The first full week of April has kicked off with some worrying news out of Ukraine as Russian forces appear to have committed war crimes. The start of the new week triggered a new round of discussions in Europe about a new set of sanctions against Russia. As a result European shares opened lower in fears that the oil and gas sector might be targeted this time around. As the session progressed however some other versions of nw sanctions took center stage such as the inclusion into the list of sanctioned individuals of all United Russia party members.
With French elections around the corner, the euro gave back some ground against the US dollar as Marine Le Pen is seen catching up to Macron. Meanwhile, the long-awaited Hungarian election yielded no surprises, as Viktor Orban cemented his majority in the country’s parliament and got elected for a fourth term. The key news item this week is scheduled for Wednesday when the FOMC minutes will reveal the latest discussions at the US central bank.
Risk assets were broadly unchanged despite the worrying developments in Ukraine and the oil market continued to trade within recent ranges despite the strategic petroleum reserve activation from the US late last week. Gold and precious metals traded close to unchanged, as risk-perception continues to be on a tight rope between relatively lower oil prices and new lockdown measures in Shanghai, China.
Economic data highlights
Monday 4th April
· Eurogroup Meeting
Tuesday 5th of April
· Australian Interest Rates
· European and US Services PMIs
· Fed’s Brainard and Kashkari speeches
Wednesday 6th of April
· China Services PMI
· German PPI
· Fed Meeting Minutes
Thursday 7th of April
· Australia Trade Balance
· UK House Prices
· Multiple Fed Speakers
Friday 8th of April
· Canadian Employment Report
- War in Ukraine: potential Russian war crimes, could drive more sanctions
- Eurogroup to discuss sanctions
- FOMC meeting minutes key to USD and stocks
Rangebound trading has ensued on Monday morning after both positive and negative news from across the globe failed to provide enough impetus for break outs. While the ongoing Russian troops pullout from the Kiev region exposed prospective war crimes, Chinese authorities have introduced a full lockdown of Shanghai, demonstrating the pandemic could be far from over.
Energy Markets Rangebound
Oil got hammered last week as the US released its strategic reserves in the face of OPEC’s continuing reluctance to boost oil supplies to the market. With 1 million barrels of oil added to the market, and Russian storage rumored to be full, the persistently high price observed over recent months could come under some pressure, at least temporarily.
Lower oil prices could be positive for stocks, but in the context of the current economic backdrop that may not be the case. China introduced a full lockdown in the Shanghai region, demonstrating resolve to prevent the spread of the highly-contagious version of Omicron, named BA.2. Curtailing demand from China could be a drag on oil prices in the coming weeks.
US Dollar Key risk Event Set for Wednesday
The release of the FOMC minutes on Wednesday is likely to have a material impact on the value of the US dollar. The greenback is kicking off the week on a strong note with the market expectations set on continued strength into the Fed’s risk event. The euro continues to be on the backfoot as discussions about ruble payments for Russian gas are set to continue this week.
The Japanese yen is stable when compared to last week’s fiasco as most of the negative news from the Bank of Japan now appear to be priced in. this provides further impetus for the USD index with commodity currencies such as the AUD, NZD and CAD being the only ones that are holding their ground.
European Recession Averted for Now
The manufacturing sector sentiment numbers from Europe have been solid last week, even if a little weaker than expected. The services sector will provide some key impetus for the single currency and European stocks on Tuesday morning. While most of the Ukraine war price shocks are only starting to trickle down through the system, the current path of the EU’s economy remains on track for growth.
That said, ongoing inflation pressures are severely affecting sentiment indicators and consumers could be forced to delay spending in the coming months as price increases begin to hit their purchasing power. The European Central Bank has stated explicitly that it plans to embark on a monetary policy tightening path in the coming months, but it still is behind the US Fed which is on a more aggressive timeline.
As a result the EUR continues to remain under pressure as the market continues to digest the news flow from Ukraine and global energy markets.
Stocks Hitting Resistance Levels
Stock markets globally are flirting with levels last seen before the outbreak of the Ruso-Ukrainian war. While the monetary policy adjustments by the US Fed are more or less out of the way, the political tensions related to the war are most likely to be the key driver for equities going forward.
Increasing uncertainty about the length of the conflict is impacting price expectations for a number of both soft and hard commodities as well as supply chains across Europe. The coming weeks could provide more triggers depending on how the conflict evolves and whether Russia’s pullback from the Kiev region would translate into more assertive action on the Eastern front in the Donbass region.
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