Market snapshot: investors head for exit after nuclear plant attack

The scarcity of positive catalysts is a problem for investors who are largely reacting to the fast-moving situation in Ukraine. Our head of markets has the latest.

Risk assets lurched lower once more following an attack on a nuclear plant in Ukraine, while commodities continued their rise amid the inflationary impacts of the conflict.

Oil spiked to almost $120 per barrel on the news before settling back to around $112 – but still up by 44% in the year to date – as news emerged that an increase in output following a deal between the US and Iran is not close to materialising. Meanwhile, there were further spikes in commodities such as nickel, copper and aluminium as the escalation of sanctions on Russia threatened general supply chains.

The current turmoil leaves central banks somewhere between a rock and a hard place. The Federal Reserve , for example, needs to weigh the likely economic damage to growth against the inflationary pressure of commodities. Fed chairman Jerome Powell indicated earlier in the week that an interest rate rise of 0.25% rather than 0.5% was imminent, which was initially of comfort to investors, but has added that it was “too early to say if Russia changes the rate path.”

Further confirmation of a recovering US economy is expected later in the form of the monthly non-farm payrolls report, although this lagging indicator does not encompass the current impacts of the tensions. Nonetheless, another strong showing is expected, with the consensus being that 400,000 jobs were added in February compared to 467,000 in January, as the impact of the Omicron variant subsides. The unemployment rate is also expected to improve marginally to 3.9%, from a previous reading of 4%.

The limited appetite for risk assets is clearly shown by the performance of the major indices. In the year to date, the Dow Jones is now down by 7%, the S&P500 by 8.5% and the Nasdaq by 13.5%.

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The FTSE100 is certainly not immune from the global uncertainty, and the latest round of tensions has sent the index into negative territory for the year. The UK’s premier index had steadfastly been clinging to small gains, propelled by its defensive nature, peppering of inflation-proof stocks, and a large exposure to the oil and mining sectors. However, after another weak opening in early exchanges, the FTSE100 now stands down by 2.7% in the year to date.

Meanwhile, the British Chambers of Commerce halved its estimate of economic growth in the UK following the heightened levels of inflation, the possibility of a cost of living crisis and the destabilising effect of the Russia/Ukraine conflict. It added that consumer spending and business investment were also likely to become casualties of the current economic backdrop, despite the likelihood of the economy as a whole returning to pre-pandemic levels.

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The scarcity of positive catalysts at present is another dilemma for investors, particularly those with a shorter timeframe.

Haven investments have been of interest, and for those with a steelier disposition the commodities space has also attracted buying attention. However, for most investors the current twin perils of geopolitical tensions and persistent inflation have led to levels of inactivity which are unlikely to improve until such time as the fog clears.