Sample Category Title

The S&P 500 extended losses as investors are wary of a global economic downturn.

On the daily chart, a brief rebound has met stiff selling pressure on the 30-day moving average (4410). In fact, this indicates that the bearish mood still dominates after the index fell through 4250. Buyers have failed to hold above 4230, leaving the market vulnerable to another round of sell-off.

4110 is the next stop and a bearish breakout could lead to the psychological level of 4000. 4320 is now the closest resistance ahead.

The euro recoups losses as shorts cover ahead of the ECB meeting. The pair’s fall below the major floor (0.8280) on the daily chart further weighs on sentiment.

The lack of support suggests that traders’ are wary of catching a falling knife. The RSI’s double-dip into the oversold area has led to profit-taking, driving the price up.

However, the rally could turn out to be a dead cat bounce if the bears fade the rebound in the supply zone around 0.8360. 0.8200 is fresh support when momentum comes back again.

The US dollar bounces back as traders pile into safer currencies at the expense of commodity assets.

The previous rally above the supply zone at 1.2800 has prompted sellers to cover. Then a follow-up pullback saw support over 1.2600, a sign of accumulation and traders’ strong interest in keeping the greenback afloat.

A breakout above 1.2810 could pave the way for an extended rise to last December’s high at 1.2950, even though the RSI’s situation may briefly hold the bulls back. 1.2680 is fresh support in case of a pullback.

• Commodities surge across the board, heightening fears about a global recession
• Crude oil hits $130 a barrel, gold soars past $2,000/oz, but dollar slightly softer today
• Selloff in euro and equities takes a breather for now after fresh lows

Markets seek respite as fighting continues

The fighting in Ukraine is intensifying and a third round of talks between Russian and Ukrainian officials has not led to much progress, but markets are nevertheless taking a breather from the recent turmoil on Tuesday.

Risk assets are seeing a tepid rebound in European trading, with reports that Russian forces are struggling to capture major cities in Ukraine after two weeks of shelling possibly raising speculation that Moscow may yet want to negotiate its way out of this mess.

The major European bourses are up between 1% and 3%, recouping some of the losses from three straight sessions of heavy declines. US stocks futures have also turned green after the S&P 500 slumped 3% yesterday.

Investors might also be hoping that a meeting between the two countries’ foreign ministers in Turkey on Thursday could yield a more positive result than the talks that have taken place so far.

In the meantime, however, there are no grounds for a sustained recovery in risk appetite as the situation remains highly volatile. With the US Congress moving to ban imports of Russian energy products, Russia on its part is threatening to cut off Europe’s gas supply via Nord Stream1.

Although that’s not very likely to happen unless European countries join Washington in restricting Russian oil exports, which they’re not ready to just yet, investors are no longer being complacent about how far this crisis can escalate.

Threat of more sanctions weigh on markets

The existing harsh sanctions on Moscow have already roiled commodity markets and there’s an elevated risk of even more punitive ones to come. Crude oil has skyrocketed to the highest since the height of the financial crisis in 2008.

Brent crude futures briefly surged to $139.13 on Monday and WTI futures touched $133.46 a barrel.

Other commodities of which Russia and Ukraine are a major supplier of such as wheat, corn, palladium and nickel have also seen their prices shoot up since the onset of the war, fuelling fears not only of even higher inflation, but also of a new worldwide recession.

The safe-haven gold is also rallying, smashing the $2,000/oz level yesterday to hit the highest since August 2020. The precious metal is extending its gains amid a slight pullback in the US dollar.

Dollar eases back, awaits CPI data

The greenback, along with its other haven peers, the Japanese yen and Swiss franc, have soared as investors have fled to safety during this chaotic period for financial markets.

The dollar was already on a roll, however, even before this crisis started to unfold, as investors were anticipating the Fed will have to hike interest rates aggressively to combat the spiralling inflation problem in the United States and cool the labour market.

The next CPI report is due on Thursday and could complicate things for Fed policymakers if inflation beats the estimates of 7.9% y/y.

