European Stocks Up 3%, US Stocks Rise for Second Day

Recently, the Federal Reserve's impending interest rate hike has already caused turmoil in the international financial markets. Coupled with sudden international geopolitical events, it raises even more concerns.

Under these circumstances, which assets are the safest, and which assets are most likely to yield higher returns?

01. Impact on the three parties

Once the war breaks out, tension affects the stock market. On that day, stock markets in Asia and Europe both fell sharply. However, the next day, it seemed that the sentiment had eased, and there was no further significant decline. The market fell so quickly the day before, and then there was a decent rise the next day.

Next week, whether the financial markets can calm down depends on the subsequent situation's impact and also on how the market assesses the potential losses for all parties involved in this event.

Russia had already begun to face economic sanctions as early as 2014. This time, it's just a more severe round of sanctions. Conversely, the United States needs to consider how to reduce the impact on its domestic economy, especially energy prices.

Prior to this, crude oil prices had already risen above $90. If crude oil prices continue to rise significantly in the future, it is believed that the high inflation in the United States will add fuel to the fire. At the same time, for manufacturing enterprises, the rapid increase in costs will inevitably affect profits and the economy.

As a result, the United States may have to slow down the pace of interest rate hikes.

Europe is even more heavily dependent on Russia's energy supply, so it cannot completely cut off economic dealings with Russia. The 40% increase in European natural gas prices on Thursday is a signal.

Therefore, Europe faces the same problem as the United States. Higher inflation makes the European Central Bank plan to raise interest rates twice this year. Now, inflation will only be higher, but there is a need to worry about the impact on the economy, and interest rate hikes have to be even more cautious.Russia had already been under sanctions from Western countries during the Crimean War, and the recent escalation of sanctions due to the Russia-Ukraine situation has had a significant impact on Russia's economy. Despite this, Russia still has the confidence to resist Western countries; not only does it possess a strong military force, but it also maintains good relations with developing countries and emerging markets. Even the strong measures from the West are unlikely to cause Russia to experience the turmoil it once did.

Currently, Russia's financial market is in good shape, and a recession is unlikely. Due to the rise in oil and gas prices, its accounts have remained in surplus for a long time. The Russian stock market plummeted on Thursday, but it rebounded on Friday, which also illustrates this point.

Of course, the sanctions also include prohibiting Russian banks from obtaining U.S. dollar financing, which has a significant impact on Russia. However, Russia's efforts to reduce its reliance on the U.S. dollar have already begun. Additionally, there is a ban on exporting high-tech products to Russia, but the impact on Russia is very limited because its technology is relatively independent.

02, Impact on Assets

It seems that the impact on the global financial market is relatively large.

Global stock markets plummeted (with some recovery on Friday), commodity prices surged, and the U.S. dollar exchange rate rose...

If the Federal Reserve raises interest rates, the global bond market and credit market assets will be revalued, and some financial institutions may face significant stock price declines and profit reductions.

The U.S. dollar exchange rate may continue to rise, while other currencies face a downward trend, and capital outflows from emerging markets.

Before the Russia-Ukraine situation eases, the price of precious metals will remain high, but after the event passes, they may face a significant decline.

Now it seems that the following types of assets require different response strategies.Currently, bonds in developed countries are susceptible to rising yields and falling prices due to interest rate hikes.

Secondly, commodities such as precious metals and energy resources require a cautious approach, especially since crude oil is already at a relatively high level, and gold has been in a downtrend, with no evidence yet to suggest it has broken out of this trend.

If the pace of interest rate hikes in the United States slows down and falls below expectations, the stock market will continue to rise amidst fluctuations before the mid-point of the interest rate hiking cycle, but the volatility will increase.