Markets are undecided as the Russia-Ukraine war continues

Dow finished down 96, decliners over advancers 3-2 & NAZ dropped 214.  The MLP index was off 1+ to the 207s & the REIT index added 4+ to the 462s.  Junk bond funds fluctuated & Treasuries had only limited buying.  Oil retreated 2+ to the 107s & gold rose 14 to 1937 (more on both below).

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War in Ukraine only heightens the need for higher interest rates to get inflation under control, Cleveland Fed Pres Loretta Mester said.  The attack from Russia has pushed commodity prices higher, particularly for grains & energy, coming at a time when consumer prices are rising at the fastest annual rate in about 40 years.  Mester said  that the situation, while posing broader downside risks to the economic growth picture, is making inflation worse & necessitating monetary policy tightening from the central bank.  “The situation in Ukraine adds uncertainty to the economic outlook,” she added.  “The uncertainty about the outlook doesn’t change the need to get inflation under control in the U.S. In fact, it actually adds upside risk that high inflation might continue, and that makes it more important to take action.”   That action is likely to include a ¼-percentage-point increase in the Fed's benchmark short-term borrowing rate at the FOMC meeting in less than 2 weeks.  While Mester has been a backer of aggressive Fed tightening, she did not endorse making that first move even stronger, such as a 50 basis point, or ½ percentage point, increase.  She said that decision can be made further in the year after seeing how the initial rate hikes impact inflation.  “We’ll have more information in the second half of the year about the effect of the situation in Ukraine for the medium-run outlook in the U.S. It certainly poses some downside risks for growth,” she noted.  “Those assessments might be a consideration in determining the appropriate pace at which to remove accommodation later in the year, but it certainly doesn’t change the need for taking action.”

Fed’s Mester says Ukraine war accelerates the need for interest rate hikes

Senate Energy & Natural Resources Committee Chairman Joe Manchin, took the Biden administration to task for its anti-fossil fuel policies, especially in light of the significant role energy plays in the ongoing conflict between Russia & Ukraine.  At a hearing featuring members of the Federal Energy Regulatory Commission, Manchin criticized the agency's recent updated guidance on natural gas pipelines, which he believes is overly restrictive at a time when Russia is using energy against its adversaries.  "This is, in many ways, an energy war. And we need to treat it with that kind of gravity. We can’t bring a knife to a gun fight," Manchin said.  He stressed the severity of the situation in light of Russian Pres Vladimir Putin's threat of using nuclear weapons.  "We can’t take this seriously enough," Manchin said.  "So to deny or put up barriers to natural gas projects and the benefits they provide while Putin is actively and effectively using energy as an economic and political weapon against our allies is just beyond the pale."  The US & allies have hit Russia with significant economic sanctions, including blocking financial transactions of Russian central bank assets.  That block, however, is not comprehensive, as the Treasury Dept's Office of Foreign Assets Control made clear that there is a carve-out that allows certain "energy-related" transactions.  Manchin said it was problematic for the US to continue relying on Russia for energy in light of the war in Ukraine.  "It makes no sense at all for us to continue importing energy from Russia where they are attacking a friendly nation seeking democracy and that the whole world has rallied behind," he said.  "Nor does it make sense for us to call on OPEC countries to increase production when we’re not willing to do it ourselves despite our abundant resources."

Manchin blasts anti-fossil fuel agenda as Russia-Ukraine war intensifies

As Pres Biden& Europeans avoid removing Russian banks that deal in oil from the intl SWIFT banking system, Reps & Dems in Congress are calling for an even more drastic move to ban Russian oil.  Reps have been making similar comments for weeks.  But some Dems are now urging the administration to consider that course of action too, as Russian Pres Vladimir Putin's brutal assault on Ukraine intensifies.  Sen Joe Manchin said he has "many" co-sponsors from both parties on a bill he's introducing with Sen Lisa Murkowski to ban Russian oil imports.  He also upbraided administration officials for blocking increases in domestic energy production, including on natural gas in his state.  "This bill will prohibit importation of Russian crude oil, petroleum, petroleum products, LNG and coal during this emergency," Manchin said.  "I stood by the new administration when they called for a pause on the federal leasing programs last year. But the time for pausing has come and gone and despite a court ruling saying the same the administration continues to drag its feet when it comes to leasing on federal lands and in federal waters."  The Biden administration has resisted calls both to increase domestic energy production & to block Russian oil.  White House deputy press secretary Karine Jean-Pierre said, "Given high oil and gas prices, cutting – cutting off Russian oil/gas will drive prices up to Putin’s benefit."  Some progressive Dems are even open to the idea. Rep Ro Khanna said that the pres should consider banning Russian oil.  "I'm open to the SWIFT sanctions, I think they're necessary to de-SWIFT the Russian banks. And I'm open to banning Russian oil. I think the president really needs to look at that as a serious consideration," Khanna added.  "The lesson from this should be what John McCain was trying to teach us a decade ago, which is that Russia is an oil and gas state," Khanna continued.  "That Europe and America should have never been as dependent on Russian oil and gas and it should make an investment in renewable energy, in nuclear, in batteries a national security imperative."  Sen. Ed Markey this week released his own bill to ban Russian oil imports.

