Weekly Market Overview | 11 March 2022
As mounting pressure continued this week from global onlookers for policymakers to put more pressure on Vladimir Putin, President Joe Biden announced a ban on Russian fossil imports, including oil, in response to the country’s invasion of Ukraine.
While Russia views this as an act of aggression and plans to work on a broad response to these sanctions that will be swift and felt in the West’s most sensitive areas, the effects on the global oil price will undoubtedly be felt by consumers in the form of soaring energy, gasoline and food prices.
As predicted in our newsletter last month, the demand for the yellow metal as a safe haven has caused it to touch the $2 000 mark per ounce, as investors continue to withdraw from risk assets and emerging markets, into the US Dollar as well as gold. On a technical analysis of the chart itself, combined with the fundamentals in terms of the continued geopolitical uncertainties, we could see gold extend its gains well into this $2 000 territory and find strong support around the $1,955 mark, where new buyers will most likely enter the market and define this zone as a new higher-low fair-value price, in relation to the rally that will ensue now that we are trading into the $2 000 area.
Treasury yields spiked amid increased volatility on Wednesday morning, with the benchmark 10-year note adding close to 1.85%, as inflation fears led investors to offload bonds from their portfolios.
In terms of Stocks, U.S Futures were buoyant at the London Open, as investors continued to assess a surge in commodity prices and high inflation while the war in Ukraine continues. Futures that are linked to the Dow Jones Industrial Average rose by 1.1%, while S&P 500 futures climbed by the same amount together with the tech-heavy Nasdaq 100 futures.
As gasoline prices hit their all-time highs in the United States at $4.17, the highest price since 2008, energy and food prices are sure to follow suit and it remains to be seen if the Federal Reserve will be able to manage a soft economic landing to avoid an economic recession.
European stocks and shares saw a rebound on Wednesday morning as investors bought at price levels that were significantly lower as the market took a beating amid the uncertainties that sparked fears about growing Western sanctions on Russia after it invaded Ukraine.
The pan-European STOXX 600 index rose 2.6% after a four-day run of losses, and London’s FTSE 100 gained 1.6%. Meanwhile, the DAX futures contract in Germany traded 1.2% higher and the CAC 40 futures in France climbed 2.1%.
On the back of these mixed results, the ECB is set to meet on Thursday, with chief Christine Lagarde likely to prove that a lid can be kept on euro-area inflation, which has already leapt to a bigger-than-expected 5.8% – the highest figure in the bloc’s two decades.
As Europe plans to taper off its oil imports and the U.S bans fossil fuel imports from Russia, the loss of Russian oil will undoubtedly leave a void not easily filled in the global market and will cause significant pressure on global production, which will take time to ramp up to pre-pandemic levels again.
This is creating the perfect storm of factors that are keeping the price of oil at record highs as the U.S. and other major buyers will compete for limited supplies, creating a higher demand than is able to be supplied which could potentially create upheaval unseen in decades. On the back of the U.S ban, crude oil rose by 7% to trade above $128 per barrel. It ended the day 3.6% higher at $123.70. Brent crude oil, the international benchmark, jumped 7.7% to $132.75, before trading off the highs. At the end of the session on Tuesday evening, the gains stood 4.3% higher at $123.21.
While Ukrainians and Russians switch to an alternative for international transactions, bitcoin and other cryptocurrencies temporarily gained some value this week as financial sanctions continued on Russia.
However, this exuberance was short-lived as price retreated and is now, at the time of the writing of this article, resting at $39 212,20 per Bitcoin, and seems to be held in consolidation between roughly $45,000 and $35,000 and has been doing so for the last two months. This pullback from record highs comes as investors withdraw their money from risk assets and reinvest it in safe havens like the US Dollar and Gold. Market analysts are in agreement that the technical overview, as well as the fundamentals, aren’t pointing to any particular directional bias, but a seasoned investor is prepared for either scenario. If we see a break above this Consolidation area above $46 000 then we would be heading to retest the all-time highs around the $60 000 mark, but a break below the $36,754 support level could be the catalyst to a crash to $30,000 or $23,251.
The Optimal Play
As global tensions don’t seem to be subsiding anytime soon, a measured approach is still the best course of action in the current financial climate. Exposure to the World’s reserve currency, the U.S Dollar is still the safest bet and will continue to strengthen as the fundamentals keep pushing the Dollar Index even higher since the beginning of 2022.
With rising global inflation, global supply chain bottlenecks, record-high oil prices coupled with the sustained conflict in Ukraine, the U.S Dollar will only continue its rally as investors keep their Risk-off sentiment which reinforces the conviction that now is a good time to contact Aluma Capital to gain exposure to the U.S Dollar as it continues to surge.