Connect with us

Markets

Markets Today – Ukraine, Russian Gas, US Yield Curve, Oil, OPEC+, Gold, Bitcoin

Published

on

gold bars - Investors King

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

Stock markets are giving back some of their gains on Wednesday, as scepticism grows around Russia’s intentions following yesterday’s announcements.

Reports on Tuesday suggested we’re finally seeing a de-escalation in Ukraine, as Russia indicated its intentions to scale back certain military operations. While that was initially viewed as a first step towards a ceasefire, it wasn’t long before doubts started to creep in which weighed on sentiment once more.

All we’re seeing here is cautious optimism with a healthy sprinkling of scepticism. We’ve all watched how the last couple of months have unfolded so no one is going to get too excited until we see troops leaving Ukraine and a full ceasefire agreed upon. Until then, anything is possible.

Furthermore, the Kremlin’s decision to demand gas payments in roubles and threaten similar actions on other commodities that “unfriendly nations” rely upon risks stoking shortages and recessions whether they are true to their word in Ukraine or not. The economic war now at play between Russia and the West will continue to play a key role in the markets.

As long as troops remain in Ukraine, it’s hard to see how a compromise is found. Russia has long sought to position itself as a reliable supplier of natural resources but there’s little difference between changing the terms of the contracts and banning exports. In the absence of a ceasefire, at least one side must blink or all will suffer.

Of course, this all depends on when those demands are implemented. The Kremlin has this morning stated that rouble payments for gas will take time to take effect, which could buy Europe time to search for alternatives and top up reserves. If that’s the case, the timeline ultimately becomes key.

In the meantime, there’s no shortage of other things for the rest of us to fret about. There is a cost of living crisis upon us after all. High inflation and higher interest rates pose an immediate threat and if the bond market warnings are to be believed, recessions may await us.

Now for the caveat of course. There’s no guarantee with these indicators and the 2’s and 10’s remain uninverted in any case. There are parts of the US yield curve that are but that’s not a clear signal in itself. Then there’s the question of reliability, especially against the backdrop of a decade of the yield curve being manipulated by quantitative easing, pushing down the longer end of the curve. With central banks poised to start aggressively reducing their balance sheets, what impact will that have?

I’m sure none of that will put people’s minds at rest if inversions take hold and deepen. Especially against the backdrop of an economic war with Russia and much higher prices. But as it stands, the economic indicators still look healthy and point to more of a slowdown than a recession. If that changes, it’s still worth remembering that not all recessions are equal. As Russia is about to discover.

Oil recovers ahead of OPEC+ meeting

Oil prices are heading higher once more on Wednesday as the prospect of a ceasefire being close quickly faded and the economic war between Russia and its “unfriendly” trading partners ramped up. There’s seemingly no end in sight for increasingly tight oil market and should Russia expand its rouble demands beyond gas and the West tighten sanctions, prices could get much higher.

OPEC+ won’t provide any relief, even if it were capable of doing so. Its failure to hit the output targets its set itself is part of the problem. And those that could instead choose to stick by the alliance which claims to be apolitical while turning a blind eye to tight markets and high prices.

Gold steadies amid Russia doubts

Gold briefly dipped below $1,900 on Tuesday as risk appetite was boosted by supposed developments in Turkey but as that enthusiasm faded, so did the sell-off. It is now relatively flat on that day and back around $1,920 where it has hovered around for most of the session. We could continue to see risk dictate the moves in the yellow metal ahead of Friday’s jobs report, at which point the focus may temporarily shift back to inflation.

Bitcoin to continue higher after breakout?

We’re seeing further profit-taking in bitcoin on Wednesday following the surge and breakout earlier in the week. The near term continues to look positive after a prolonged period of consolidation, with Monday’s breakout no doubt grabbing widespread interest. Plenty of barriers to the upside remain, including $50,000 and $52,000, while key support below falls around $45,500 having been such strong resistance this year.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Continue Reading
Comments

Markets

Another Turbulent Day

Published

on

capital market - Investors King

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

It’s been another turbulent session after stock markets turned sharply lower on Wednesday as investors fret over the outlook for the economy this year.

