Joint decision from the US and the UK to ban the Russian oil sent another shockwave to commodity prices yesterday.
The European natural gas prices spiked to the all-time-highs and crude oil rallied to $130 mark, but the rise was manageable, confirming that the embargo on Russian oil was already, widely priced in. Therefore, the market reaction to the Russian oil ban hints that the upside potential may be exhausted in the short run.
In the medium to long run, we may see an advance to the $140/150 range if the war in Ukraine continues. Yet, a sustained move above these levels would bend the global recovery, hit the global demand and trigger a meaningful downside correction to more affordable levels.
Still, I wouldn’t short oil now, as the positive trend is very strong and swimming against such a strong tide could hurt. What happened in nickel trading yesterday is a warning that short-selling while the fundamentals point strongly to the topside is a highly risky bet.
Day traders buy, hedge funds sell
Stock markets are highly volatile as uncertainties loom. The European indices rallied at yesterday’s open yet the gains remained short-lived. This is because the rallies are mostly driven by intra-day trades, whereas longer term investors are leaving the market; hedge funds and the like are reportedly cutting exposure and covering shorts as visibility became very limited.
The VIX index rises steadily, as the selloff in the stocks continue. The S&P500 started the day in the positive and ended 0.72% down, while Nasdaq lost some 0.30%. The US futures are flat, while European futures are in the positive, but the gains are fragile.
Joint bond selloff
What really boosts the optimism in the European markets is the news that the EU countries will be issuing a massive joint bond to finance energy and defense… so the European Central Bank (ECB) could potentially buy it.
Joke aside, the extra massive cash would add to the inflationary pressures in Europe and should, in theory, force the ECB to become more aggressive on its monetary policy despite the Ukrainian threat to the economic recovery.
The ECB hawks are therefore in charge of the market and the EURUSD is trading past the 1.09 mark since yesterday.
Safe havens in demand
The US dollar index consolidates a touch below the 99 mark, gold spiked to $2070 an ounce, and the current market environment justifies an advance to fresh ATH in the yellow metal. The next natural target for the gold bulls is at $2100 per ounce.
Constructive for Bitcoin
Bitcoin rallied early on Wednesday, after US Treasury Secretary Yellen accidentally published remarks revealing that Biden’s impending crypto order, which caused much fear and stress among the crypto traders, would take a constructive approach in regulating the digital asset industry. A constructive approach from the US would be a big step for the digital assets, as the regulation is one of the major risks to their valuation.
Bitcoin rallied past the $41K mark on news and we could see some more positiveness building toward the $45K in the coming hours.
