Back to top

Image: Bigstock

Russia's Economic Freeze-Out Advances

Read MoreHide Full Article

Mid-day today, markets posited a comeback following President Biden’s announcement that the U.S. is banning all imports of Russian oil, gas and liquefied natural gas (LNG). By 1:30pm ET, the Dow had swung 800 points from the opening bell. Oil prices pulled back on a sell-the-news moment, and both WTI and Brent crude are back below 5% gains on the day.

When the closing bell sounded, the Dow wound up -186 points after being up +586 midday, -0.57% on the day. The Nasdaq slipped -0.28%, still -21% from all-time highs set last November. The S&P 500 dropped furthest of all on the day, -0.73%, while the small-cap Russell 2000 — generally consisting of domestic companies with little international reach — gained +0.60% on the day.

Biden’s announcement on Russian energy bans applies to new shipments, not those already in or coming into port. There will be a 45-day wind-down for existing contracts. As the G7 companies (Russia had made it G8 until being kicked out for invading the Ukrainian peninsula of Crimea in 2014) mull over further sanctions again Putin’s regime, this is already the largest trade embargo against one country any of us have ever seen.

More companies are also suspending business in Russia, as the Western freeze-out continues. Already Russian banks had been kicked off SWIFT, rendering their international holdings valueless, and now McDonald’s (MCD - Free Report) is closing all 850 of its restaurants in Russia (all are company-owned, not franchised) and both Pepsi (PEP - Free Report) Coca-Cola (KO - Free Report) are no longer doing business in the country, although PepsiCo stated it will continue to supply baby formula to the Russian people.

Talks between Russia and Ukraine appear to have yielded some concessions today: while Ukraine looks to be backing off its insistence on joining NATO, Russia has announced a cease-fire for tomorrow. Between this and the Dow hitting correction territory may have been the main reason for the mid-day turnaround; unfortunately, the bulls were not able to hang on into the final bell. Better luck tomorrow?

Next week brings us the Fed meeting, where Fed Chair Jay Powell has already indicated he intends to raise interest rates 25 basis points instead of the 50 points the market had baked into expectations earlier. This allowed for a relief rally of sorts last week, which seems a long way off from where we are now.

Concerns over a yield-curve inversion (the strongest indicator in predicting a recession) may be weighing on the Fed’s decision-making. Even a week out from the Fed’s decision, the 10-year is now 1.79% and the 2-year is 1.61%. This is flattest we’ve seen the yield curve since the Great Recession.

Questions or comments about this article and/or its author? Click here>>

See More Zacks Research for These Tickers

Normally $25 each - click below to receive one report FREE:

CocaCola Company (The) (KO) - free report >>

McDonald's Corporation (MCD) - free report >>

PepsiCo, Inc. (PEP) - free report >>

Published in