Results from Walmart and Target this week have brought into sharp focus the plight facing companies and consumers as inflation begins to bite. And that’s in a country that is still performing relatively strongly with a consumer that still has plenty of savings built up over the last couple of years. Others are not in such a fortunate position.

But inflation is catching up and profit margins are taking a hit. Soon enough though, those higher costs will continue to be passed on and consumers will stop dipping into savings and start being more careful with their spending. There’s a feeling of inevitability about the economy, the question is whether we’re going to see a slowdown or a recession.

The language we’re seeing from Fed officials isn’t filling me with confidence either. We’ve gone from them being confident of a soft landing, to a softish landing and even a safe landing, as per Patrick Harker’s comments on Wednesday. I’m not sure who exactly will be comforted by this, especially given the Fed’s recent record on inflation and past record on soft landings.

And it seems investors aren’t buying it either. A combination of these factors and no doubt more has sent equity markets into another tailspin, with Wall Street registering another big day of losses on Wednesday and poised for another day in the red today. Europe, meanwhile, is also seeing substantial losses between 1% and 2%.

Oil slips as economic concerns weigh

Those economic concerns are filtering through to the oil market which is seeing the third day of losses, down a little more than 1% today. We were bound to see some form of demand destruction if households continued to be squeezed from every angle and it seems we may be seeing that expectation weigh a little as we move into the end of the week.

Meanwhile, China is reportedly looking to take advantage of discounted Russian crude to top up its reserves in a move that somewhat undermines Western sanctions. Although frankly, it would have been more surprising if they and others not involved in them didn’t explore such a move at a time of soaring oil prices.

Still, I expect Brent and WTI will remain very high for the foreseeable future, boosted by the inability of OPEC+ to deliver on its targets and the Chinese reopening.

Gold buoyed by recession fears?

Gold appears to be finally seeing some safe-haven flows as markets react strongly to the threat of recession rather than just higher interest rate expectations. The latter has driven yields higher and made the dollar more attractive while the economic woes they contribute to seem more suited to gold inflows, it seems.

It will be interesting to see how markets react in the coming weeks if the investor mindset has turned from fear of higher rates to the expectation of a significant slowdown or recession. And what that would mean for interest rate expectations going forward. Perhaps we could see gold demand return.

Can bitcoin continue to swim against the tide?

Bitcoin is holding up surprisingly well against the backdrop of such pessimism in the markets. Perhaps because it’s fueled by economic concern rather than simply interest rates. Either way, it’s still trading below $30,000 but crucially it’s not currently in freefall as we’re seeing with the Nasdaq. Whether it can continue to swim against the sentiment tide, time will tell.

Continue Reading

Markets

Inflation Hits 40-Year High

Published

on

inflation

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

European equity markets are a little flat on Wednesday, with inflation data this morning once again offering a reminder of the struggles that lie ahead.

Not that we need reminding given all of the data we’ve seen recently. And then there are the gloomy forecasts from central banks, with even the Fed now targeting a softish landing which feels very much like the stage before a mild recession. It may be time to buckle up and prepare for a very bumpy year.

Will BoE move to super-sized rate hikes?

UK inflation is running at a 40-year high and it’s not peaked yet as the cost-of-living crisis looks set to squeeze the economy into recession. While annual inflation came in slightly below expectations at 9%, pressures are broad-based and as the year progresses, it is expected to hit double figures.

There is still plenty more pain to come for households, most notably when the energy price cap increases again in October. But price increases are broad-based, as evident in the jump in core inflation to 6.2%. This comes as the Bank of England has warned of more pain and a probable recession, as it continues to aggressively raise interest rates in the hope of being able to catch up without inflicting too much harm in the process.

Like many other central banks, it has been heavily criticised for its misjudged faith in pandemic-induced inflation being transient for too long. And in the UK’s case, the problem looks far greater and more widespread, with Brexit effects compounding the problems and driving up prices. Can the BoE afford to continue raising rates so gradually, as markets expect with 25 basis points every meeting or will they be forced to join their US counterparts with super-sized hikes? Pressure is mounting.

