Market situation:
Markets will continue to focus on some progress in ceasefire talks between Russia and Ukraine. In the eurozone, we will receive preliminary data from the Purchasing Managers’ Index this coming Thursday. It is likely that the purchasing managers’ indices in the manufacturing and services sector will already reflect some weakness in the first weeks of March in light of the high energy prices. In the United States, the Fed provided the interest rate hike as expected. This week’s data for new home sales for February will give us an indication of the backlog of demand in the housing market in light of the rise in output prices and mortgage rates. In China, policymakers are planning larger incentive programs to stabilize sentiment in the hurting financial markets as a result of new lockouts and fears of the Chinese companies being swept out of the sand trade.
Economic events log:
Wednesday:
- United Kingdom – Consumer Price Index, Manufacturer’s Price Index (February).
- United States – New Home Sales (February).
Fifth:.
- United States and the Eurozone – Preliminary Data Purchasing Managers’ Index (March).
- United States – Weekly Unemployment Claims (for the week of March 19).
sixth:
- UK – GFK Consumer Confidence Index (March), Retail Sales (February).
- Germany – IFO Business Sentiment Index (March).
- United States – Pending Home Sales (February).
Negotiations continue(Results should be closely monitored)
Over the past week there have been reports of possible progress in the negotiations to end the war between Russia and Ukraine has led to a spark of optimism. True to the statements of the two countries a rapprochement between the two countries has taken place. In a straight line to the Russian proposal, Ukraine will declare itself as neutral as Sweden or Austria. These two countries are not members of the NATO Alliance but are part of the European Union. At the same time Ukraine demands security guarantees in return and so far it is unclear who can provide such guarantees. As the International Monetary Fund stated, For rising world inflation.
The Bottom Line: In the war between Russia and Ukraine, the tone on the Russian side changes for the first time and reaching an understanding through negotiations does not seem like a remote possibility as it would have seemed at the beginning of the conflict. At the same time, it remains to be seen whether such an agreement will actually materialize.
United States: The first rise in the Fed’s interest rate has occurred, the impact on the housing market will be seen in the future
U.S. stock markets continued their positive reaction to the Fed’s latest interest rate hike on Wednesday last week at 0.25%. Bank Governor Powell’s press conference reassured investors that the Fed intends to take seriously its attempt to combat rising inflation with six more interest rate hikes planned this year. In light of the fact that there is an increase in output prices and mortgage interest rates, the figure this week for new home sales for February (expected to 815,000 units compared to 801,000 in the previous month) will give us another indication of whether demand in the housing market starts to whisper after a weak figure in January.
The Bottom Line: Following the symbolic rate hike last week, the Fed is expected to continue its plan for further rate hikes later this year. In the meantime, it will take some time to see the impact of higher interest rates on the real economy.
Eurozone: Uncertainties arise from conflict in Ukraine
On Thursday we will get the initial figure of the Purchasing Managers’ Indices for March. In view of the fact that they perceive the impact after Russia’s invasion of Ukraine, they will receive close analysis from investors for signs of economic impacts on the part of high energy prices and further disruption to supply chains. Europe is expected to take a harder hit compared to other regions in light of its geographical proximity, energy dependence and closer trade ties. The sharp rise in energy prices may further weaken demand in Europe leading to weak economic growth and generally low inflationary pressures. These considerations were taken into account by the European Central Bank in its latest decision and support the Bank’s less hawkish approach unlike other central banks. Japan and the United States are expected to feel a later and less acute response as a result of indirect consequences through higher commodity prices and slower global economic growth. Market players will follow developments closely and asset prices depend on whether we are heading for a stagflation basket scenario or growth with inflation. The uncertainties are likely to continue and therefore the risk premium should be left high and the financial markets burdened.
The Bottom Line: Europe’s energy dependence on Russia makes it the most economically affected region. This week’s Purchasing Managers’ indices are expected to be closely monitored for signs of economic growth and prices.
China: More supportive measures are expected
Sentiment in China’s markets gained strong support last week by the government’s desire to implement more economic incentives. This came as a result of an increase in the number of those infected in Corona and the closures that followed, the fear of deleting ADR shares traded in the sand and the continued tightening of regulations. Immediate supportive measures may include monetary policy leading to an increase in credit growth as well as directing government investment firms to increase the share of holdings in equities during the weakness in the markets. China’s zero-stick policy on Corona continues to charge heavy economic prices. Two of the major cities in the country were under full or partial closure. Industrial activity may be severely hampered in these weeks in light of the closures.
The Bottom Line: Market sentiment is supported by expectations for mitigating policy measures. Specific incentive plans are planned.
Nickel: The big short (squeeze)!
Russia is responsible for about 6% of the world’s distilled nickel output. More importantly it is responsible for about 16% of the level 1 nickel output making it the number 1 exporter of this type of commodity. Nickel prices have risen steadily since the Russian attack on February 24. This increase led to an increase in collateral reading that caused a short squeeze in order to cover the collateral. This event of closing short positions led to a liquidity crisis that peaked on March 7 when it was difficult to find sellers and a price increase to $ 50,000 per tonne from $ 30,000 per tonne. Globally the use of nickel in light of the adoption of electric cars has increased exponentially in 2021, the number of electric vehicle batteries on the roads has increased by 113%. Nickel will also be necessary for the transition to clean electricity generation and renewable energy.
The Bottom Line: Like all financial instruments at the moment, volatility in nickel prices will depend on Russian activity and closures in China.