01 Apr

The US announced a record release of its oil reserves, inflation in Europe at record levels

April 1, 2022

by JustForex

On Thursday, global stock indices fell amid fears of recession, and Russia’s invasion of Ukraine boosted sales. Oil prices fell more than $6 after the US announced a record release of its strategic reserves. The Dow Jones index (US30) decreased by 1.56% yesterday, the S&P 500 index (US500) lost 1.57%, and the NASDAQ technology index (US100) fell by 1.54%. Analysts see a stock market downturn over the next two quarters as record inflation in the US forces the Fed to aggressively raise interest rates, which will eventually lead to higher government bond yields, the rising dollar index, and lower stock indices. Investors need to balance their portfolios.

“The inverted Treasury yield curve is one of the signals that future US stock earnings will be disappointing,” said Nicholas Colas, co-founder of DataTrek Research. The inversion of the US yield curve is seen as a reliable signal that a recession may follow within a year or two.

The economic slowdown, rising inventories, declining demand, and lower household purchasing power will further reduce inflationary pressures in the second half of the year. As a result, the Fed will stop aggressively raising rates. Therefore, the new portfolio purchase agreement should be considered at the end of the third or beginning of the fourth quarter of 2022, but not earlier.

On Wednesday, European stock markets were mostly decreasing. Yesterday, German DAX (DE30) fell by 1.31%, French CAC 40 (FR40) lost 1.21%, Spanish IBEX 35 (ES35) decreased by 1.23%, British FTSE 100 (UK100) lost 0.83%. Following the negative inflation data from Spain and Germany, inflation data also showed a record price increase in France in March and increased to 7% year on year in Italy. Inflation data for the Eurozone will be released today. Analysts forecast an increase in inflation from 5.9% to 6.6% year on year. Reducing unemployment along with rising inflation are prerequisites for tightening the ECB monetary policy.

The US Treasury Department is considering imposing sanctions on any individuals or organizations involved in the aerospace, maritime, and electronic sectors of the Russian economy.

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Russia has banned entry to high-ranking EU and US officials responding to sanctions.

Putin said he had signed a decree on the rules of gas trade with unfriendly countries. They will have to open ruble accounts in Russian banks. Existing gas supply contracts will be terminated if buyers from unfriendly countries do not comply with the new payment terms. The new rules will take effect on April 1. Existing contracts for the purchase of Russian gas will be terminated if buyers refuse to pay in rubles. The UK, France, and Germany have already indicated that they are not going to pay in rubles for gas. Gas prices in Europe have accelerated and jumped up to almost $1450.

At the end of the meeting, OPEC+ will adhere to its existing plan to increase oil production. OPEC+ ministers see a balanced oil market, and the volatility is increased due to geopolitics. The next meeting of OPEC+ ministers will take place on May 5. After OPEC+ did not raise its production plan, the US said it would release 1 million barrels of oil daily from its strategic reserve for six months. In total, it is planned to release up to 180 million barrels over six months, which, if implemented, will be the largest release from the reserve since its creation in 1975. This step will limit the rise in oil prices.

Gold is rising again, but investors should be aware that gold is inversely correlated to government bond yields, the movement of which depends on the Fed’s monetary policy. As the Fed hikes rates aggressively this year, the dollar index and the government bond yields will rise, and gold and silver prices will fall. The current rise in gold is speculative amid rising inflation in the US and Europe.

The Russian ruble strengthened for the ninth session in a row, trading at about 83 rubles per dollar, while stocks jumped due to the removal of some restrictions on short-selling. The ruble’s exchange rate dynamics are currently created artificially. The currency, which was in free circulation until the end of February, is now governed by capital control, a ban on the purchase of cash dollars and euros, and other administrative measures. Analysts are confident that the Central Bank of Russia will not be able to maintain such a course for long.

Asian markets traded in negative territory yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.73%, Hong Kong’s Hang Seng (HK50) lost 1.06%, and Australia’s S&P/ASX 200 (AU200) ended the day down by 0.20%. China has decided to restrict visas for some US officials in response to US visa restrictions for some Chinese officials. Shares of Chinese company Baidu plummeted 7.5% due to the threat of delisting. The SEC warned Baidu of delisting from US stock exchanges due to audit data. A curfew has been imposed in Sri Lanka after protests over the economic crisis turned violent. Hundreds of protesters gathered near the president’s private residence in the Colombo suburb late Thursday night and were dispersed by police using tear gas and water cannons.

Main market quotes:

S&P 500 (F) (US500) 4,530.41 -72.04 (-1.57%)

Dow Jones (US30) 34,678.35 -550.46 (-1.56%)

DAX (DE40) 14,414.75 -191.30 (-1.31%)

FTSE 100 (UK100) 7,515.68 -63.07 (-0.83%)

USD Index 98.37 +0.58 (+0.59%)

Important events for today:
  • – Japan Final Manufacturing PMI (m/m) at 03:30 (GMT+3);
  • – China Caixin Manufacturing PMI (m/m) at 04:45 (GMT+3);
  • – Switzerland Consumer Price Index (m/m) at 10:30 (GMT+3);
  • – French Manufacturing PMI (m/m) at 10:50 (GMT+3);
  • – German Manufacturing PMI (m/m) at 10:55 (GMT+3);
  • – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+3);
  • – UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
  • – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+3);
  • – US Nonfarm Payrolls (m/m) at 15:30 (GMT+3);
  • – US Unemployment Rate (m/m) at 15:30 (GMT+3);
  • – Canada Manufacturing PMI (m/m) at 16:30 (GMT+3);
  • – US ISM Manufacturing PMI (m/m) at 17:00 (GMT+3).

by JustForex

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.


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