Oil higher as China starts reopening

Oil prices are on the rise again as Shanghai takes a big step towards reopening following three days of no new cases in the broader community. Restrictions have been tight in many cities across China which have helped keep a lid on oil prices in this very tight market. But with activity now likely to pick up, crude prices could be on the rise once more.

Efforts toward a Russian oil embargo have failed, with Hungary continuing to stand in the way. That could be slowing the rally in oil still, as could US talks with Venezuela which may eventually lead to additional supply. Although ultimately, this comes at a time when major producers simply aren’t producing as much as they should. Russia saw its output fall by another 9% last month as a result of sanctions, which contributed to OPEC+ producing 2.6 million barrels below target, lifting compliance with cuts from 157% to 220%.

Gold looking shaky once more

Gold is a little lower on Wednesday, as the dollar strengthens once more following a few days of declines. We’ve seen a slight corrective move in the greenback which has eased some of the pressure on the yellow metal but we may be seeing that return already. Gold is currently trading a little over $1,800 and a break of it could trigger another wave lower as investors continue to factor in more interest rate hikes and therefore higher yields.

The path of least resistance

With risk aversion starting to creep back in, bitcoin finds itself back below $30,000 which may make some a little nervous. It was always going to be difficult for risk assets to significantly build on the rally in the current environment. What may be encouraging to some is that we haven’t seen a sharp reaction to the move back below such a key level. Of course, that could quickly change with below appearing to offer the path of least resistance.

Continue Reading

Markets

Further Pressure on Central Banks

Published

on

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

It’s been a relatively calm start to trading this week, with Europe a mixed bag at the close and the US a little lower.

The weaker Chinese figures overnight will be of some concern at a time of slowing economic activity around the world. Still, as has been the case so often in recent years, the lockdowns will have heavily distorted the data. With lockdowns priced in to an extent, the key will be how quickly restrictions are lifted and then how well the economy bounces back.

Stock markets have come under heavy pressure globally as central banks have been forced to become part of the problem rather than the solution, as has so often been their job in the past. We’ve become very used to easy monetary conditions but now we have a devastating combination of a cost-of-living crisis, looming recession, very high inflation and much higher interest rates.

And as we’re hearing so often now, policymakers understand the pain that households are feeling and will experience going forward but getting inflation back under control is the primary focus. Which means further pain ahead.

The BoE monetary policy report hearing reflected everything we’ve heard in recent weeks as the UK heads for recession and double-digit inflation. Bailey and his colleagues accept how bad the situation in the UK is and the scale of the task at hand but whether they’re doing enough to address it is hard to say. They were among the first to start hiking late last year but have still been criticised for starting too late.

Oil near recent highs after falling on Chinese data

Oil prices have recovered earlier losses that came in the wake of the Chinese figures. While lockdowns have been priced in over the weeks, the numbers were much worse than expected which weighed heavily on crude. While an EU ban on Russian oil suffered another setback as Hungary stood firm against it, the bloc is continuing to work on an agreement while Germany is reportedly planning to phase it out regardless, which could be helping to support prices today.

Oil is trading around $110, towards the upper end of where it’s traded over the last couple of months. China looking to ease restrictions could keep prices more elevated having contributed to them trading at more reasonable levels. A move above $115 in Brent would be interesting, with that having been something of a ceiling for rallies over the last couple of months.

Gold flat but remains under pressure

Gold is flat on the day after slipping this morning below $1,800 for the second time in as many sessions. The yellow metal has been very vulnerable to rising yields and a stronger dollar recently as central banks are forced into much more aggressive action. With the dollar remaining a hot favourite and pressure intensifying on central banks to tackle inflation, gold could remain out of favour for a while yet.

Bitcoin struggles at $30,000

An impressive rebound in bitcoin after breaking $30,000 may already have run its course, with the cryptocurrency giving up earlier gains to trade a little lower on the day. It’s spent a little time over the last couple of days above $30,000 but it is struggling to hang on to them. That doesn’t bode well at a time of risk aversion in the markets and such negative coverage of stablecoins following the Terra collapse. There may be more pain ahead.

Continue Reading




Advertisement
Advertisement
Advertisement

Trending