Stock bulls are nervous as Russia puts nuclear forces on the highest alert as Ukrainian troops continue to put up a strong battle.

Ukrainian-Russian negotiations

The good news, Russia is now agreeing to negotiate with Ukrainian President Volodymyr Zelensky “without preconditions”. The bad news, Putin ordered the Russian army’s nuclear deterrence forces to go on “combat alert”. According to a report from Russian state news operator TASS, Putin said he was giving the order because “top officials in NATO’s leading countries have been making aggressive statements against our country.”

A senior U.S. defense official, responding to those reports on Sunday said, “we have no reason to doubt the validity of this order. But how it manifested itself, I don’t think is completely clear yet.” “We believe,” the official added, “that this is not only an unnecessary step for [Putin] to take, but an escalatory one — unnecessary because Russia has never been under threat by the West or by NATO, and certainly wasn’t under any threat by Ukraine, and escalatory because it’s clearly potentially putting at play forces that if there’s a miscalculation could make things much, much more dangerous.”

At the same time, Germany is now saying because of Putin’s latest moves they are going to dramatically increase their military spending. In the past 48-hours there has also been a massive increase in global sanctions and banking restrictions against Russia. Many political and military leaders are saying this has turned into a massive miscalculation by Putin and the global blowback is perhaps much more than he may have anticipated.

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Unfortunately, many worry that this might be like backing an opossum into a corner, where they tend to get very aggressive, pull out all their tricks, and make one last big stand. Let’s hope that doesn’t happen and that calmer heads prevail.


The other concern for the stock market is that this battle lingers on for an extended period of time and sanctions create larger global wrinkles and add more fuel to the already blazing inflationary fires. If banking sanctions get strong enough and are well supported globally it could crack the Russian ruble and cause massive hyperinflation inside Russia.

For what it’s worth, the ruble plunged in overnight trading by -28% to a fresh record low. Russia’s Central Bank is saying their banking system remains stable, yet rating agency S&P Global recently cut Russia’s debt rating to “junk” status. There are also talks that deepening banking sanctions against Russia may lead to some contagion or type of negative dominoing effect into other banks inside Europe and as well in other nations.

Wall Street bulls argue that all of this uncertainty and fear of global contagion will work to keep the Fed less hawkish and more likely to take a much slower approach towards raising interest rates.

In other words, the Fed knows the market is already spooked so they won’t want to make any sudden or unexpected moves that might cause some type of financial avalanche or stampede towards the exits.

Ultimately I think the market is most worried about “inflation” and how the Fed is going to turn their boat around in order to slow things down. Unfortunately, the situation with Russia has only made those matters worse and the Fed’s job even more difficult.

Most investors believe a rate hike of 50 basis points is more than likely off the table for the Fed’s upcoming March 15-16 meeting, with Wall Street widely expecting an increase of just 25 basis points. Unfortunately, however, there is little central banks can do to alleviate commodity supply shocks and the inevitable inflation effects that tend to follow. This has bears warning that much more aggressive Fed action is no longer a matter of “if” but rather “when.”

Data to watch

It’s worth noting that the PCE Prices Index, one of the Fed’s preferred inflation gauges, rose to a new 40-year high of +6.1% versus last year, with the core rate (excludes food and energy) at a new 38-year high of +5.2%.

Investors this week are very anxious to hear from Federal Reserve Chair Jerome Powell during his semiannual monetary policy testimony before Congress on Wednesday and Thursday. A few Fed officials last week said that the situation with Russia should not change the central bank’s plans to tighten policy but investors would like more insights as to how aggressive the Fed might be willing to get in its inflation fight.

Some of the more extreme hawkish views on Wall Street have been talking about the possibilities of price controls and/or raw material rationing, though most see such drastic measures as far fetched.

This week’s economic data highlight will be the February Employment Report on Friday with most expecting a gain of around +500,000 jobs. Today, economic data includes the Dallas Fed Manufacturing Survey as well as advance reads for International Trade, Retail Inventories, and Wholesale Inventories. Earnings of note include Lordstown Motor, Lucid, Novavax, Vroom, and Zoom Video.

What Traders Have To Know To Start Their Week by Inna Rosputnia

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