Euro slightly firmer, all eyes on ECB decision

But the dilemma is even bigger for the European Central Bank as it has a tougher job of balancing growth with rising inflation given that the Eurozone economy is expected to take the brunt of the hit from the global sanctions on Russia.

The ECB meets on Thursday and could add to the euro’s downside if it opts against ending QE this year. The euro plummeted to a 22-month low of $1.0804 on Monday and fell below parity against the Swiss franc. It has bounced back against both currencies today, possibly with the help of SNB intervention.

The pound is also off its lows after it slid to a 16-month trough of $1.3079 earlier in the session. The aussie and kiwi, meanwhile, have been surprise beneficiaries of the Ukraine-driven risk aversion amid the commodities rally. But both antipodean currencies have eased off their highs today.

The US 500 cash index has recorded heavy losses over the last few trading sessions as negative pressures linger. Moreover, the 50-day simple moving average (SMA) is looking ready to cross below the 200-day SMA, increasing fears of a sustained bearish outlook. However, the index is currently trading close to its lower Bollinger Band indicating that an immediate upside reversal is not out of the equation.

The short-term momentum indicators are painting a negative picture too as the RSI is decreasing below its 50 neutral mark. Also, the MACD is found below zero and its red signal line, which indicates that the negative momentum in the price might be gaining further traction.

The bears seem to be holding control over the last few trading sessions. Should they manage to push the price below the June low at 4,137, selling pressures could intensify, opening the door towards the 4,106 barrier. A break below the latter could then pave the way towards the May low at 4,034.

On the flip side, if the bulls resurface, initial resistance might be found at the 4,270 level before buyers eye the 4,390 hurdle. A break above that point could send the price towards the region which includes the 200-day SMA currently at 4,474, the 50-day SMA and the 4,495 obstacle. Moving above this area could turn the fortunes around for the index, opening the door towards the September high of 4,550.

In brief, despite the fact that the latest downside move might be a bit overextended, the pair’s outlook remains bearish. For sentiment to change, buyers would need to break above the 200-day SMA.

Crude oil prices surged to the highest level in more than a decade. Brent, the international benchmark, rose to more than $123 while Western Texas Intermediate (WTI) rose to $120. These are significant levels considering that oil was trading at less than $15 in 2020. The main reason for this performance is that the USA and some western governments are actively considering sanctions on Russian crude. This will be a major development considering that Russia is the third-biggest oil producer in the world after the United States and Saudi Arabia. Natural gas and wheat prices also surged to record highs.

US equities joined other countries' stocks in a major sell-off on Monday. The Dow Jones index dropped by more than 400 points. The Nasdaq 100 and S&P 500 indices also dropped by over 1.50% while the CBOE VIX index rose by over 6%. Some of the biggest losers were companies in the financial industry like Bank of America and Morgan Stanley. Companies in the aviation industry like American Airlines and Delta also crashed. Firms in the energy industry like Schlumberger, Haliburton, and Baker Hughes rose by almost 10% as oil prices surged.

The economic calendar will be muted on Tuesday as investors continue watching events in Ukraine. In Europe, Eurostat will publish the second estimate of the European Union GDP numbers. Judging by the first estimate, analysts expect the data to show that the economy expanded by 4.6% in Q4 even though Germany was disappointed. The other important numbers will be the United States and Canadian trade numbers. The EIA will also publish the latest short-term energy outlook.

EURUSD

The EURUSD pair decline paused during the US and Asian sessions. It is trading at 1.0870, which was slightly above Monday’s low of 1.0800. On the four-hour chart, the pair moved below the 25-day moving average while the Relative Strength Index (RSI) moved slightly above the oversold level. The MACD is also slightly below the neutral level. Therefore, the pair will likely keep falling as bears target the next key support at 1.0800.

USDCAD

The USDCAD pair rose in the overnight session even as oil prices remained at elevated levels. On the four-hour chart, the pair moved to the 61.8% Fibonacci retracement level. It is inside the key support and resistance levels at 1.2648 and 1.2790. It also moved slightly above the 25-day moving average and has formed an inverted head and shoulders pattern. Therefore, the pair will likely have a bullish breakout in the coming days.

