Spreadex Market Update
Stocks rebound, oil rallies again after US bans Russian oil
A short-covering rally is helping lift stocks with more peace talks planned for tomorrow, and on news that Europe intends to wean off Russian oil gradually.
- The US bans Russian oil imports, and Britain will phase them out across this year, Europe will take longer
- Gold surges on stagflation fears and safe-haven flows
- EUR/USD rises ahead of tomorrow’s ECB meeting
European bourses are set for a more positive start to trading today after another wild and choppy session yesterday and as risk aversion takes a breather.
News that the EU was considering a joint bond issue to raise finance for energy and defence spending appeared to sit well with investors, pulling European indices off session lows to close almost flat. Comments from Ukrainian PM Zelensky that he is open to exploring other options, which are not NATO are also helping the market mood.
Despite surging oil prices, stocks are set to head higher today after the US banned all Russian oil and oil product imports. Meanwhile, Britain said it would phase out Russian oil imports across the year. It’s worth keeping in mind that the US gets no gas from Russia and around 7% of its oil and the UK around 4% of its gas and 8% of its oil from Russia. Meanwhile, Europe gets 40% of its gas and 27% of its oil from Russia, highlighting the bloc’s massive dependency on Russian energy, which will take time and investment to wean off.
Following the announcement from the US, oil prices jumped to $130, and upward pressure is likely to remain amid ongoing supply fears.
Gold
Markets remain volatile as investors continue to jump from headline to headline and struggle to confidently price in the fallout from Russia’s invasion into Ukraine.
Gold is one of the big winners from the elevated levels of uncertainty and the expected jump in inflation from higher energy prices. The yellow metal closed over $2000 for the first time in 19 months and has continued to power higher to a near-term peak of $2069, $ shy of its record high of $2072.49
With safe-haven demand showing no signs of waning and stagflation fears set to continue, the precious metal could be on track to take out $2075. Chinese inflation came in hotter than expected, helping Gold higher, a similarly hotter than forecast reading for US inflation tomorrow could see Gold reach a record high this week.
FX
EURUSD is heading higher for a second straight session, buoyed by the improved market mood as more peace talks are scheduled on Thursday. However, the common currency could struggle to make any serious headway higher given the likely economic hardship it faces and ahead of tomorrow’s ECB meeting.
Interestingly the Canadian dollar’s positive correlation with oil appears to have broken down in recent sessions. While oil prices soared to the highest level in 14 years, the loonie fell to its lowest level versus the US dollar this year.
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