2022/03/09 (016) Column

Crude Oil Sinks 12%
Wall Street Consolidates Sharp Rebound
European Stocks Book Best Day in Two Years
German 10-Year Goverment Bund Yield Climbs Further


Crude Oil Sinks 12%
WTI crude oil sunk more than 12%, settling at $108.7 per barrel, registering its worst day since November 26th as US government appeared to make progress on securing more oil production from other sources. Iraq said it could boost output if OPEC+ asks and Secretary of State Blinken signaled that UAE would support increased production by OPEC+. Crude oil hit the highest since 2008 at above $130 this week amid fears of further supply disruptions and escalating sanctions, exacerbated by uncertainties about the possible return of Iranian crude to global markets. The US imposed an immediate ban on Russian oil and other energy imports and Britain said it would phase out Russian oil imports through the end of 2022. Moreover, private oil companies including BP and Shell said they were stepping back further from doing business with Russia, with Shell immediately halting all purchases of Russian crude and shutting its service stations.

Wall Street Consolidates Sharp Rebound
The major US stock indices closed with sharp gains on Wednesday, rebounding from multi-month lows as investors took advantage of recent sell-offs caused by the war in Ukraine, while weighing on cooled commodity prices, particularly oil. The Dow Jones added over 650 points to close at 33,258, while the S&P 500 ended 2.6% higher for its best day since June 2020 and the Nasdaq jumped 3.6% for its strongest day since March 2021. Technology stocks regained significant ground, led by Netflix (5%) after Wedbush upgraded the streamer’s title to neutral, while Nike (4.7%) carried consumer-related shares. Now, all eyes turn to the US inflation report for February, which might influence the pace of Federal Reserve tightening. Fed Chair Powell already pointed to a 25 basis point rate hike but opened the door for a more aggressive move if inflation does not abate as anticipated.

European Stocks Book Best Day in Two Years
Germany’s Dax jumped over 7% to close above 13,700, notching the largest daily percentage gain since March 2020 and the pan-European Stoxx 600 ended up 4.7%, recording its best day in two years. Investors have pilled into undervalued stocks after a sharp sell-off yesterday amid a backdrop of soaring commodity prices and the ongoing war in Ukraine. On the corporate side, Adidas surged over 13%, the most on the index, after the company reported that Q4 net profits climbed 33.6% to €202M and raised dividends by 10%, as the year ahead outlook looked upbeat despite the risk from the Russia-Ukraine conflict. Investors now await the highly-anticipated ECB meeting on Thursday for clues about the path of crisis-era stimulus, with tensions between the West and Russia over Ukraine clouding the outlook for policy.

German 10-Year Bund Yield Climbs Further
The yield on the German 10-year Bund surged to 0.19%, the highest in almost two weeks as investors continue to monitor the Russia-Ukraine conflict and as reports showed the European Union is considering a joint-bond sale to fund energy and defense spending. Investors also await the ECB monetary policy decision on Thursday and the release of its latest macroeconomic projections, with markets anticipating no changes in borrowing costs as the outlook of the bloc’s economy deteriorated following Russia’s invasion of Ukraine. Still, investors will be looking for hints on the likelihood of a rate hike this year as inflation is already running at record highs and is seen accelerating on the back of higher energy prices. Money markets are pricing a total of 28 basis points of interest rate hikes from the ECB before the end of the year.Dollar Eases Off Two-Year Highs
The dollar index bottomed around the 98.00 level, moving away from a nearly two-year peak of 99.40 touched earlier this week as investors dumped safe-havens assets in favour of equity allocations. The most pronounced selling activity was against the euro, a move triggered by reports that European Union countries were discussing common bond issuance to finance energy and defence spending. Now, all eyes turn to the US inflation report for February, which might influence the pace of Federal Reserve tightening. The ECB meeting on Thursday will also be a key driver for the foreign exchange market, with tensions between the West and Russia over Ukraine clouding the outlook for policy.