| Amir Kahanovitz, Chief Economist, Phoenix-Excellence |
The panic in energy goods has been replaced by chaos. The price of a barrel of this type fell yesterday by $ 15, the largest daily drop ever. The monthly contract for diesel in Europe fell within a day from $ 1,650 per tonne to below $ 1,100.
In the background of the decline – reports of talks between Putin and Schultz (bypassing Bennett) for a diplomatic settlement and signals from Ukraine that it would agree to be flexible. That is, the situation has probably reached a point bad enough for all parties to agree to go down in flames.
Among other things, the ban on Russian oil imports to the United States, the rampant energy prices in Europe, Russia’s implicit threat to use unconventional weapons, the siege of Kyiv, the damage to the markets …
Coincidentally or not it has matured around a level of 36 points, the same level that most times in history has ignited solutions and assistance.
And yet, the progress is very fragile, the drop in oil, the Wall Street jump in the sharp one-day rate since April 2020, the jump in the euro and the fall of the VIX to 32 points may give the parties a sense that there is more room to stretch the rope.
A renewed conflict may bring us to the next and final VIX level of 50 points. But let’s remain optimistic that it was enough for them.
Commodity prices may be stuck at high prices even in a political settlement – even after reaching agreements on Ukraine, whatever it may be, the question still remains how much the West’s relations with Russia can really be restored, how much this disconnect will affect the West’s ties with China. Again the problematic side, to what extent the West can admit to its need to reinvest in self-production of the “climate destroyer” it continues to consume.
These questions are likely to make it difficult for commodity prices to return to pre-conflict levels, which may disappoint future markets.
Rising commodity prices in any case will not be able to put the US economy in recession, at least not this year, but Europe … that’s a different story – the chaos in commodity prices has put economists and algorithms to collapse into themselves.
According to US major bank forecasts, the US economy entered a very strong momentum in 2022, due to the recovery from the corona crisis, which will in any case allow it to continue to grow above 3% this year.
However these predictions were gathered before the US announced the cessation of oil imports from Russia, with some thinking the impact would be significant and some thinking it could be successful as well.
Bank of America stressed to its customers that “the forecast today is very uncertain and they need to consider the range of risks.”
In Europe, expectations are for more significant damage, HSBC (HK 🙂 economists yesterday cut the forecast for the bloc from 2.0% -2.5% to 1.0%, not only due to rising commodity prices but also due to disruption of supply routes.
Forecasts for Russia were particularly pronounced with a collapse to 12.5%, according to JPM. These conditions will probably allow the Fed to raise this year (the market is again pricing 6-7 raises), but not to the ECB.
Today (15:30) data for February will be published in the USA. According to Bloomberg economists, this will reach an annual change of 8.0% and later this year also to 10%!
In such inflation, economists find it difficult to see yields remain so low, and many estimate that in 10 years’ time it will break above 2% again, perhaps even today if the figure is higher than forecast.
But on the other hand it is hard not to wonder if in such high inflation yields are barely rising so what will happen if the environment is reversed? Is the risk at all mostly down?
The author is the Chief Economist of Phoenix-Excellence. This review is provided as a service to readers only, and should not be construed as an offer, recommendation, substitute for the reader’s professional judgment or investment advice or investment marketing, purchase and / or sale and / or holding of the securities and / or financial assets mentioned or of securities and / Or any other financial assets.