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Market Wrap
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Maybe the market can sense a Russian defeat or a tactical withdrawal from the Ukrainian capital city Kyiv. As prices of precious metals declined today and the United States dollar jumped against a basket of currencies including the Japanese yen. In-person negotiations between Kyiv and Moscow are being scheduled to take place later this week after comments from the Ukrainian leadership said that they would be open to some of Russia’s demands in return for guaranteed security.
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The S&P500 is trading below its opening price at the London close but did find support at last Thursday’s highs, so I am going to predict a further rise into the US session close as equities could push higher on the softening rhetoric out of Ukraine and Russia. The next target for the S&P500 would be 4600, and the leading stocks like Tesla which have gapped higher today are likely to be the stocks that lift the entire index.
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Germany along with the rest of the G7 headed up by the UK, is going to refuse to pay for the gas and oil in Roubles and tell Russia to fulfil their contracts. So, it will be interesting to see if the flows completely stop on Friday or not. Russia has drawn a red line at the end of March. In one of the many headlines about Russia today, Russian rail freight has stopped delivering to Finland. This is notable as one of the only routes left for Russian oil is via rail.
The price of crude oil futures continued to fall on Monday, dropping more than 6% as worries about the demand for crude grew.
In addition to the negative sentiment, there has been a strong reaction against China’s zero-COVID policy since the more readily transmissible Omicron coronavirus has spread in some of the country’s largest cities. Chinese policy will keep shutting whole areas down as they try and contain the spread of the disease. One of the companies that will suffer under the 4-5 lockdown as authorities go about testing everyone will be the Tesla factory.
The US goods trade dropped by 0.9% to $106.6 billion in February, according to a preliminary report by the Bureau of Economic Analysis.
In President Joe Biden’s 2023 federal budget released today, he proposes higher taxes for the ultra-wealthy and corporations, while increasing spending at the Defence Department and the Justice Department by billions of dollars.
The proposal sent to Congress calls for a reduction in the deficit of more than $1 trillion over the next ten years. It will be paid for in part by raising the corporate tax rate from 21% to 28%, a rate favoured by progressive Democrats, but opposed by key moderates. In addition, Biden proposes a 20% minimum tax on the top 0.01% of earners and households worth more than $100 million. For those that follow the US budget increases, this proposed $1trln reduction would not even return the budget back to 2020 levels.
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After dropping 1.5%, the Japanese yen found support when USDJPY bounced off 125.00, marking the yen’s lowest price since August 2015. Following the Bank of Japan’s intervention, which offered to buy an unlimited amount of government bonds (JGBs), the bond yields have fallen below its key target. The Japanese central bank (BoJ) repeatedly said it is committed to maintaining the ultra-loose monetary policy, while the US Federal Reserve signalled openness to tightening monetary settings more aggressively to keep high inflation from getting entrenched.
