Morning Brew March 21 2022
Senior Relationship Manager
Summary: Cautiious start into the week after the best for equities since 2020
After a strong close of the week and, equities lose steam this morning.
Last weeks strength seemed a bit counterintuitive given the news environment, it was the best week since 2020 for many indexes – despite the ending of QE, a hawkish fed and high energy costs.
Last week the S&P rose 6.2% the Dow 5.5% and the Nasdaq 8.2%, Friday contributed with 1.2%, 0.8% and 2.1% respectively. DAX trading around 0.618 retracement at 14,500. It needs to break above 14.555 for more upside to 15K
FX traded calmly on with EURUSD at 1.1040, GBPUSD at 1.3150, the USD Index at 98.40 and US 10 year yields rise to 2.18 as he probability of a50 BPS hike early may rises to above 50%. Gold and Silver trade at 1924 and 29.97. Bitcoin falls 2% to 41000. Implied volatility in Silver is trading at 30 for the 1 month ATM, peak in the Russian Invasion of Ukraine was 42.2 while the level before was 25.
Steel producer Salzgitter warns, the high energy costs are presenting a severe risks to business, I would expect this kind of news to become more frequent in the next days and weeks.
There was little outcome of the Biden/Xi talks but the situation also did not escalate further
This week has little to offer in terms of economic data, Wednesday the EU Consumer Confidence, International PMI on Thursday and Friday will be the most important data releases.
Talks on further sanctions against Russia will most likely dominate market sentiment with key Nato players considering sanctions on Russian energy. That would be a severe escalation and Frances Macron made clear it was an option for him.
Ole Hansen is cautious on commodity and Oil prices in the Weekly commodity outlook:
Brent crude oil completed a historic three-week 85-dollar roundtrip which took the price from around $97 to $139 and back, thereby returning to pre-war levels. The correction from a near 14-year high was driven by Russia/Ukraine talks and a temporary Covid-related drop in Chinese demand, and traders reducing positions due to extreme volatility. The weakness in our opinion may prove premature, with lower supplies from Russia increasingly being felt over the coming weeks, more than offsetting any temporary Covid-related slowdown in Chinese demand. The beginning of the US rate hike cycle, however, will add to global growth concerns which despite several months of supply shortfalls may prevent a renewed spike in oil prices towards the recent high, but with the risk premium almost removed the market will be left vulnerable to any deterioration in the Russia-Ukraine situation.