For the past year or so (Figure1-2) the trading volume was reaching highs in correlation with the increases in news announcements. Whether it was when the Fed decided to start with its asset tapering process, the release of SPR by the U.S Administration, or when the bank of England decided suddenly to start increasing their interest rates.
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Figure 1: Dow Jones from Trading Central
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Figure 2: WTI from Trading Central
That being said, inflation was and will remain the main focus for investors and traders around the world for at least the upcoming year.
With higher inflation comes a higher probability to increase interest rates, and as a consequence stocks usually tend to decrease in value given the higher borrowing costs from the changes in interest rates.
This was proven once the Federal Reserve stated that it will most probably start with the rate hikes as soon as March 2022.
On another hand, usually, political turbulences have even higher effects on the markets and specific the U.S market, whereby whenever tensions escalate between 2 countries, we also witness big drops in the major U.S indices.
When talking about political tensions (Figure3) the topic automatically diverts towards the recent Russian-Ukrainian tensions, whereby as many as 100,000 troops remain at the Ukrainian borders waiting for orders from Russia.
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Figure 3: Source, Institute for the Study of War, CNN
What is surprising is that the major indices did witness (Figure 4) a decrease in value since Russian troops started aligning. However, the drops are weaker by approximately 20% of the drops that occurred when the Federal Reserve announced that it will be more aggressive in its Monetary Policy.
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Figure 4: Source CFI Metatrader 5, US30 Spot
This shows the huge impact of inflation and interest rates on the market today, which is backed by the unusual inflation rates that are almost quadruple the healthy levels of 2%.
Will Russia fully retreat from the Ukrainian borders? In case that occurs, will the major U.S indices recover further from the recent drops, or will the focus remain on the possible increases in interest rates in March?
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