Market Wrap: Glass Half Empty, Half Full
It depends on which angle investors position to view the market trend. However, unusually, both pessimists and optimists are correct for once in a lifetime as covid-19 pressures, energy crunch and war distort market directions across the globe.
Buying excitement remains intact in the oil markets, still supported by a potential Russian oil embargo in Europe despite opposition from a handful of European Union members, such as Hungary.
In parallel, the Organisation of Petroleum Exporting Countries and allies (OPEC+) has once again decided to stick to its roadmap, which consists of slightly increasing its production, a choice supported by the many risks weighing on demand.
The enlarged cartel is expected to increase its supply by 432,000 barrels per day starting in June, a target that will probably not be met since OPEC+ is already struggling to meet its production quotas.
Africa’s oil leading oil producers Angola and Nigeria have fallen back on production, accounting for a large chunk of the OPEC+ supply gap. Nigeria for example pumped 400,000 bpd below target – a country that depends largely on hydrocarbon for income.
In terms of prices, Brent crude is trading near US$ 110 per barrel while the US benchmark, West Texas Intermediate (WTI), is trading around US$ 109.
A bearish weekly sequence for industrial metals, whose prices are still sensitive to blockages related to the coronavirus in China.
In this regard, the sharp contraction in China’s manufacturing PMI in April reinforced concerns about the demand dynamics of the world’s largest consumer of metals.
As a result, copper is trading lower at US$ 9540, as is aluminium at US$ 2916. Nickel is also losing ground at US$ 30190 per tonne. Despite the clear rise in risk aversion, prices of the barbarian relic are struggling to gain traction. Gold prices are still trading below US$ 1900 per ounce.
Grain prices remain generally well oriented. The lack of rain in Europe could have an impact on the development of crops, especially wheat and corn. In Chicago, the price of wheat recovered to 1110 cents per bushel. On the other hand, corn lost some ground at 780 cents.
Atmosphere: It said it, it did it. The U.S. central bank raised rates by 50 basis points at its May meeting, effectively recognizing the need to aggressively fight inflation.
The Fed will continue to tighten but does not plan to accelerate further to the 75 basis point pace at the June meeting. Investors interpreted this as a rather positive signal… but the joy was short-lived.
They were quickly overtaken by the fear of the consequences on the economy of a forced monetary normalization, especially since the Fed will also start reducing its balance sheet in early July.
Interest rates: This time, bond yields have well-integrated the trajectory of US monetary policy. The 10-year T-Bond is paying 3.12%, up from 2.86% a week ago.
The rise also continues in Europe: in 10 years, the German Bund pays 1.11%, the French OAT 1.63% and the British Gilt almost 2%. Italian debt has a yield of 3.12%.
The Bank of England raised its rates on Thursday, as expected. As for the ECB, the debate is raging between those who think it should rush to do the same and those who fear that it could cause an economic exit.
Currencies: The British pound suffered this week as the Bank of England, while raising rates, openly expressed fears of recession. The euro remains under pressure at US$ 1.0565, although slightly higher than last week’s level.
Cryptocurrencies: In this economic slump, bitcoin, considered a risk asset, is obviously not spared from market nervousness.
In the wake of the leading US indices, especially the Nasdaq with which it is highly correlated, the price of the digital currency is falling by more than 5% this week and is back to hovering around the $32,000 level at the time of writing.
After six consecutive weeks of decline, Bitcoiners are having a tough time. While the market hasn’t completely ruled out a massive 0.75% Fed rate hike in June, these numbers will have a strong influence on investors. #Market Wrap: Glass Half Empty, Half Full