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.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.