Risk appetite remains limited as the war in Ukraine intensifies. The price of US crude eased below the $110 per barrel yesterday then jump back above $114, on reports that smoke was visible from a nuclear power plant in Ukraine. Although the rising hope that a nuclear deal with Iran could unlock the potential of the Iranian all, and bring some 800’000 barrels of additional oil per day, the latter may not be enough to reverse the positive course of oil prices.
Fundamentally, just a week into the war, two thirds of Russian oil is struggling to find buyers. Some businesses don’t want to do business with Russia as the reputational risk of doing business with an aggressor became too high, and some simply try to cut exposure to the Russian oil as early as possible and to find alternative suppliers in fear and in preparation of future sanctions on Russian oil.
The barrel of US crude could advance toward the $1450/150 if the tensions in Russia doesn’t ease.
The market mood is deep red. The European stocks continue feeling the pinch of an escalating war, as the US major indices remain under a decent selling pressure, with the fading optimism about Jerome Powell’s announcement that he would back a 25bp hike in March meeting.
The S&P500 fell 0.53% yesterday as Nasdaq slid more than 1.56%, and futures traded in the red during the overnight trading session, hinting that there may not be relief before the weekly closing bell.
Investors are unlikely to open or to hold a long position without putting a hedge on it. This is why we shall continue seeing a solid demand in the safe haven gold in the coming days, the price of an ounce consolidates above the $1930 mark this morning.
Commodities perform well in the actual war-shaken market environment, as well, given that the disruptions to the Russian and Ukrainian supply push the commodity prices higher, from grains to industrial metals.
However, if the things get bad enough to push investors to close their positions, then the US dollar would be, by far, the best hedge.
Bitcoin is giving back the early week gains as it becomes clearer by the day that it won’t be a hassle-free safe haven to investors, as the Western forces are going after the coin to impose strict regulations to prevent Russians from going around the sanctions that are imposed to them. The price of a coin is headed toward the $40K mark, and it’s likely we start seeing Bitcoin trade parallel to the risk assets yet again.
We are the first Friday of the month, and investors will keep an eye on the US jobs data. Released Wednesday, the ADP report showed almost half a million job additions in the US last month, while the consensus for the nonfarm payrolls is a solid 400’000.
Does it really matter? No, not if we don’t see a very surprisingly low figure. What will really matter is the average hourly earnings which is expected to have risen to 5.8% year-on-year, and which would be the strongest since 2007, except from two pandemic-distorted data points in 2020.
Rise in earnings means a higher and a more sustainable pressure on inflation, which calls for higher interest rates, but the potential to boost the Fed hawks remains limited, as, although Jerome Powell made clear that the Federal Reserve’s (Fed) priority is to fight inflation, no one really knows how bad the war will impact the global economic growth, and to which extend it could get the Fed to change its plans about tightening its policy. For now, we stick with a 25bp hike in March.
