Stocks climbed and oil prices tumbled Monday, easing fears that a surge in commodity prices could stall the US economy as investors awaited a likely interest-rate increase by the Federal Reserve later this week.
The Dow Jones Industrial Average rose nearly 1%, and the S&P 500 gained 0.6%. The benchmark stock index has fallen for four of the five past weeks. Investors have been spooked by the war in Ukraine and a rally in commodity prices sparked by the conflict, on top of the prospect of rising rates. They have pushed into perceived havens such as gold, while selling stocks.
Investors said positive comments from both Ukrainian and Russian officials about a round of negotiations boosted markets Monday. The technology-focused Nasdaq Composite Index added 0.4%.
Shares of Apple fell 1% as a Covid-19 outbreak in China disrupted manufacturing by a key supplier in the city of Shenzhen.
While falling oil prices could ease fears that consumer spending will slow down amid record-high gasoline prices, one likely cause of oil’s decline—the Covid-19 outbreak in China—could renew concerns about potential supply-chain snafus and ensuing the impact on the USeconomy. Shortages of everything from computer chips to chocolate have hampered grown for months as the Omicron variant scrambled business plans and raised costs for big and small businesses.
“The China shutdown and potential supply chain issues, people are are scared of that,” Joe Saluzzi, co-head of equity trading at Themis Trading. “Just as you thought you were getting relief in the supply chain, we might get another hit.”
The potential economic toll could tamper expectations for interest-rate increases by the Federal Reserve later this year, he said. Investors are turning their attention toward the Fed’s monetary-policy meeting, which wraps up Wednesday. The central bank is expected to raise its benchmark rate for the first time since 2018 as officials look to cool demand and control inflation. It is navigating an unusually complicated environment of a tight labor market, supply disruptions and lately, the war in Ukraine.
China’s Shanghai Composite Index dropped 2.6% after Shenzhen went into lockdown to contain the coronavirus. In Europe, the Stoxx Europe 600 rose 0.9%, led by shares of auto makers and banks.
The lockdown could knock oil demand, and Brent-crude futures, the international benchmark, fell 5.6% to $103.19 a barrel. A week ago, Brent prices hit $139 a barrel, the highest level since 2008, as the war in Ukraine disrupted global commodity markets.
The yield on 10-year Treasury notes rose to 2.09% Monday from 2.004% Friday. Yields move in the opposite direction to bond prices and are on course for their highest close since July 2019.
Elsewhere in commodity markets, nickel trading remained suspended on the London Metal Exchange, which stopped the market last week to contain a huge run-up in prices.
“The predominant story today is the better mood music coming out of Ukrainian and Russian negotiators,” said Edward Park, chief investment officer at Brooks Macdonald. “Expectations were pretty low at the tail end of last week.”
“There’s certainly a risk of a short-term bout of volatility should negotiations either pause or look like they’re turning in the wrong direction,” he added.
Despite hopes for the negotiations, the conflict is intensifying and there are increasing concerns among officials and investors that the war could spill out of Ukraine. A Russian airstrike on a Ukrainian military training center close to the Polish border killed 35 people Sunday. Russia has asked China for military equipment and other assistance for its war effort, according to US officials.
Write to Joe Wallace at firstname.lastname@example.org
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