US stocks had a poor start in March. On March 1, Eastern time, the three major stock indexes of the United States collectively closed down. The Dow Jones Industrial Average fell 1.76%, or 597.65 points, to 33294.95 points; The S & P 500 index fell 1.55%, or 67.68 points, to 4306.26; The Nasdaq composite index fell 1.59%, or 218.94 points, to 13532.46. Among the sectors, financial stocks fell the most.
In terms of bulk commodities, under the influence of the situation in Russia and Ukraine, the prices of oil, agricultural products and precious metals fluctuated at a high level. Affected by market concerns about the impact of export restrictions such as corn and wheat on international supply and other factors, on March 1, the may contract with the most active trading in the corn market of the Chicago futures exchange closed up 5.07% to $7.2575/bushel; Wheat contract in May closed up 5.35% to US $9.84/bushel. At the same time, the substitution demand for sunflower oil has pushed up the prices of palm oil, soybean oil and other oils. In addition, under the risk aversion, the April gold futures price, which was the most actively traded in the gold futures market of the New York Mercantile Exchange, closed up 2.27% to US $1943.8/ounce on the 1st.
US inflation is expected to rise
The manufacturing industry, which accounts for about 11.9% of the U.S. economy, maintained an expansion trend. According to the data released by the American Institute of Supply Management (ISM) on March 1, the manufacturing PMI of the United States rose to 58.6 month on month in February, higher than the previous value of 57.6 and the expected value of 58, maintaining expansion for 21 consecutive months.
In terms of sub indicators, the production index rose to 58.5 from 57.8 in January, the first rise in the past three months. Previously, factors such as the spread of Omicron virus strain led to a shortage of labor and raw materials, which restrained the production growth in December last year and January this year. The employment index fell to 52.9 from 54.5 in January, but remained in the expansion range for six consecutive months. The new orders index rose to 61.7 from 57.9 in January, expanding for 21 consecutive months. The supplier delivery index rose to 66.1 from 64.6 in January, indicating that the delivery speed has slowed down, and the industry is still in a demand driven and supply chain constrained environment. The price index fell to 75.6, but it is still high, indicating that inflationary pressure is still high.
Timothy R. Fiore, chairman of ISM manufacturing business investigation committee, said that the situation in Russia and Ukraine will affect the supply and energy and other commodity prices, but the scope of influence is relatively limited and is unlikely to drag down the expansion of the U.S. manufacturing industry.
Tim Quinlan, a senior analyst at Wells Fargo Bank, said that prices are expected to continue to rise for some time due to factors such as supply imbalance and the situation in Russia and Ukraine pushing up commodity costs.
Li Peijia, a senior researcher at the Bank of China Research Institute, told the 21st Century Business Herald that the current situation in Ukraine will mainly affect US inflation in the following three aspects.
First, energy prices rose sharply. Russia’s oil exports account for nearly 10% of the world’s total production, and its natural gas exports exceed 5% of the world’s total production. Considering Russia’s important position in global energy exports, once crude oil exports are seriously limited, global oil and gas prices will surge, which will increase the upward pressure on energy prices. At present, energy prices account for about 7.35% of the weight of us CPI, which is an important factor affecting US inflation.
Second, global food prices have risen. The arable land area of Ukraine ranks first in Europe and is known as the “granary of Europe”. Its exports of barley, corn, wheat and sunflower oil rank first in the world. According to gro intelligence, an agricultural data analysis company, Ukraine and Russia together account for about 14% of global wheat production. These two countries account for about 29% of global wheat exports. The situation in Russia and Ukraine will directly affect grain production and supply, and will also have an indirect impact on us grain prices.
Moreover, the problem of tight supply chain continues, and the inflation of service industry accelerates. Since last year, the prices of service commodities such as housing rental, automobile, furniture and household appliances in the United States have increased significantly, which is mainly related to the general rise of global manufacturing costs and the rise of import prices of consumer goods in the United States under the background of poor transportation and chip shortage. The situation between Russia and Ukraine will further tighten the global transportation environment. In addition, Ukraine is a supplier of neon and other major chip raw materials, which will affect the production and supply of global chips and aggravate the tension of global supply chain. As the world’s major importer of consumer goods, the sharp rise in imports will significantly push up the price of its service industry.
Changes in the Fed’s expectation of raising interest rates
Federal Reserve Chairman Powell will attend the hearings of the House Financial Services Committee and the Senate Banking Committee on March 2 and 3 respectively. The market expects Powell to continue to express his views on inflation and interest rate hike at the hearing. Ed al hussainy, a senior analyst at Columbia Threadneedle, said that Powell would make every effort to deal with inflation in his speech to Congress this week and work with the Treasury to ensure sufficient liquidity in the U.S. financial market.
Previously, taking into account inflation, employment, economy and other conditions, the Federal Reserve began to tighten monetary policy and launched a debt purchase reduction plan in November 2021, reducing the asset purchase scale of $120 billion per month since June 2020. However, Fed officials and market analysts did not reach an agreement on the range of the first interest rate increase and the number of interest rate increases this year.
At present, geopolitical factors have added more uncertainty to the outlook of the Fed’s monetary policy. In Li Peijia’s view, on the one hand, US inflation may rise further on the basis of the high in January, which increases the pressure on the Federal Reserve to raise interest rates. On the other hand, the downside risk of the US economy is also increasing, which makes the Fed need to make a more difficult choice between “price control” and “steady growth”.
Taking into account price, economic, financial stability and other factors, Li Peijia said that the possibility of raising interest rates at the Federal Reserve’s interest rate meeting in March still exists, but compared with the previous market generally expected one-time interest rate increase of 50 basis points, it is likely to be relatively stable and prudent, and the first interest rate increase is expected to be about 25 basis points. “On the whole, the Fed will adopt the strategy of taking small steps to raise interest rates, walking fast and waiting to see,