S&P 500 falls back under 4400, eyes weekly lows as Russia/Ukraine/NATO tensions escalate

• US equity markets were under pressure on Thursday, with all major US indices dropping more than 1.0%.
• Markets fell as Russia/Ukraine/NATO tensions continue to escalate against the backdrop of uncertainty about the timeline of Fed tightening.
• The S&P 500 fell 2.0% to back below 4400.

US equity markets were under pressure on Thursday, with all major US indices dropping more than 1.5% on the day as Russia/Ukraine/NATO tensions continue to escalate against the backdrop of uncertainty about the timeline of Fed tightening. The S&P 500 shed 2.0% to drop under the 4400 level once more, with the bears now eyeing a test of Monday’s lows in the 4360s, while the Nasdaq 100 dropped 2.9% and the Dow dropped 1.8% to hit fresh lows for the week in the 34,300s. The S&P 500 CBOE Volatility Index rose over three points to the mid-27.00s but was still substantially lower than Monday’s highs at 32.00.

Renewed fighting broke out on Thursday between Russia-backed separatist forces and the Ukraine military in the Eastern Ukraine Donbas region as NATO leaders continued to sound about a potential Russian invasion as the country continued to amass troops. Meanwhile, Russia released its response to US security proposals, criticising the country for not taking its concerns seriously and expelled the US Deputy Ambassador from Moscow. NATO leaders warned that Russia is looking to find a pretext/excuse to take military action against Ukraine and investors are fearful of how any subsequent NATO sanctions against Russia might impact the global economy.

Against the backdrop of already high inflation and further warnings from hawkish Fed policymaker James Bullard on Thursday that the Fed should prepare for the possibility of longer-lasting inflation, the risk that Russian commodity export bans trigger a fresh round of global inflation is a worrying prospect. Further Fed speakers will orate on Friday, including influential policymakers including Fed Vice Chairwoman Lael Brainard and NY Fed President John Williams. Traders will be on the lookout for anything that might suggest the Fed is willing to go big with a 50bps rate hike in March, after the minutes of the latest Fed meeting (released on Wednesday) contained no such bombshells.