FX.co ★ US market: Investors opt for risk aversion and turn to bonds and gold

S&P500

The epidemiological situation in the morning of February 18.

The US market fell sharply on Thursday due to mounting tensions around Ukraine and anticipation of a Federal Reserve rate hike in March.

The major US indices nosedived on Thursday. The Dow Jones fell by 1.8%, the NASDAQ index dropped by 2.9%, and the S&P 500 index plummeted by 2.1%.

Asian markets showed mixed results on Friday morning. The Japanese index fell by 0.4%, the Chinese index jumped by 0.4%.

Energy market. Oil prices are hovering at high levels about $3 below yearly highs. Brent is trading at $92.50.

The S&P 500 index is trading at 4380 within the range of 4340 - 4420.

Notably, the S&P 500 index very rarely falls by more than 2% a day even during significant market declines.

The reasons for the US market drop are the same as last week - new aggravation around Ukraine and expectation of a sharp Fed rate hike. Washington said yesterday that according to its intelligence, Russia is not withdrawing troops from Ukraine contrary to Moscow's statements. On Thursday, the Ukrainian military and the DNR-LNR mutually accused each other of shelling border communities. Russia threatened to respond with military force to protect the DNR-LNR. Moscow published a harsh US response to the security proposals and at the same time expelled the US Deputy Ambassador.

Fed Rates. The housing starts report showed a decline in January but the number of building permits rose in January to 1.9 million that is a small increase, but experts forecasted a decline. The hot housing market is one of the arguments for the Fed to raise rates. Employment report for the week: jobless claims were up slightly by 248,000 and the number of continuing claims was unchanged at 1.6 million. The existing home sales report is expected today.

The US administration officially states that high inflation is now the main domestic problem in the US. Washington hopes that in 2023 inflation will drop significantly as the pandemic comes to an end.

In the US, the situation of a possible government funding shutdown has re-emerged. Yesterday, the US Senate voted for a funding increase. Democrats had to compromise on drug spending and vaccine funding.

US Secretary of State Blinken offered Russian Foreign Minister Lavrov to meet in Europe next week to discuss the crisis around Ukraine. For now, investors are refraining from stocks and choosing bonds and gold, nobody wants to take risks while the situation around Ukraine is so tense.

USDX is trading at 95.70 within the range of 95.40 - 96.00.

The US dollar fell slightly yesterday. However, the currency remains a major protective instrument both against the war and in case of a Fed rate hike.

USD/CAD is trading at 1.2680 within the range of 1.2600 - 1.2800

Investors are sitting on the fence and are trying to reduce risks. Currently, everyone is waiting for the crisis around Ukraine to end.

P.S. On the epidemiological situation. In general, Thursday is a repeat of Wednesday's situation. The number of new cases declined. Germany and Russia have the largest number of cases. Germany is starting to lift restrictions. The pandemic is coming to an end.