G7 Agrees on Russian Oil Sanctions

Global equities markets fall on growing recessionary concerns. Central bank tightening and rising inflation are hitting investor confidence, driving safe-haven demand for USD and pulling risk-currencies and commodities lower. 

Key Factors for Today

• Equities down on recessionary fears

• USD strengthens on safe haven demand

Coming Up

Light data sheet today, focus will be on BOE’s Saunders who speaks, along with:

• CAD building permits

• USD final wholesale inventories

• GBP BRC retail sales monitor

Equities Down on Recession Concerns 

Equities prices have come under heavy selling pressure in recent sessions. Both the FTSE and the DAX ended last week lower as recessionary fears weigh on investor sentiment. The DAX marked its fifth consecutive down week with price action amplified by chatter over a potential ECB rate hike in the offing. 

On the back of the Fed and the BOE both hiking last week, markets are increasingly concerned over the impact tighter monetary conditions and soaring inflation will have on economic growth. US and Asian equities have also been in the red as these fears become increasingly prevalent. In the UK, the FTSE managed to bounce a little on the back of solid earnings reports from the energy sector, namely BP and Shell.

USD Rallies on Safe-Haven Demand 

In FX, USD remains the leader of the pack. Plunging equities prices and growing recessionary concerns are driving safe-haven demand for USD. JPY remains subdued as growing monetary policy divergence between the BOJ and other G10 central banks continues to hit demand. Higher-beta currencies have come under pressure also as risk sentiment weakens further. EUR and GBP both weaker against USD though EUR is finding better demand on ECB rate-hike chatter which will help erode monetary policy divergence between itself and the Fed. 

Gold and Silver Struggle Under Firmer USD

Metals prices are suffering the weight of a firmer US Dollar also. Both gold and silver have struggled to find any upside while the USD remains so well supported. The hawkish outlook from the Fed, along with rising inflation, means gold in particular is likely to struggle near term. Silver prices have been additionally hurt by the fall in equities recently, particularly industrial stocks. 

Oil Prices Higher on Supply Issues 

Oil prices have managed to shrug off the impact of a stronger US Dollar. The market remains well-supported by continued tightness in supply. With global demand having increased heavily as economies transition out of the pandemic, supply issues have driven a strong rally in energy prices. The ongoing war between Russia and Ukraine is keeping upside risks in place also. 

Sanctions on Russian oil and EU plans to ban Russian oil within 6 months means that tightness in supply is likely to continue, if not worsen.  OPEC last week confirmed plans to stick with its gradual schedule of production increases. The group confirmed it will add 432k barrels this month, pushing back against calls to hike production at a faster pace.