It’s been quite a flat start to the week in equity markets, with Europe posting marginal losses or gains.
There’s been so much to absorb in recent weeks and while there remains an enormous amount of uncertainty – be that Ukraine/Russia negotiations, commodity prices, inflation, interest rates etc – it may be that investors are taking a step back, re-evaluating and awaiting the next catalyst.
Given how things have progressed this year, we probably won’t have to wait very long for that. Central banks over the last couple of weeks have made their immediate positions very clear in that they won’t waver if the face of heightened geopolitical and economic risks. The BoE did hint at potentially slowing down but broadly speaking, I expect the upcoming commentary to align with what we heard.
It’s perhaps a little surprising to see the moves in commodity markets not having a bigger impact on sentiment but then, as the rebound has shown, there remains a strong interest in stocks. Whether that’s a buy-the-dip mentality hangover from the last decade or so or a belief that the sell-off was overdone is hard to say. But we may see more resilience in the absence of a significant escalation in tensions between Russia and the West.
Oil prices surge as EU threat resurfaces
Oil prices are surging again on Monday amid reports of the EU considering an embargo on Russian imports and as Saudi oil facilities are targeted, threatening outages. Saudi Arabia has reassured markets that contingencies are in place to ensure all contracts are fulfilled but further attacks could change that. It may also make ramping up production more difficult, not that they’ve shown much willingness to do it.
The EU reports are the most concerning but I struggle to see the bloc following through on it, given the enormous reliance of certain member states on Russian oil. They may agree on a phased approach that will cut off Russian oil over a period of time but the details of that will determine what kind of a reaction we see in the markets.
Gold edges higher as strong support remains
Gold prices are rising a little at the start of the week but remain quite stable compared to what we’ve seen over the last month or so. We appear to be seeing some consolidation after a very volatile period as we await more insight on the inflation picture which will determine the central bank response. As already mentioned, their positions have become quite clear over the last couple of weeks so it’s a case of waiting to see what changes.
There is the safe-haven element as well which, along with high inflation, should ensure gold remains well supported. There remains enormous uncertainty around the invasion of Ukraine, what Russia’s ultimate intentions are, whether a ceasefire can be agreed upon, and how much further the West will go with sanctions. Against that backdrop, it’s hard to imagine gold correcting too much further, with $1,900 providing a floor last week.
Bitcoin remains rangebound
Bitcoin is slipping on Monday as it continues to consolidate in a tight range. Over the last few days, it’s continued to find resistance around $42,400 but now it’s starting to slip back again. It could see some support around $40,000 where it recovered from late last week but ultimately, as with certain other markets, it seems to be lacking direction and a strong catalyst at the moment so we may just have to be patient.
