US bans all Russian energy imports
The announcement by President Biden overnight of a unilateral ban on Russian energy imports had been well flagged to markets already. That limited the fallout from the announcement and although energy prices still finished higher overnight, equity markets in New York were only slightly lower. In Asia, a relief rally of sorts is underway, helped by suggestions that Ukraine’s President is no longer demanding NATO membership, in what is being interpreted as an olive branch to Russia.
We have been here before over the past two weeks, with investors programmed to buy-the-dip, any extension of the gains in Asia today may set markets up for the disappointment of another clutching-at-straws rally. Notably, the head of the Monetary Authority of Singapore has said the central bank sees serious stagflationary risks ahead. Despite technology giving financial markets perpetual attention deficit problems, the ramifications of the Russia-Ukraine conflict will be with us for all of 2022. The sight of thousands of Russians queuing for a last McDonald’s happy meal before the chain shutters it operations there suggests the global sanctions are not yet biting.
Elsewhere, the US bond market continues to be all over the place, yields rising sharply at the long end overnight, supporting the US dollar even as the euro staged a mini-relief rally of its own. Australian Consumer Confidence took a hit in March, dropping by 4.20% as extensive flooding and geopolitical worries took their toll. That hasn’t stopped Australian equities rallying today though. Japan’s Q4 GDP was old news before it started and hasn’t caused a ripple. Nor did on-target China Inflation YoY for February at 0.90%. Domestically, markets seem more concerned with a slowing economy, not helped by overnight reports that local governments are facing budget stresses.
South Korean markets will show some volatility today as the country holds a presidential election. The two candidates are neck and neck, and the main election issue seems to be anger at the massive rise in the cost of living and house prices. Like other parts of the world, they should be reserving their anger for their central banks. But if the incumbent is toppled over it, it could be a dry run for other elections later this year, notably in Australia and the US mid-terms.
US JOLTS Job Openings this evening will only have a major impact if they deviate markedly from the 10.9 million jobs expected. Most attention will be on US Inflation tomorrow evening, expected to top 8.0%, and most especially, the latest ECB rate decision. The world has obviously changed since the previous decision, and markets will be looking for guidance as to whether the ECB postpones QE tapering, its intention to hike interest rates or both. My money is on both, a wholly understandable decision, but one that may stop the incipient recovery of the euro in its tracks.
Asian markets, though, will remain glued to their news tickers for any new developments from Ukraine-Russia, or any negative developments that will negatively impact the commodity space. Sentiment, as I said, remains fragile at best.
