The week starts with a 10% rally in US crude prices after the US Secretary of state Blinken said that the US and its allies now consider an embargo on the Russian oil.
The market mood is red, again, this Monday. Cutting off the Russian oil will increase the positive pressure on oil prices and will likely send the price of a barrel above $150 in the foreseeable future. The extended rally in oil and commodity prices will likely bring the European economies to ration consumption and weigh on the economic recovery and the corporate earnings in 2022.
Activity in European futures hint at an ugly start to the week. US equities are also poised to open in the red, yet losses could be more contained as the US economy’s exposure to Russian oil is significantly less than the European. While the Russian oil stands for 30% of European oil supply, the US economy imports only 3% of its oil from Russia.
Safe havens fly high
Bitcoin slipped below the $40K mark during the weekend, and the safe haven flows didn’t come to the rescue, whereas the traditional safe haven assets are heavily in demand since the opening bell, with the US dollar index preparing to flirt with the 100 mark for the first time since May 2020, and the gold hitting $2000 an ounce.
Ready to address the strong franc BUT
Swiss franc, on the other hand, sees very important safe-haven inflows. The euro-swissy fell below the 1 mark for the first time since 2015.
It’s hard to tell how the Swiss National Bank (SNB) will react to the sudden franc appreciation.
SNB Governing Board Member Andréa Maechler said that the bank is ready to intervene and address rapidly the strengthening franc, yet the strong franc also helps Switzerland fight back the globally spiking inflation. Inflation in Switzerland spiked above the 2% level for the first time since the subprime crisis, but the actual levels remain acceptable when compared to 5.1% in the Eurozone, and the expectation of an advance near the 8% in the US.
There will certainly be an effort to stop the franc appreciation near the 1 level against the single currency, however, if price stability is the SNB’s top priority, the Swiss policymakers may not get too aggressive on the FX front.