Stocks slip as oil prices continue to soar; Fed says rate hikes on track

India’s benchmark indices slipped more than 2 per cent in intra-day trading on Wednesday, tracking weakness in global markets, as rising global oil prices continued to rattle investors. Concerns about the worsening of inflation, disruptions in global supply chains, and a slowdown in economic growth heightened as the Russia-Ukraine war entered the seventh day. 

The Sensex fell as much as 1,227 points, or 2.2 per cent, before recouping some of the losses. The index ended at 55,469 with a decline of 778 points, or 1.4 per cent. The Nifty50 index, on the other hand, dropped to a low of 16,479, but managed to end the day at 16,606, down 1.1 per cent. Banking and automobile stocks fell the most, while commodity stocks gained.

Tata Steel rose 5.5 per cent, the most among the Sensex components. The BSE Metal index jumped 4.6 as prices of several commodities jumped to their highest since 2009, with the war threatening to disrupt supplies.

US stock indices, however, rose on Wednesday after a bruising start to the week, as Federal Reserve Chair Jerome Powell signalled the central bank would start raising rates this month despite uncertainties stemming from the Ukraine crisis. Powell reiterated the core Fed narrative that high inflation and an “extremely tight” labour market warrant higher interest rates, according to Reuters.

“Markets were expecting Russia to take over Kyiv within a week. But the war is getting longer, and prices are going up. More companies are cutting ties with Russia. One is not sure what kind of impact all of this will have on earnings,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.

Brent crude oil prices touched an intra-day high of $121.89 per barrel, the highest since April 2012, before paring some gains. Analysts said crude oil prices threatened to fuel inflation, widen the current account deficit, drive up bond yields and interest rates in India and, thus, impact macroeconomic stability.

India’s growth projections in the Economic Survey 2021-22 were made assuming crude oil prices at $70-75 per barrel. Meanwhile, some analysts are predicting oil prices to soar past $125 per barrel in the near term as the West looks to isolate Russia, a major energy producer.

Over the weekend, the West stepped up its sanctions against Russia and excluded some Russian Banks from the SWIFT system. US President Joe Biden during his State of the Union address said Vladimir Putin was isolated from the world more than he ever had been, and hinted at more economic sanctions ahead. Further, Biden said the US would be closing off American airspace to all Russian flights.

“Disruptions in Russian metals exports and, most certainly, Ukrainian food exports, are quickly combining to create a perfect storm in financial markets. I am still not ruling out a stagflationary shock to the world as the price it pays to bring Russia to its heel,” said Jeffrey Halley, senior market analyst, Asia-Pacific, Oanda.

Meanwhile, Russia stepped up its assault on Kharkiv, Ukraine's second-biggest city and continued its advance on Kyiv. Russia kept local stock trading closed for the third day, the longest closure since October 1998, as its sovereign fund prepared to buy battered stocks following the sanctions imposed by the West.  

The downward revision of the FY22 gross domestic product (GDP) forecast, from 9.2 per cent to 8.9 per cent, also weighed on market sentiment.

More than two-thirds of Sensex stocks ended the session with losses. HDFC Bank declined 3.6 per cent and contributed the most to the index’s losses, followed by ICICI bank, which fell 3.7 per cent. The overall market breadth remained mixed, with 1,606 stocks advancing and 1,741 declining.