XNGUSD

The XNGUSD pair maintained a bullish trend because of the crisis in Ukraine. The pair rose to a high of 4.90, which is slightly below this week’s high of 5.17. The pair is along the 23.6% retracement level. It has formed an ascending channel that is shown in yellow while the MACD remained above the neutral level. Therefore, the pair will likely maintain a bullish trend.

BoJ Governor Haruhiko Kuroda told the parliament today that inflation expectations and wages growth in Japan are still low. Even if inflation exceeds the 2% target, "it's inappropriate to deal with by scaling back stimulus or tightening monetary policy," he said.

"If crude oil and commodity prices drive up inflation while wage growth remains slow, that would hit households' real income and corporate profits, and hurt the economy," he said. "Such conditions won't lead to sustainable achievement of 2% inflation."

Regarding global sanctions on Russia, Kuroda said, "the rouble and Russian government bond prices are falling sharply. We can't rule out the possibility debt payment from Russia could be disrupted. The chance of Russia defaulting on its debt cannot be ruled out".

EUR/USD

The single European currency continues to lose ground against the dollar. The support at 1.0800 has so far managed to hold off the bearish pressure, but the overall market mood remains negative. In case of positive news about the war between Russia and Ukraine, the trend could change and the bulls might return to the market. If that’s the case, then their first resistance is expected to be the level of 1.0907. The important news for this week, which is also expected to have an impact on the market, is the interest rate of the European Central Bank and Christine Lagarde’s press conference.

USD/JPY

The yen lost quite a bit of ground against the dollar, but unlike other major currencies, it has managed to move in a stable price range for the time being. A possible breach of the resistance at 115.70 would give the bulls a more serious advantage and enable them to test the next one at 116.15. That being said, the first resistance is more likely to hold off the pressure and so the currency pair is expected to return to the lower border of the support range at 114.50.

GBP/USD

The support at 1.3150 was overcome and the price of the currency pair manages to stay below it for now. In case the bulls manage to return to the market, their first goal would be to overcome the resistance at 1.3150. Having the negative sentiment in mind, the movement is more likely to continue downward, overcoming the established minor support at 1.3099 and moving towards a test of the next important support at 1.3072, as seen from the higher time frames. Their first goal should be to overcome the resistance at 1.3150. Have in mind the negative sentiment, the movement is more likely to continue downward, overcoming the established minor support at 1.3099 and moving to test the next important support available at longer time frames at 1.3072

EUGERMANY40

During the last session, the German index managed to recover towards the resistance at 13145. This turned out to be a correction, and after the opening of the U.S. exchanges, the sell-offs resumed, bringing the index down towards the level of support at 12557. A more pronounced bullish return is unlikely for now, even with the breach of the more important resistance at 13305. If the situation in Ukraine does not improve, then the bears will likely continue to prevail and will direct the index towards the support at 12430.

US30

Although the U.S. blue-chip index performed better than its European equivalents, its losses on Monday reached the support at 32700. There is little chance of a breach and a consolidation above 34040, however. Should this scenario play out, however, then it could be interpreted as a signal for a possible price increase, which is expected to end at the next resistance at 34523. At the time of writing the analysis, the price is located at the level of 32800, the trends remain negative, and in case of a breach of the support at 32700, the bears might be able to re-test the next support zone at 32350.

Markets

Same story, different day. Only this time, US risky assets underperformed compared to European peers. Wall Street opened lower and slid further throughout the session. Stocks finished 2.37% (DJI) to 3.62% (Nasdaq) lower. The S&P500 (-2.95%) closed around the 4198.70 support level (23.6% retracement of the complete recovery cycle). Equities in Europe had a dramatic start with the EuroStoxx50 quickly trading almost 5% in the red. Losses eventually were capped at 1.23%. Together with other indices including the German Dax, it still officially closed in bear market territory (>20% losses from cycle high).

