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S&P 500 on course to confirm bear market as inflation fears mount

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© Reuters. A trader works on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., May 20, 2022. REUTERS/Andrew Kelly

By Sruthi Shankar, Anisha Sircar and Devik Jain

(Reuters) – Wall Street’s main stock indexes fell sharply on Monday, with the S&P 500 on track to confirm a bear market on fears that the Federal Reserve’s aggressive rate hikes would tip the economy into recession.

The benchmark index is more than 20% below its record closing high of Jan. 3, as worries over inflation, rate hikes and the Ukraine war push it into bear market territory for the second time since the pandemic-led rout on Wall Street in 2020.

Market heavyweights Apple Inc (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL) Inc, Microsoft Corp (NASDAQ:MSFT) and Amazon.com Inc (NASDAQ:AMZN) fell between 1.5% and 3.3%.

A hotter-than-expected inflation print on Friday prompted traders to price in a total of 175 basis point (bps) in interest rate hikes by September, with many expecting a bigger-than-estimated 75 bps rate increase on June 15.

“Across the board there is blinking yellow and perhaps blinking red lights suggesting that inflation is going to be around for some time,” said Chris Campbell, chief strategist at Kroll in Miami.

“There was some speculation the Fed may speed up their rate rise, perhaps even to a quarter percent at this next meeting, which I would suggest is not enough to be able to really significantly slow down inflation, but all that means is that there’s troubled times ahead for the economy.”

The two-year 10-year U.S. Treasury yield curve briefly inverted for the first time since April, a move viewed by many in the market as a reliable signal that a recession could come in the next year or two. [US/]

The Fed’s interest rate decision is due on June 14-15, with focus on the speed and scale of rate hikes that policymakers believe will be needed to quash red-hot inflation.

The Nasdaq Composite index confirmed it was in bear market territory on March 7 and has declined nearly 28% this year.

At 09:56 a.m. the Dow Jones Industrial Average fell 611.99 points, or 1.95% , to 30,780.80, the S&P 500 lost 96.57 points, or 2.54%, to 3,801.89 and the Nasdaq Composite lost 342.18 points, or 3.02%, to 10,997.85.

All the major S&P sectors were sharply lower, with energy, consumer discretionary and technology leading the declines.

Financials dropped 2%, while banks slid 1.8%.

The CBOE Volatility index, also known as Wall Street’s fear gauge, spiked to 32.54 points, its highest level since May 19.

Cryptocurrency- and blockchain-related stocks, including Riot Blockchain (NASDAQ:RIOT), Marathon Digital Holdings and Coinbase (NASDAQ:COIN) Global, fell between 11.6% and 14.2% as bitcoin slumped over 10% amid a wider market selloff.

Declining issues outnumbered advancers by a 20.4-to-1 ratio on the NYSE and by about a 11.3-to-1 ratio on the Nasdaq.

The S&P 500 posted one new 52-week high and 58 new lows, while the Nasdaq recorded 13 new highs and 690 new lows.

Economy

Oil Prices Fall amid Protests in China

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Oil prices decline

Oil prices fell on Monday amid a general decline in investor appetite for risk amid information about the ongoing protests in China against vested restrictions.

The cost of January futures on Brent crude oil on London’s ICE Futures exchange was $81.31 per barrel on Monday, down $2.32 (2.77%) from the close of the previous session. At the close of trading on Friday, those contracts fell $1.71 per barrel to $83.63.

Oil prices decline – what’s going on in the market?

The price of WTI futures for January crude fell by $2.31 (3.03%) to $73.97 per barrel in electronic trading on the New York Mercantile Exchange (NYMEX). By closing of previous trades, the cost of these contracts decreased by $1.66 (2.1%) to $76.28 per barrel. Brent and WTI gained 4.6% and 4.8%, respectively, last week.

According to Bloomberg, protests were held in cities across the country, including the capital Beijing, as well as Shanghai, Xinjiang, and Wuhan, which was originally the epicenter of the COVID-19 spread.

That contributes to a stronger U.S. dollar, which reduces the attractiveness of investments in crude, and also raises the possibility of even more significant tightening of restrictions by Chinese authorities, the agency said.

“The outlook for the oil market remains unfavorable and the events of this weekend in China do not add to the positive,” notes Warren Patterson, who is in charge of commodities strategy at ING Groep NV in Singapore.

According to the forecast of analytical company Kpler, oil demand in China in the fourth quarter will decrease to 15.11 million barrels per day (bpd) compared to 15.82 million bpd a year earlier.

Earlier we reported that Russia will ban the sale of its oil to countries that have imposed a price ceiling.

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Economy

Oil Russia ban news: Russia will ban the sale of its oil to countries that have imposed a price ceiling

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oil Russia ban

Will Russia sell oil to Europe? The administration of President Vladimir Putin is preparing an order prohibiting Russian companies and any trader from buying Russian oil to sell raw materials to countries and companies that have imposed a price ceiling on Moscow. Bloomberg news agency wrote this, citing a report from sources.

“The Kremlin is preparing a presidential decree banning Russian companies and any traders buying national oil from selling it to anyone who participates in the price ceiling,” the publication wrote.

According to the newspaper’s interlocutors, this would prohibit any mention of the price ceiling in contracts for Russian crude, as well as transferring it to countries that have joined the price ceiling for the natural resource.

In the first half of September, the press service of the US Treasury Department said that the USA, together with its allies from G7 (Great Britain, Germany, Italy, Canada, France and Japan) and the European Union (EU) would impose a ban on marine transportation of Russian oil on December 5 and oil products – on February 5.

Earlier we reported that EU negotiations on limiting the prices of Russian oil reached a deadlock today.

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Economy

EU talks on restrictions on Russian crude oil prices today stalled

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russian crude oil price today

Negotiations between the European Union countries about the “ceiling” of Russian crude oil prices today reached an impasse; Bloomberg reported, according to its sources.

Representatives of the bloc cannot reach an agreement on the ceiling price of Russian oil. According to the agency, the proposed European Commission limit of $65-70 per barrel, Poland and the Baltic countries believe “too generous,” while Greece and Malta, which is actively engaged in transporting fuel, do not want the limit to fall below $ 70. Recall that the Russian response to the oil price cap was negative. The Russian government has officially said that it will only sell oil at market prices.

“We are looking for ways to make this solution work and we are trying to find a common ground to implement it in a perfectly pragmatic and efficient way, while avoiding that it may cause excessive inconvenience to the European Union,” said German Chancellor Olaf Scholz.

Earlier, we reported that the SEC fined Goldman Sachs $4 million for non-compliance with ESG fund principles.

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