Wall Street rebounded in March even as worries grew over Ukraine and inflation. / European leaders again reject Russia’s demand that gas deliveries be paid in rubles.

 

March 31, 2022

Updated

April 1, 2022, 1:39 a.m. ET4 hours ago

https://www.nytimes.com/live/2022/03/31/business/economy-news-opec-inflation

 

4 hours ago

Daily Business Briefing

 

Wall Street rebounded in March even as worries grew over Ukraine and inflation.

 

Stocks rose 3.6 percent in March, after the S&P 500 rebounded sharply from its lowest point of the year.

 

European leaders again reject Russia’s demand that gas deliveries be paid in rubles.

Regulators raid companies involved in natural gas in Europe.

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The Fed’s favorite inflation gauge climbed 6.4 percent in February.

Rising wages could help prolong inflation.

 

Wall Street rebounded in March even as worries grew over Ukraine and inflation.

By Coral Murphy Marcos

 

Inflation accelerated, Russia’s invasion of Ukraine grew more intense, the Federal Reserve started to cool down the economy and some investors began to wonder if a recession is looming.

 

The stock market, though, managed to end March with a gain.

 

The S&P 500 rose 3.6 percent for the month, snapping back after stocks had plunged to start the year. The turnaround means that the S&P 500 has clawed back more than half of its losses from the lowest point of 2022, when it was down 12.5 percent.

 

This turn of events is a somewhat predictable reaction to Wall Street’s worst stretch of selling since the beginning of the coronavirus pandemic. The rebound came as stock investors realized that their worst fears about the economy hadn’t materialized, analysts said. The economy continued to show signs of strength in the face of new challenges, and the Fed’s long-awaited plan for interest rates fit in neatly with investors’ expectations. And many businesses said they were able to deal with record inflation by passing rising costs along to consumers — boosting their profits in the process.

 

“People realized that the fundamentals behind a lot of the stocks are really not that bad and that companies are still extremely profitable,” said Victoria Greene, chief investment officer at G Squared Private Wealth, an advisory firm.

 

“Hard corrections like we had in January and February tend to be like strong summer storms,” she said. They are “intense but tend to pass quickly.”

 

That’s not to say that financial markets are completely sanguine about the state of the world. If the Fed proves too aggressive in its effort to contain inflation, or if it suddenly shifts its plan, the central bank could spook investors in risky assets like stocks. And the conflict in Ukraine, which has led to thousands of civilian deaths and the displacement of millions, adds a high degree of uncertainty.

 

On Thursday, for example, the S&P 500 ended with a loss of 1.6 percent after tumbling in the final hours of trading. For the first three months of the year, the index ended down 5 percent.

 

But the panic that gripped stock investors earlier in the year has certainly eased. That’s partly because several indicators showed that the American economy was still faring well. Employers added 678,000 jobs in February, and a report for March to come on Friday was expected to show that the robust pace of hiring has continued. That employment growth is keeping consumers spending even as prices shoot higher.

 

Businesses have capitalized on this consumer behavior. As they reported results for the end of 2021, companies like Starbucks and McDonald’s said they raised prices, boosting revenue without seeing a reduction in demand.

 

The fallout from the war in Ukraine also lifted shares of some companies. As oil prices surged, major oil producers rallied. The best performer among them was Occidental Petroleum, which climbed about 30 percent in March and has risen 47 percent since the invasion began on Feb. 24. The defense company Lockheed Martin is also up more than 13 percent since the start of the war.

 

Investors also bid up shares of some of the biggest technology companies, after share prices were hammered amid the panic over whether high interest rates would squelch interest in risky investments. Apple climbed 15.9 percent from its lowest point in March, while Tesla rose 40.6 percent. Because of their size — Apple’s gains have lifted its valuation to close to $3 trillion again — the big technology companies can carry the entire S&P 500 higher. Alphabet, Microsoft and Meta were also higher in March.

 

Wall Street’s gain this month came even as the Federal Reserve raised interest rates in efforts to ease inflation by making borrowing costs more expensive. The central bank rolled out its first quarter-point rate increase in the middle of the month and projected six more increases this year. With inflation already running at its fastest pace in 40 years, and after the Fed signaled that it was teeing up a rate increase, investors expected the move.

 

But last week, the Fed’s chair, Jerome H. Powell, spurred new concerns when he said that the Fed was prepared to raise rates more quickly if necessary. Economists are worried that a more rapid approach in raising interest rates could lead the economy into a recession by slowing down consumer demand too much.

 

“The fear is that it’s always hard to know how many rate hikes will just slow the economy or whether it may go a bit too far and tip the economy into a recession,” said Franziska Palmas, a markets economist at Capital Economics. “There’s so many things going on in the economy that it’s not that easy for the central bank to calibrate exactly the right amount of tightening.”

