There is suddenly mayhem in the markets across the globe, and the Indian bourses too have gone into free fall almost on cue. Wall Street had one of its worst weeks since 2020. American stocks plunged on Monday with the S&P index down 11.3% from its record closing high on January 3. The tech-heavy Nasdaq too fell 4% as investors sold Netflix and other low-performing digital darlings. Two major triggers for the meltdown have been: one, the build-up of war clouds over Ukraine, with NATO forces on Monday saying they were committing more resources to take on a possible invasion of Ukraine; and two, concerns have been rising about the US Federal Reserve tightening its monetary policy, pushing up interest rates.
As liquidity dried up across the globe, and investors pulled out money from risky markets, the turmoil hit Indian shores too. The sell-off dragged down 2.6%, posting the biggest single-day drop in three months. Markets getting mauled may not just be a flash in the pan, but indicators of a longer term, weak underbelly. The negative risk sentiment in the international commodities markets reflected in oil prices too, with the latter falling 2% on Monday.
War is always bad for the economy, as the Ukraine crisis is telling us. Earlier, it was felt the US and its allies may keep out of the skirmish; but now President Joe Biden, being pushed to stand up for Ukraine, may have to militarily intervene in case Russia starts an invasion. Then, last week, the Nasdaq Composite Index closed 7.6% down for the week, the biggest fall since March 2020.
Peloton, Netflix and generally tech stocks and start-ups got a hammering as consumer appetite for these products dried up. Meanwhile, inflation has emerged as the new spoiler. Data showed retail inflation in India quickened to a five-month high of 5.56% in December amid soaring food prices. In the US, December prices climbed 7% year-on-year, the largest increase since June 1982. The same trends are seen in Germany and Canada. While war clouds may be the immediate trigger, these longer-term concerns will need to be tackled too.