- Multi-year high commodity prices could dent global economic growth
- Spiking oil price puts energy import-dependent countries at severe risk
- Dollar strength continues
Key Events
On Wednesday, futures on the Dow Jones, S&P 500, NASDAQ, and Russell 2000 and shares in Europe recovered after whipsawing between gains and losses as traders remain concerned about the effect Russia's invasion of Ukraine will have on the global economy and specifically commodity supply as energy and materials prices soared.
Yields slipped as investors moved into safe haven sovereign bonds.
Global Financial Affairs
European stocks were marginally up after a poor performance yesterday. The STOXX 600 Index saw the same volatility seen in the US futures market. After rising and falling, prices recovered.
The pan-European benchmark may have completed a bearish pennant after topping out with a Rising Wedge.
Swedish telecommunications company Ericsson (ST:ERICb) dragged the sector lower after the U.S. Department of Justice declared the multinational did not adequately disclose its Iraqi operations.
The stock dropped 12%, extending the downside breakout of a top.
Earlier Wednesday, most Asian stocks were in the red. Hong Kong's Hang Seng dropped 1.84%, underperforming the region, falling to two-year lows, as lockdown worries and soft auto sales there exacerbated global inflation spikes, supply disruptions, and ongoing worries about the conflict in Ukraine.
Falling 1.68%, Japan's Nikkei 225 was the region's second worst performer, with electrical machinery and transport shares leading the selloff as the expectation of a global recession increases.
Also, while Asian companies are less exposed to the Russia-Ukraine conflict than their European counterparts, countries reliant on oil imports are nevertheless exposed to the rapidly rising price of the commodity, which increases costs, depresses business investment, and reduces consumer spending. Japan is among the world's top five oil importers.
The price of oil continues to skyrocket, hitting a new multi-year high ahead of an OPEC+ meeting after the IEA warned the war in Eastern Europe increased the risk to global energy security.
WTI crude jumped as much as 7.8%, crossing the $110 mark for the first time since Aug. 28, 2013.
Brent crude surged 7.64%, scratching the $113 level before retreating marginally, for the first time since June 27, 2014.
The price of Brent oil has broken free from a falling channel since the 2008 peak.
An array of commodity prices jumped the most since 2009, with wheat futures surging to a 14-year high and nickel rallying strongly.
A rush to protect capital boosted 10-year Treasuries, pushing yields lower, blowing out two continuation patterns.
However, rates found support above a huge symmetrical triangle between March 2021 and January 2022. We expect yields to bounce back up as long as this pattern holds, after the completion of a return move. However, higher rates will likely weigh on stocks.
The dollar extended a rally for the third straight day, challenging a bearish pattern.
The price has been finding resistance by an intraday high since Thursday of last week. Should the price close decisively higher, it will have blown out a Diamond top, which would likely propel the US currency higher along its previous rising trend, as marked by the rising channel.
Analysts expect Fed Chair Jerome Powell to signal that the Fed will continue with its plans to increase rates this month despite the war, as the US faces the worst inflation in four decades.
Gold retreated on both dollar strength and increased interest in Treasuries.
Technically, the yellow metal has been finding resistance by last Wednesday's intraday high. We expect the price to continue higher, having completed a massive symmetrical triangle that's been developing through all of 2021.
The rally in Bitcoin slowed after a two-day run, perhaps on dollar strength. There are also technicals affecting the mix.
The digital currency may be forming a small H&S continuation pattern, having completed a return move to a large H&S top.
Upcoming Events
- The European Central Bank publishes the Account of its Monetary Policy Meeting on Thursday.
- US initial jobless claims are released on Thursday.
- The ISM non-manufacturing PMI is printed on Thursday.
Market Moves
Stocks
- The STOXX 600 fell 0.4% but continues to waver
- Futures on the S&P 500 were little changed
- Futures on the NASDAQ 100 were little changed
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index fell 1.3%
- The MSCI Emerging Markets Index fell 0.8%
Currencies
- The Dollar Index rose 0.2%
- The euro fell 0.3% to $1.1094
- The Japanese yen rose 0.3% to 115.23 per dollar
- The offshore yuan was little changed at 6.3211 per dollar
- The British pound fell 0.02% to $1.3318 but is fluctuating
Bonds
- The yield on 10-year Treasuries advanced one basis point to 1.74%
- Germany's 10-year yield rose to -0.03%
- Britain's 10-year yield increased eight basis points to 1.20%
Commodities
- WTI crude was up 5.21% at $108.83 a barrel
- Brent crude rose 5.5% to $110.70 a barrel
- Spot gold fell 0.9% to $1,926.50 an ounce