European indices kicked off the week on a positive note, and the US futures recovered losses after a red Friday, yet the news from Ukraine is worrying and the risk appetite is certainly not strong. The FTSE100 remains on the backfoot as the cheaper oil and commodity prices weigh on the miner-heavy British blue-chip index. Rio Tinto (LON:RIO) shed more than 200 points this morning, as Anglo American (LON:AAL) and Glencore (LON:GLEN) lost 145 and 30pts respectively.
US crude is down 3.45% despite the escalating tensions in Ukraine, and the negative pressure in oil prices is in play since the failure to break above the $130pb mark following the US and the UK’s announcement of a ban on Russian oil last week - a price action suggesting that last week’s highs factored in a major part of the bad news before they were announced. We may see a further easing, and the $95/100pb area should be closely monitored.
I still believe that the risks remain tilted to the upside, as the sanctions on Russian oil, the constraint supply from OPEC countries which are partly not willing to increase production and investment in fossil fuel that will be abandoned as soon as possible, and the news that the nuclear negotiations with Iran were suspended due to ‘external factors’, as tweeted by the EU foreign policy chief Josep Borrell. So, the Iranian oil is not what’s pressuring the oil prices lower this morning. But, one of the biggest arguments for the oil bears at this point is the fact that the energy prices went so high that it will slow down the economic growth, by a lower demand, and by an eventually more restrictive monetary policy.
Speaking of central bank policy, the Federal Reserve (Fed) is given close to 100% chance of raising the interest rate by 25bp this week, and there will probably be no surprise as the Fed is really not willing to rock the boat at this point. There is however a risk that we hear a hawkish statement given that the pressure on inflation won’t be easing anytime soon. The US Dollar is preparing to test the 100 mark, while the S&P 500 is now headed to a death cross formation on its daily chart.
The Bank of England (BoE) is also seen rising the bank rate, while the Bank of Japan and the Central Bank of Turkey are expected to maintain the status quo.
Elsewhere, the surge in nickel prices jeopardizes the optimism that rising fuel prices would quicken the electric transition. Tesla (NASDAQ:TSLA)shares closed the week below the $800 mark, and the downside risks prevail.
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