August 15, 2022
US stocks rise after Biden announces more sanctions against Russia - 02/24/2022 - Markets

US stocks rise after Biden announces more sanctions against Russia – 02/24/2022 – Markets

Stock markets in New York ended Thursday (24) with a strong recovery from lows recorded for most of the day. The turning point came later in the afternoon US President Joe Biden has announced new economic sanctions against Russia.

In the main reaction from the US market, an index tracking companies in the Nasdaq-listed technology sector rose 3.35%. That lifted the US market’s benchmark S&P 500, which closed up 1.50%.

The Dow Jones index, which combines three dozen major U.S. companies, rose 0.28% after a late start to its gains relative to its peers.

There was a recovery in the planet’s main market, however, from an already low level in recent days. Wall Street is reeling on expectations of a tighter monetary policy to curb inflation, the highest in 40 years. The central bank (Federal Reserve, US Federal Reserve) is expected to raise the country’s key interest rates starting next month.

The S&P 500 hit a low of 10% last Tuesday (22) from its all-time high, reached on January 3 this year. When an indicator pulls back from this percentage relative to its highest level, it is called a “correction zone”. This is the first time this has happened in this indicator since February 2020 when Covid rocked the markets.

Part of the explanation for the shift after Biden’s speech may be linked to concessions made to strategic sectors for the global economy.

Biden has blocked deals with the largest Russian companies in US banks, including state-owned oil and gas giant Gazprom. But The US government granted exceptions. These large companies, barred from US funding, are allowed to do energy-related business (from fuel exploration to manufacturing, transportation, etc.).

A possible fuel shortage caused by limits in this sector could further accelerate global inflation, forcing the Fed to raise US interest rates further.

A barrel of Brent oil, the commodity’s global benchmark, rose 2.25% to US$99.02 a barrel earlier overnight. With that, it gave up the morning highs that saw it gain about 8% and head home to its highest level since 2014 at USD 105.

In Europe, the impact of the war’s outbreak on markets was most pronounced on Thursday, where stocks closed ahead of Biden’s announcement.

The index, which tracks the top 50 companies from countries that use the euro as their currency, fell 3.63%. London, Paris and Frankfurt markets fell 3.88%, 3.83% and 3.96% respectively.

Moscow’s benchmark index plunged 33.28%, hitting its lowest price since 2017. On Tuesday (22), the main index of the country’s stock market rose 1.58%, rehearsing the fearful recovery associated with the fall of 10.50. % of previous day. The Russian stock market was closed on Wednesday (23) due to a national holiday.

In Asia, major stock indices ended sharply lower. Tokyo, Hong Kong and Shanghai/Shenzhen all fell 1.81%, 3.21% and 2.03% respectively.

The fear created by the war also affected the Brazilian stock market. Ibovespa closed down 0.37% at 111,591 points. Earlier, the country’s stock market benchmark fell 2.57% to 109,125 points.

The dollar rose sharply against the real. The US currency rose 2.01% to close the session quoted at R$5.1040. The jump came a day after the U.S. currency hit its lowest value against the real since late June. This Wednesday (23), the currency retreated 0.95% to R$5.0030, representing a 12.4% drop relative to the year’s high of R$5.71 on January 5 at the time.

However, at the beginning of the Russian military offensive, the US currency had a global value. It is generally sought after by investors in times of uncertainty. This explains the change in Brazil’s exchange rate.

Until this Wednesday, before the Russian invasion of Ukraine, Investors Foreigners saw Brazil as an alternative to stock market collapse in developed economies and maintained a strong flow of investments in the domestic financial market.

Analysts believed that the crisis in Europe was supporting this movement. Similarities between the Brazilian and Russian commodity sectors make the Brazilian market a potential haven for investors forced to stop doing business in Moscow.

There are still fundamentals that make Brazil attractive to international investors, such as a stock market with undervalued real, cheap stocks, high commodity prices and, above all, very high interest rates relative to major economies.

However, the beginning of a war, according to Fernanda Manzano, chief economist of the investor platform TC (Traders Club), makes investors abandon the basics to take measures to protect against the risk of losses.

“Until then, we were looking at a carry trade effect based on the interest rate differential between Brazil and the US,” says Manzano.

A carry trade is what the market calls the practice of borrowing cheaply in countries with low interest rates and investing in markets with high profit potential.

“Now, faced with an uncertain situation, there may be flight [do capital estrangeiro]. The possibility of exchange rate depreciation in the short term is real,” comments the economist. “I usually liken these moments to driving in heavy rain. what are you doing? Stop the car and wait for it to pass because you can’t see what’s ahead.”