 

As stocks rallied though, it was the bond market that signaled rising recession fears by narrowing the difference between short-term interest rates and long-term ones. In a growing economy, short-term interest rates are usually notably lower than long-term ones. For example, at the start of the year, the yield on 2-year Treasury notes stood at 0.78 percent, while the yield on 10-year Treasury notes was 1.63 percent.

 

Now, the two interest rates are nearly the same at about 2.3 percent. This type of move usually indicates that investors anticipate a slowdown in growth in the near future.

 

“If investors as a whole believe that interest rates will be flat or lower in the years ahead relative to today’s rates, it suggests the markets are pricing in a weakening economy,” said John Canavan, lead analyst at Oxford Economics.

 

Those predictions of a slowdown ramped up as oil prices soared, raising the prospect that inflation could persist. Oil prices surged above $130 a barrel as Western countries imposed sanctions on Russia, a major oil producer, and businesses suspended their operations in the country. The United States banned imports of Russian energy, and European nations pledged to gradually follow suit.

 

But oil fell off those highs, and that helped bolster stocks. By Thursday, after the Biden administration said it would release up to 180 million barrels of oil from its strategic petroleum reserve in the coming months, global oil prices stood at around $108 a barrel.

 

European leaders again reject Russia’s demand that gas deliveries be paid in rubles.

Melissa Eddy Patricia Cohen

By Melissa Eddy and Patricia Cohen

 

European leaders on Thursday pushed back against President Vladimir V. Putin’s latest threat that all natural gas imported from Russia must be paid for in rubles starting Friday — or risk having the supplies shut off. Mr. Putin said in a TV address that companies purchasing gas from Russia would need to open ruble accounts in Russian banks, effective Friday, and pay for the gas through those accounts.

 

“If such payments are not made, we will consider this a default on the part of buyers — with all the ensuing consequences,” Mr. Putin said. “Nobody sells us anything for free, and we are not going to do charity, either. That is, existing contracts will be stopped.”

 

At the same time, Mr. Putin said, Russia will comply with its “obligations” in its contracts with energy buyers and “continue to supply gas in the established volumes.”

 

It was unclear how the standoff would be resolved. At stake for European nations are vital supplies of natural gas that drives their economies. For Mr. Putin,  it is the hundreds of millions of dollars that Russia pulls in every day in energy payments by Europe.

 

Mr. Putin’s insistence on being paid in rubles — instead of taking dollars or euros and converting them to rubles on his end — has been rejected by European leaders. It has also raised questions about his real motives. The Russian government and central bank have already taken several measures to increase the demand for rubles and prop up the currency, which plunged in value after sanctions froze the Russian central bank’s foreign assets.

 

The heads of state of two of Russia’s largest gas customers in Europe — Chancellor Olaf Scholz of Germany and Prime Minister Mario Draghi of Italy — refused the call for payments in rubles, saying it was not part of the terms of existing contracts.

 

“It remains the case that companies want, can and will pay in euros,” Mr. Scholz told reporters in Berlin on Thursday, a day after he spoke with Mr. Putin by telephone about the impending decree.

 

“It is absolutely not easy to change the currency for payments without breaching the contracts,” Mr. Draghi told reporters in Italy. A former president of the European Central Bank, he drew a parallel to a previous attempt by the European Union to impose its currency in a series of global transactions, with little success, given the challenges of altering existing contracts.

 

He added that he did not believe that Europe was “in danger” of having its gas deliveries shut off, citing his own phone call with Mr. Putin on Wednesday, in which he said he understood that the Russian president had granted a “concession” to European countries. The conversion of payments from dollars or euros into rubles was “an internal matter of the Russian Federation,” Mr. Draghi said.

 

“Contracts are contracts,” said Bruno Le Maire, the economy minister of France, after meetings in Berlin.

 

Robert Habeck, Mr. Scholz’s minister for the economy and energy, repeated the insistence of the Group of 7 industrial countries that existing contracts for Russian gas must be respected. “It is important for us not to give a signal that we will be blackmailed by Putin,” he said.

 

On Wednesday, Mr. Habeck activated the first step of a national gas emergency plan — that could lead to the rationing of gas — to prepare Germany’s citizens and its powerful industrial base for the possibility that gas deliveries could be stopped.

 

Both Germany and Italy have been scrambling over the past month to diversify their natural gas resources, after years of depending heavily on imports from Russia. Last year, Russian imports accounted for 55 percent of Germany’s gas needs, while roughly 40 percent of gas burned in Italy came from Russia.

 

With his demand, Mr. Putin seems to be seeking to force Europe and other buyers to violate their own sanctions by making them purchase rubles, which would also prop up the Russian currency, said Eswar Prasad, an economist at Cornell University.

 

“Putin seems determined to show that he can dictate terms and force countries that are dependent on his country’s natural gas exports to sing to his tune,” he said.

 

Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics, said that “it seems Putin’s motivation is to prevent hard currency payments from being frozen,” so he is requiring the money to be delivered directly to Russian banks.

 

Anton Troianovski and Gaia Pianigiani contributed reporting.