Bipartisan pressure to ban Russian energy imports grows on Biden

The EU is ready in case Russia decides to cut off gas supplies to the bloc in the wake of the Ukraine invasion and subsequent sanctions, Europe's energy chief said.  The EU receives most of its natural gas supplies from Russia.  In 2020, the country accounted for 43.4% of the EU's natural gas stock, followed by Norway at 20%.  However, after Western countries imposed severe sanctions on Moscow for its unprovoked invasion of Ukraine last week, there is concern that the Kremlin could retaliate by cutting natural gas supplies to Europe.  “We saw from the previous situation when Russia occupied Crimea and we introduced sanctions that there might be [a] retaliation from the Russian side, so, yes, we are ready that Russia’s retaliation might cover the energy sector,” Kadri Simson, the EU's commissioner for energy, said.  “We have contingency plans in case of partial or full disruption of natural gas,” Simson added.  Europe has struggled with higher energy prices for several months & Russia's decision to invade Ukraine has put even more pressure on the sector.  The benchmark Dutch front-month gas contract hit a new high today at $205 a metric ton.  The EU has repeatedly talked up the need to diversity its suppliers, but that has not materialized.  Now, amid a war in Ukraine on its eastern flank, the European Commission, the exec arm of the EU, has said it wants to finally put an end to this dependency on Russia.  “We simply cannot rely so much on a supplier that explicitly threatens us. This is why we reached out to other global suppliers,” European Commission Pres Ursula von der Leyen said earlier this week. 

EU says it’s ready if Russia decides to cut off the gas

Gold futures settled higher, resuming their climb as fighting in Eastern Europe intensified, with hope dimming of successful talks to end the Russia-Ukraine conflict.  Apr gold was up $13 (0.7%) higher at $1935 an ounce, following a 1.1% decline yesterday.  Bullion was looking at a weekly rise of 2.6%, marking its 4th positive week of the past 5.

Gold closes out Thursday trade higher, aims for weekly gain

Oil futures saw choppy trade, retreating after the US benchmark traded at a nearly 14-year high as traders weighed the Russia-Ukraine war & speculation around the potential for a restored nuclear accord that would allow Iran to resume crude exports.  Apr West Texas Intermediate crude futures was down $1.4 (1.3%) at $109.18 a barrel after trading at a session peak of $116.57, the highest since 2008.  Yesterday oil settled nearly 7% higher at $110.60 a barrel.  Front-month contract prices, which traded as high as $112.51, marked their highest finish since 2011.  Mar Brent crude  the global benchmark, fell 64¢ (0.6%) to $112.31 a barrel after trading as high as $119.84.  That follows yesterday's gain of 7.6% to $112.93 a barrel, the highest settlement since 2014.  Oil briefly traded in negative territory after an Iranian journalist tweeted that an agreement on a renewed nuclear deal was imminent.  The US has indirectly participated in global talks aimed at restoring the nuclear accord after the Trump administration withdrew the US from the deal in 2018.  A scramble for US & Brent crude comes as global buyers have been shunning Russian oil, even at deeply discounted prices.  The decision by the Intl Energy Agency to release 60M barrels from the emergency oil reserves of member countries earlier this week was also insufficient to balance the current demand, against the backdrop of the Ukraine war.

U.S. oil pulls back from 14-year high as traders weigh Russia-Ukraine war, talk of Iran deal

After selling in the first couple of hours of trading, the Dow bounced back.  However it stayed near the breakeven until there was some selling in the last hour of trading.  The Volatility Index continues at lofty levels above 30.  Congress wants to contribute to the war effort, but not quite sure what to do.  Stopping oil imports has a lot of fans, although not everybody agrees.  Energy prices stabilized which may bring an end to the recent rally. 

Dow Jones Industrials