The Bureau of Labor and Statistics is expected to publish the year-over-year CPI tomorrow. There are frail expectations for improvements as oil and gold prices keep rising. The forecasted inflation rate is 7.8%, indicating a worsening purchasing power amidst the economical and geopolitical tension. Investments are driven by the risk-return trade-off. However, as it is, holding money will be the worst decision for anyone right now as its value keep depreciating. The 1-month LIBOR rate has increased by 10 basis points since February and is currently at 0.23%. There is absolutely no value creation for investors. The 10-year and 20-year Treasurys rose by 8 and 5 basis points each and closed at 1.86% and 2.34% respectively. This offers a better alternative at zero risk as the Fed plans to raise the rates in the course of the month.
Gold and oil prices surged to their highest points in 2022 yesterday following the increasing global tension due to the Russian-Ukrainian war. The U.S. banned the importation of oil and its allied products from Russia with traders having existing contracts given 45 days to conclude with deliveries. “Russian oil will no longer be accepted at U.S. ports,” he said. Europe is also on its way to detach itself from Russian oil supplies. According to Kwasi Kwarteng, U.K’s business and energy secretary, Europe is set to phase out oil importation from Russia by end of 2022, a move that will mount more pressure on Russia’s economic revenues.
But what would happen if Russia cut its supplies to Europe? The action taken by the U.S. while well-meaning could have substantial consequences on Europe. It is worth noting that while the ban will have cost implications on the cost of gas in America, the U.S. dependence on Russia for oil is quite low compared to Europe’s imports of 4.5 million barrels per day. Energy wars are a wild dream to every economy, but it is becoming a reality within no time. High energy demand against a low supply means escalating energy prices and probable shortfalls.
The Brent index hit a record high of $132.70 per barrel while Gold closed at $2,052.30 per oz. On the other hand, the stock indexes plummeted to their lowest points in 2022. The S&P 500 closed at 4,170.70, a drop of 13.05% since the year began while Dow Jones dropped to 32,632.64 marking a decline of 10.80%. NASDAQ has had the biggest decline in the year and closed at 12,795.55, a decline of 19.18% in the year to date.
It is undisputable that the losses in the stock market have exceeded the value erosion from inflation substantially. The market, however, presents a huge opportunity for long-term value creation by buying the undervalued stocks at their deepest. With the NASDAQ relentlessly approaching a 20% decline, the anxiety for a stock crush is rising although it cannot be predicted with certainty. It is a tough choice and every minute counts.
Tuesday Stock Highlights
