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Market Wrap
Russia is being shut out of the global economy, political discourse, and cultural events. The UK PM is calling for action to also restrict the use of SWIFT in international trade and monetary systems. So far, Russia has destroyed 211 military targets, captured several regions of Ukraine and taken the Chernobyl nuclear power plant as well as key dams and airports hostage.
In its semi-annual monetary report, the US Federal Reserve said, “it expects that raising the target range for the federal funds rate will soon be appropriate,” given the rise in inflation and a strong labour market. Despite the spread of the Omicron COVID-19 variant halting some sectors of the economy, “the slowdown is expected to be short-lived.” With so much volatility in the markets and the potential for another run on the Russian rouble debt markets, they are signalling they are the safe haven, but Eurodollar yields, and US Treasury yields are also signalling problems ahead if the Fed continues to hike rates.
In its report today, the Bureau of Economic Analysis reported that personal consumption expenditures (PCE) in the United States increased 2.1% or $337.2 billion in January, slightly above expectations.
The global indices are all higher today with the European bourses leading the way. The Russian RTX has jumped 20% but that is off the back off a very large collapse yesterday and it is still down nearly 30% for the week. Nasdaq is up 1% but the S&P500 and Dow are doing better.
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The forex euro versus US dollar cross is moving back to the 1.1300 level and signalling that whilst the fighting is contained to Ukraine the markets have priced in a Ukrainian regime change. If there is an escalation of violence and a more hostile take-over of the whole country removing Ukrainian sovereignty, I can’t see the West just accepting this, but the money is a good canary in the coal mine for how bad things are going to be. So far, the actions we’re witnessing are within the limit of acceptability.
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Gold has not yet removed the orders below yesterday’s low, so there is a chance that we still see higher prices into the close or early next week. I have marked up where I would expect to see resistance but that is predicated on yesterday’s low being swept first.
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The MSM is good at pushing higher oil prices, but they don’t give the bigger picture. So far there has been little-to-no disruption in the supply of oil and gas from Russia. There is a distinct possibility that more supply comes into Europe via Russian pipes, plus the Iranians are on the verge of being allowed to sell their oil to the West again. The market is also having to discount the fact that Russian oil is being offered at a discount and the Chinese will be buying as much of it as they can, which means everyone else loses market share unless they match the discount. This is becoming a buyer’s market and we could get lower prices assuming flows stay relatively high along with demand.
The ActivTrader sentiment indicator is once again a great contrarian indicator as 83% of traders are long the oil contract.
