Crazy commodity moves: it’s not just oil and gas markets going parabolic; yesterday saw multiple sigma moves in nickel prices as it jumped over 70% in a single day. Prices are higher again today at $81k from about $25k a week ago. The LME has suspended trading for at least the remainder of the day. Wheat is higher again, too. European nat gas prices are mooning. This commodity squeeze will lead to margin calls and liquidations, we just don’t know many are hedged the wrong way. But what if talks yield results and Putin calls his troops back to end sanctions? A tail risk, for sure, but what if? There would be some considerable volatility as markets repriced. So far, the talks are not getting very far; the shelling continues. As long as Russia keeps up the attack it’s stagflationary.
After spiking, oil futures have pulled back. Brent rose above $139 before settling at $123.21 per barrel, its highest since July 2008. It’s around $125 this morning, with WTI around $121. Chatter about a Russian fossil fuel ban drove prices higher, but it became evident throughout the session that Germany was not about to get on board. But Russia might start to take their own action - Russia’s deputy PM said "In connection with...the imposition of a ban on Nord Stream 2, we have every right to take a matching decision and impose an embargo on gas pumping through the Nord Stream 1 gas pipeline.” Elsewhere, gold holds $2,000 and that MACD crossover trigger was bang on again.
European stock markets reacted to surging crude by slumping, but closed well off the lows as the crude gap filled and indices are firming up today, led by banks. The FTSE 100 is close to 7,00 this morning, having hit a low of 6,788 yesterday. The DAX trades above 13,000 having been at 12,438 yesterday at the lows. So some recovery here as the immediate threat of cutting off all Russian oil and gas seems to be diminished, but the stagflation story remains. German inflation-linked bond yields plunged to record lows. An important gauge of the market's long-term eurozone inflation expectations climbed to 2.2%, this morning, the highest since January 2014. The EU this morning apparently mulling a joint-bond sale to fund energy and defence – EUR up, stocks pushed higher and bunds down on the headline. Let’s see how they wrap up arms manufacturer stocks as ESG…
The S&P 500 closed down almost 3%, its worst day since October 2020, the NASDAQ down 3.6% to enter bear market territory. Spec tech still getting hit hard – ARK Innovation ETF (NYSE:ARKK) down over 3% to $58, over 50% below its all-time high. “Downside risk remains most acute over the next 6-8 weeks,” Morgan Stanley’s Michael Wilson told clients. “We are firmly in the grasp of a bear market that is incomplete in both time and price … Any relief should be sold … We recommend staying defensively oriented by running less risk than normal and searching for companies with superior operational efficiency and earnings stability.”