Many commodities soared once again, sparked by reports of a possible Russian oil embargo by the US (and maybe its allies). Additional concerns arose late in the US session with Russia threatening to cut gas flows to Europe. The most notable price evolutions were (Dutch) gas futures which at some point rose 80% before paring gains to a still-impressive 18% in just one day. Oil extended gains as well. Brent finished at $123.21/b – the highest since 2012. Nickel skyrocketed an astonishing record 66% on a supply risk-driven short squeeze.

The moves jolted inflation expectations in the US and Europe. 10y inflation swaps in the former flirted with a record high to finish at 3.08% (+15bps). Europe closed at a 14-year high of 2.72% (+15bps). With real yields still in decline, nominal yield changes amounted to +3 bps (30y) to +7.2 bps (2y) in the US. The German curve saw a similar bear flattening, edging 1.9 bps (30y) to 5.7 bps (5y) higher. 10y yield support in the US and Germany at respectively 1.704% and -0.074% was tested but survived.

The dollar on FX markets held sway. Trade-weighted, the greenback surpassed the 99 barrier. EUR/USD came another step closer to the pandemic low in the 1.06-1.08 area (close at 1.0854). The CHF safe haven currency underperformed the likes of USD and JPY amid signals the SNB stands ready to intervene. For the first time in four days, the euro was able to rise against sterling though. EUR/GBP reversed course after losses brought the pair in proximity of the 0.82 big figure to finish at 0.8283.

The first thing that stands out from this morning’s Asian-Pacific session, is nickel’s meteoric rise part two. After searing 66% yesterday to 48000 USD/MT, prices in just a few hours of trading today are at an unprecedented 100k. Stocks trade 1-2% in the red. European markets are set for a dark red open (-3%). US yields give back early gains and the Bund future inches higher.

EUR/USD is pretty balanced. Commodity-driven currencies including AUD and NZD take a breather. The ongoing broad-based commodity melt-up stoking growth fears remains the key driver for markets for the time being. It will even dominate the ECB meeting next Thursday. As seen yesterday, rising inflation expectations could protect core bond yields’ downside. We remain cautious on EUR/USD’s short-term upward potential, both fundamentally as technically. The next reference is situated at 1.078.

News Headlines

NAB Australia Business confidence (13 from 4) and business conditions (9 from 2) improved substantially in February as the impact from the recent Omicron wave eased. The gains were widespread across several subindices of the survey, including employment (8 from -1) which is an important factor in the assessment of the RBA with respect to the start of policy normalisation. Purchase costs remained elevated, rising at a quarterly cost of 2.7% Q/Q. Rises in labour costs rose at the same speed of 1.7% Q/Q. Australian bond yields today rose substantially, but this was more due to broader inflation fears resulting from higher commodity prices. The 3-y yield  and the 10-y yield both rose 9 bps to 1.66%  and 2.23% respectively. Even so, the Aussie dollar this morning fell prey to profit taking after a good run of late, declining back below the AUD/USD 0.73 handle (0.7288).

In a speech to the Australian Financial Review Business Summit, Australian Prime Minister Scott Morrison said the pandemic illustrated that the country should become more self-reliant with respect to key manufacturing. In order to be less vulnerable to supply chain vulnerabilities, the Australian PM earmarked seven areas where Australia should build out manufacturing capacity, including pharmaceutical and protective equipment and semi-conductors.

Market movers today

Focus remains on the war in Ukraine and whether US and Europe will impose an oil and gas embargo on Russia. The EU Commission will lay out its strategy on how to reduce its dependence on Russian energy.

In Poland the central bank will announce rates. We and other market analysts are looking for a rate increase of 50bp, but the sharp drop in the Polish Zloty and the spike in gas prices add to already strong inflation dynamics and hence put the central bank under immense pressure to carry out a bigger rate hike.

On the data front we get German industrial production and US NFIB small business optimism index.

Norway releases the monthly GDP data.

