By Geoffrey Smith
Investing.com -- U.S. stock markets opened mixed to lower on Monday, as fresh warnings from Federal Reserve officials over the pace of monetary tightening took the steam out of a relief rally that followed comments suggesting that war between Russia and Ukraine isn't imminent.
Futures had pared their overnight losses after Russian Foreign Minister Sergey Lavrov told President Vladimir Putin that there was still a way forward for diplomatic engagement. That followed a sternly worded warning from G7 Finance Ministers threatening "massive and immediate" consequences for the Russian economy if it sends its military across the border. Russian warships are currently closing off a large part of Ukraine's coastline with what it says are naval drills.
However, comments from St. Louis Fed President James Bullard ensured that the market's focus remained on the prospects for inflation and interest rates this year. Bullard, who last week said he wanted official rates to rise by a full 100 basis points by the start of July, told CNBC that: “I do think we need to front-load more of our planned removal of accommodation than we would have previously. We’ve been surprised to the upside on inflation."
Earlier, The Wall Street Journal had reported Kansas City Fed President Esther George repeating her view that the Fed needed to start selling down its $9 trillion bond portfolio as a way of tightening monetary policy without resorting to too many official rate hikes. Richmond Fed chief Tom Barkin meanwhile had told Sirius XM (NASDAQ:SIRI) radio that the Fed's reaction function would depend largely on what happens to service prices, which had shown signs of inflation pressure broadening to include a much greater cross-section of services in the last two months.
By 9:40 AM ET (1440 GMT), the Dow Jones Industrial Average was down 120 points, or 0.4%, at 34,618 points. The S&P 500 was flat however while the NASDAQ Composite, which had underperformed on the way down during Friday's rout, was up 0.3%.
The market had appeared set to open still under the shadow of the University of Michigan's Consumer Sentiment survey, which had shaken confidence in the strength of U.S. consumption on Friday. The survey's main index had fallen to its lowest level since 2012 on a combination of high inflation and the fading effects of pandemic-era stimulus.
"Spending and sentiment are not the same, especially when households are sitting on trillions of dollars of pandemic savings, but it’s hard to be very positive about the near-term outlook for retail sales when sentiment has fallen so far, so quickly," said Pantheon Macroeconomics chief economist Ian Shepherdson in a note to clients.
It was a quiet start to the week on a micro level. Advance Auto Parts (NYSE:AAP) stock fell 1.4% despite reporting earnings ahead of expectations, while defense giant Lockheed Martin (NYSE:LMT) stock fell 1.9% after bowing to regulatory pressure and dropping its bid for rocket engine maker Aerojet Rocketdyne (NYSE:AJRD). Rocketdyne stock fell 3.9% but had already fallen some 20% in expectation that the deal would fail. The development is the latest sign of the Biden administration taking a more aggressive line in stopping industrial concentration, and follows similar resistance to mergers in sectors as diverse as chipmaking and railroads.
One of the few stocks making outsize moves was south-east Asian multi-app company Sea. Sea Ltd (NYSE:SE) ADRs fell 14% after the government of India banned its Garena Free Fire game for download owing to security concerns and the Chinese origins of the game's code. Free Fire accounts for some 10% of Sea's gaming revenue according to some estimates, but gaming in general - and the optimistic assumptions built into its further growth - have been a key part of Sea's valuation.