Russia will be frozen out of the global economy
It has been a heavy day of fighting for the Ukrainians and foreign governments and organizations have been offering support and condemning Russia. The Russian Defense Ministry says they have accomplished all of their goals set out for Thursday. US officials are warning that the capital will fall in the next few days. Russian oil among other things is being refused as countries in opposition plan economic sanctions.
Russian forces have been parachuted into an airport 30km away from Ukraine’s capital city, Kyiv (Kiev). It would take the average person about 6.5 hours to stroll their way in. Russian forces or militia backed by Russia have taken over key dams in the south, they’re attempting to take the Chornobyl nuclear plant in the north as well as other key power stations and infrastructure. Russian President Putin has declared that Russia remains part of the global economy and that they intend not to damage the system but that he cannot predict further geopolitical risks. Along those lines, he said that he had no other option but to act as previous attempts to alter the situation were fruitless. By that, he is referring to Ukraine pushing for membership in NATO and as part of the European Union.
The US initial jobless claims came in better than expected though the previous week was revised slightly higher. The 4-week average has dropped quite considerably though.
The US EIA weekly crude stocks came in with a massive build compared to what was expected. Production remained the same as last week and Cushing was lower. If demand is decreasing, it may not last as Russian oil is being offered at a big discount as buyers pause purchases due to worries over sanctions. What US President Biden needs now is for Iranian oil to come on stream to get some supply shock fears squashed. Higher prices are great for oil producers like Saudi Arabia but terrible for getting re-elected if you are the US President.
The US is working on a plan to also release further stock from the strategic reserve but as we have stated before that is a short-term fix and won’t really bring the price of oil down. Especially with this much geopolitical turmoil.
The Federal Reserve is going to have a few decisions to make now, whereas up until a week ago they were full steam ahead for rate hikes with a possible 50bps on the cards. With what is happening in the global financials we’re more likely to get a moderated reaction. The US 10-year is now trading below the 2% level for the fifth consecutive day as we may see global benchmark yields drop further. The longer the conflicts in Ukraine go on the more aggressively we’ll see the buying of government debt.
According to a second estimate by the Bureau of Economic Analysis on Thursday, the United States' gross domestic product (GDP) increased 7% in the fourth quarter of 2021 over the same quarter in 2020. The original estimate was 6.9% GDP and for the whole of 2021, the US economy grew 5.7%.
As per my video today, gold retraced the majority of the move from this morning. The trend is higher but US traders would have wanted to reduce their potential risk exposure and will have pulled the price of precious metals lower via the Comex.
There could also be profit-taking as Brent spiked through the $100 per barrel level.
Although I still see lower prices to come in the DAX, the gap-fill today is indicative that there were buyers lying in wait for that price to get hit. A move back to yesterday’s low would be my preferred level to look for a short.
I must admit to not paying attention to the GBPUSD, but that has today reached a lower level of interest. The imbalance left behind by the impulsive during the run-up to Christmas has now been fully tested, with clearly some buyers waiting patiently for those levels to get tested again. The next level of significance will be around the 1.3500-1.3550 area.