoop up these 26 industrial stocks that are now attractive “buying opportunities,” said Jefferies. Even as rising costs and supply chain snags are spooking investors, these factors have pushed many industrial stocks down to bargain prices despite strong demand. See the full list here.
5. Russia may be cut off from the world’s financial resources as it barrels toward a default. Leaders from G7 nations want to cut off Russia’s access to emergency funding from organizations like the International Monetary Fund and the World Bank — which means Russia won’t get a bailout like it did in 1998.
6. Deutsche Bank announced it would pull out of Russia. The bank had been saying as recently as last week that it would not exit the country, but changed its position after backlash. “We are in the process of winding down business in Russia while we help our non-Russian multinational clients in reducing their operations.”
7. JPMorgan is leading talks to contain fallout from the nickel “big short.” About one-third of the Chinese tycoon’s total short positions of more than 150,000 tons of nickel is held through a position with JPMorgan. According to reports, JPMorgan is the biggest counterparty to the Chinese nickel-shorter’s trades.
8. Russia’s attack on Ukraine will accelerate cybersecurity’s rise as a major investing theme, according to a research chief for the $40 billion firm Global X. “The Ukraine crisis is bringing everything in this sector into the spotlight,” Pedro Palandrani told Insider. He shared three stocks to buy that will benefit from increased recent attention.
9. This economist believes there’s a 75% chance of a recession later this year even if inflation is transitory. David Rosenberg said the economy is in trouble and the stock market is a bubble — these six charts explain why.
10. Goldman Sachs cut its S&P 500 price target as commodity prices take a bite out of earnings. “Extremely low levels of equity market
have amplified the impact of widespread investor selling,” Goldman Sachs said. The bank now sees a 40% chance of recession.
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