In general, there is a strange picture on the market at first glance. The hysteria of the Western media around the situation in Ukraine should have collapsed not only the Russian stock market, but also the European and American ones too. The anticipation of the Fed's interest rate hike, due to kick off on March 16 as a result of this event, should also have reinforced these negative sentiments. But this is not happening. Why?
We can explain this state of affairs by investors' understanding that, in principle, the non-proliferation of the military conflict in Ukraine to other neighboring territories, as well as the "iron" promise of the United States and, as a consequence, NATO, not to participate, at least for now, will not put practical pressure on the economies of Western countries and not only on them. There is a noticeable pressure on the markets now in the form of uncertainty of the option of further development of events. That's why we don't see what seems to be a logical collapse of the markets.
The second issue, which appears to have become less significant, is the marked decline in the more aggressive ability of the U.S. central bank, the Federal Reserve, to raise interest rates. If earlier, before the events in Ukraine and the rise in energy prices, the market believed that the Fed would vigorously raise rates, then the reasons described above can fully put pressure on the Central Bank and force it to smoothly raise rates by 0.25%. For example, earlier it was believed that in any case the first increase would be immediately by 0.50%.
Assessing this, investors believe that a gradual increase in the cost of borrowing will not cause serious damage to demand for company shares, as well as economic activity in America. In addition, geopolitical tensions will contribute to the inflow of capital into the U.S., which will also support interest in the shares of American companies, primarily.
Summing up, we believe that in the near future, the dollar will remain strong, and stock markets will nervously move up and down, remaining under the pressure of high volatility.