The 60 second overview

EU to reduce its dependence on Russian gas: According to Bloomberg the EU will today present its new plan to reduce the bloc's dependence on Russian gas imports by up to 80% this year. The plan will include tapping of new gas supplies, increasing energy efficiency, higher LNG imports and new pipelines from suppliers outside Russia. Especially, the plan will recommend to boost LNG imports significantly. The plan should also include a framework for liquidity support for companies effected by the crisis and a suggestion that member states could tax extraordinary windfall profits of energy companies.

Extreme volatility in gas: Despite the market being aware of the EU plans to cut dependence on Russian gas the Dutch natural gas future jumped up to 64% yesterday in a day of extreme volatility. However, like oil the market calmed somewhat during the day up 'only' 4% though prices are still up 100% in March.

Russia may cut of gas supplies: However, the market have to brace itself for another volatile day as Russia late Monday said that it considers to cut natural gas supplies to Europe through the Nordstream 1 pipeline. The threat comes the day before the EU presents its plan on how to be less dependent on Russian energy. See Bloomberg story here.

Volatile energy markets: Oil prices open yesterday at an elevated level with Brent front-month contract trading as high as USD 140 a barrel. The move higher came after US Secretary of State Antony Blinken over the weekend said that the US and its allies are actively discussing an embargo on Russian oil. However, oil prices eased somewhat during the day as Germany said that they are against a ban on Russian oil due to its possible negative impact on the German economy calling Russian oil 'essential'. Hence, Brent oil ended the US closing at USD 125 a barrel. Oil prices have been stable overnight.

Inflation expectations: German 10Y break-evens were yesterday pushed higher by 17bp to a new record-high at 2.57%. The 2Y break-even rose a stunning 52bp to a record-high 4.77%. The significant jump in market inflation expectations drove nominal yields higher though most of the move came through real rates trading deeper into negative.

Other commodities also seeing wild price swings. Other commodities such as nickel and wheat prices also saw extreme volatility and significantly higher prices yesterday as the market is basically pricing a full boycott of all Russian exports and as exports from Ukraine remain insecure due to the war.

New sanctions: EU's Von der Leyen said yesterday that the EU continues to work on further sanctions on Russia, and Italy's Draghi says EU countries need to move quickly. For more see this Reuters story. Apparently European governments are ready for a new round of sanctions targeting ports, ships, more individuals as well as technologies used in military equipment. An announcement may come as early as today.

Equities: Equity markets were in a rollercoaster session on Monday, followed by an equally volatile session in the commodity space. European markets saw huge intraday-moves, with Stoxx 600 starting the session -4% lower only to recover to -1.1% at closing. Meanwhile, US markets slid deeper into red as the session dragged on, with S&P500 ending at -3%, Nasdaq -3.6%, Dow -2.4%, and Russell 2000 -2.5%. Another huge outperformance of defensives, with growth cyclicals selling off -4% while energy and utilities gained 1.5%. VIX rose to its highest level this year at 36.5. US futures point lower this morning as well, but much more mildly so in the ballpark of -0.5%.

FI: It was again a very volatile day in the European government bond markets where "geography" and "size" matters more than fundamentals as shown by the dramatic widening of spreads for countries "close" to Ukraine/Russia such as Poland and Hungary as well Austria and Finland. However, we are also seeing smaller EU countries such as Slovakia, Ireland and Portugal underperforming not only Germany but also France. More pressure will be added to Russian bonds as JP Morgan will exclude all Russian bonds from their bond indices.

FX: USD and JPY gained and NOK and SEK lost on a day which was characterised by large moves on commodity and equity markets. EUR/USD dropped firmly below 1.09 and EUR/SEK rose firmly above 10.80.

Credit: Rising energy prices and the war in Ukraine led to further spread widening yesterday. iTraxx Xover widened 21bp and Main close to 5bp. HY bonds widened 23bp and IG 10bp.

Nordic macro

Norway: We expect the Norwegian mainland GDP to grow by 0.2% m/m in January, boosted by the partial reopening of parts of the service sector but held back by high power prices undermining retail sales. However, as we already know that capacity utilization is higher than normal and that wage and price expectations have risen sharply, there is currently less focus on the strength of economic growth.