Crude oil soaring, stocks down, goldat $2k – welcome to the new world order of stagflation and bear markets...I suppose this kind of inflation will wipe out the debt; the debt and the middle class.
Brent surged to a peak of $139.13 overnight as the US said it’s in active discussions with European partners about banning Russian energy exports. That’s about $8 below the all-time high of $147.50 set in July 2008. GS: A sustained $20 per barrel increase in oil will hit GDP in the euro area by 0.6%, and by 0.3% in the US. What about a sustained $40 increase? France’s finance minister Le Maire said the government is working on risk evaluation of cutting off Russian gas.
Self-sanctioning only removed so much from the market – many were/are still active in Russian crude and the gas is flowing as before. However, as previously argued, it was only a matter of time before we got to the point of banning Russian oil and gas because of the escalation in the conflict and targeting of civilians. Or at least got to the point of talking about it – which is enough for the front month to rip. Moving forward, if there is a ban, how do you turn it back on? That would mean longer-term repercussions and elevated pricing. If anything the back months need to catch up with the barrels-at-any-price action in the front month. We are already seeing a major oil shock that will reverberate for years. What happens next? Probably more strategic reserve releases – not that it will make much of a dent. Does the White House get US companies to increase production? Has Biden picked up the phone to the Saudis? There is some spare capacity but not much. Meanwhile, Russia is delaying the final agreement of a new Iran nuclear deal that would bring perhaps 500k-1m bpd to the market.
Commodities across the board are receiving panic-type bids – wheat(+7%),palladium (+8%), and, in particular, nickel (+24%) surging again. Expect prices to remain high and the action volatile. Russian and Ukrainian negotiators sit down again today but at the moment the limit seems to be setting up humanitarian corridors within the conflict zone. European gas prices surged to a new all-time high, trading about $470 a barrel of oil equivalent.
Stocks slumped – no other thing they can do in this environment as investors hit peak defensive. The FTSE 100 slid under 6,900...horizontal support to be found at 6,800. The DAX and Stoxx 50 entered a bear market, both down about 3%. Travel and leisure again are the hardest hit, along with construction and household goods – very much a cost input inflation reaction. Wizz Air (LON:WIZZ) and TUI (LON:TUIT) –12%. Banks all down by 4-5%, Stoxx Banks at lowest in 13 months...slower EZ growth now more than any Russia exposure. Basic resources and oil and gas sectors both +3% in early trade for obvious reasons...Shell (LON:RDSa) +5%, hence why London is outperforming European peers. Asian shares were all lower – the Nikkei 225 down 3%, China shares similar. US futures are seen lower...expect test of 4,200 for the S&P 500.
Meanwhile, Russia plans to disconnect from the external internet on March 11th...major cybersecurity risk.
Chicago Fed President Charles Evans said the US central bank should raise rates close to neutral, which implies seven hikes this year.
Not much in the way of data on the calendar today.