Oil prices swung lower Tuesday and U.S. stocks rallied in morning trading as investors reckoned with renewed
coronavirus lockdowns in China and more cease-fire talks between Russia and Ukraine against an increasingly battle-scarred backdrop.
Several of China’s industrial hubs have been hit with business and travel restrictions as the country grapples with its worst coronavirus outbreak since 2020, with daily cases doubling on Tuesday, according to Chinese authorities. The resurgence, in a country that has taken a “zero tolerance” approach to the virus, has sparked fears of major slowdown in one of the world’s biggest economic engines, as well as worries about an even more snarled global supply chain.
For the first time in about two weeks, oil prices were trading below $100 per barrel. Brent crude, the international benchmark, shed more than 7.8 percent to roughly $98.50 per barrel. West Texas Intermediate crude, the U.S. benchmark, was trading 8.2 percent lower, around $94.50.
“The resurgence in cases has provided a stark reminder that the pandemic is still lingering,” Russ Mould, investment director at AJ Bell, said Tuesday in comments emailed to The Washington Post. “Investors might have become too complacent over the risks of lockdowns returning once again.”
Hong Kong’s Hang Seng Index cratered more than 5.7 percent in its worst close since 2016, while the Shanghai Composite closed nearly 5 percent lower.
Despite the tensions, U.S. stocks climbed in morning trading. Around 11:30 a.m., the Dow Jones industrial average had risen more than 350 points, or 1.1 percent. The S&P 500 had gained nearly 1.5 percent, while the tech-heavy Nasdaq advanced more than 2 percent.
European indexes were broadly negative in midday trading, with the benchmark Stoxx 600 index sliding 1 percent.
Markets loathe uncertainty, but uncertainty has been inescapable thus far in 2022. Aside from the maelstrom of covid complications, the war in Ukraine and the cascade of sanctions it set off are also colliding with inflation that had already surged to its highest level in 40 years before the invasion. Households and companies have been confronting price increases along every step of the supply chain and checkout counter.
The slide in oil prices did little to relieve the pressure for consumers at the pump. The U.S. average for a gallon of gas was $4.31 on Tuesday, near records highs and up more than 80 cents from a month ago according to data from
AAA.
Wayne Wicker, chief investment officer at MissionSquare Retirement, said that the rally Tuesday likely reflects the impacts of short-term trading as investors take advantage of recent sell-offs.
“Despite today’s strong start, I believe that we will continue to have a number of factors weighing on the investors,” Wicker told The Post. “Until we gain some clarity on the geo-political issues affecting Europe as well as the trends in inflation and interest rates, we will most likely have more volatility in global markets over the next few months.”
Geopolitical tensions are usually shrugged off by investors, but the Ukraine crisis is weighing heavily on the markets because of Russia’s central role as a global energy producer. Russia produces about 10 percent of the world’s oil supply, on par with the United States and Saudi Arabia, and surging energy costs will ripple quickly through the economy, adding heat to already fiery inflation.
Cboe’s volatility index, known as “Wall Street’s fear gauge” is up nearly 50 percent in the past 3 months according to
MarketWatch.
Investors are focused on the Federal Reserve’s meeting, which begins Tuesday, for signs of how far the central bank will go in raising its key interest rate, its primary weapon against inflation. The increase would be the Fed’s first after two years of highly accommodative monetary policy in the pandemic.
Ivan Feinseth, chief investment officer at Tigress Financial Partners, said that Russia’s war with Ukraine has “massively disrupted the U.S. and global economy” and is complicating “what would have been a positive monetary trend” to start raise rates against a backdrop of strong employment gains and consumer demand.
Now, Feinseth said Tuesday in comments emailed to The Post, the Fed must weigh the fallout from the war against “the potential for higher rates to further disrupt and not moderate an economic recovery.”
