Weekly Trading Update 04.03.2022

Week AHEAD of March 7

Potential market impacts and fallout from sanctions on Russia drove the markets and could be the theme of upcoming important interest rate decisions.

Week in review

Stock markets generally retreated but remain well off their lows as risk sentiment deteriorated with the escalation of the Ukraine war.

WTI crude hit a 14-year high of over $118/bbl as more sanctions were applied to Russia from Western nations. In particular, buyers were loath to sign delivery contracts from Russia, worried that further escalations would mean the supplies wouldn't arrive. Crude retraced down to $110/bbl since its peak.

Meanwhile, OPEC+ stuck to its program of modest production hikes despite the high prices. There was a concerted effort to release 60M barrels of oil to control prices, but that didn't stop ICE Brent futures from rising to $120/bbl. However, it now trades around $110/bbl.

Outside of oil, other commodities that Russia normally exports – notably aluminium – are skyrocketing amid a coming supply crunch.

The Ukraine situation has seemingly permeated monetary policy with Fed Chair Jerome Powell calling the war a "game-changer" during testimony before Congress. He later said that commodity prices would push inflation higher but was quite specific saying he would only vote for a 25-basis point hike in March – though it is possible he is out-voted.

The week ahead

The second round of negotiations between Russian and Ukrainian representatives didn't reach any conclusions. The two parties agreed to meet again next week when potentially more than just a humanitarian corridor could be discussed. What everyone wants is a ceasefire.

More and more companies have vowed to withdraw business from Russia, which would likely continue next week, potentially weighing on market optimism. Ukraine is likely to be the main driver of risk sentiment.

ECB Meeting

The major economic event is likely to be the ECB's monetary policy meeting. The Pandemic Emergency Purchasing Program is expected to run out this month without the bank renewing it. The consensus is that the ECB won't end its other quantitative easing program in light of the risk associated with the war to the east. EURUSD continues to fall towards $1.10.

With a US rate hike penned in – and Europe taking the brunt of the economic fallout from Russia’s invasion of Ukraine – EUR/USD crumbled to its lowest since H1 2020.

Data points to watch out for

China reports its trade balance on early Monday, followed by inflation on Wednesday. The US does the same, reporting trade balance on Tuesday, inflation data on Thursday, and then Michigan Consumer sentiment on Friday.

The major US event is the CPI release. The Dollar Index will get closer to 100 if inflation is upbeat. Inversely, 97.50 makes support. Friday is also when the UK reports January's GDP figures. Cable's price action remains mixed between $1.3450 and 1.3270.

On the corporate front

Earnings season is effectively over, but a few names of note are expected to report next week. Those include Fresnillo and Greggs on Tuesday, Tullow Oil and Prudential on Wednesday, with DS Smith and Balfour Beatty on Thursday.