US and European futures are trading as investors pay attention to bonds’ sell-off, leaving the 10-year Treasury yield at its highest level since 2018. This is due to higher inflation readings, tightening monetary policies, and China’s covid outbreak. Additionally, investors are anxious about the spillover effect of sanctions imposed on Russia due to its invasion of Ukraine. The trading momentum over in Asia wasn’t also a positive one. Most of the Asia-pacific equity indices fell for the second day in a row, further dampening the mood among traders during European trading hours.
Overall, the big question that traders and investors are exploring is if the most popular sector with a strong track record of bouncing back rapidly has run out of steam. The technology-heavy Nasdaq 100 has a strong history of outperforming other indices. Still, now traders wonder if the massive bubble in the tech sector, which was fuelled by the Fed’s easing monetary policy, has burst. The index has surpassed losses of more than $1 trillion, and the current momentum doesn’t seem to be slowing down anytime soon.
The reading that matters the most today in terms of economic data is the US CPI. The upcoming reading is highly likely to show that the inflation situation in the country is very much anchored in its place; however, the silver lining is that it is possible today’s number may not be as pessimistic as many had expected, especially in comparison to scenarios when Russia attacked Ukraine. Over the last few months, we have seen freight prices easing off a little from their recent highs, and oil prices have also moved lower from their 13 years peak. Hence, there is a slight chance that today’s reading may mark the peak in inflation, or at the very least, it may display prices are moderating.
Nonetheless, the current inflation has influenced consumer discretionary spending habits, and the upcoming retail sales number is likely to show the evidence of this argument in its print.
Earlier in the day, we also have the German ZEW economic sentiment reading hitting the tape at 10:00 AM GMT, and the forecast is for -46.5 against the previous reading of -38.7. The data will be watched very closely among forex traders who have high hopes from the ECB regarding a more hawkish monetary policy from the bank. There is no doubt that the bank is aching to lift the interest rate, and it wants to follow in the footsteps of developed countries such as the UK or the US, where the central banks are aggressively increasing the interest rate. The bank’s official rate meeting is on Thursday, and this number is likely to be the last important data set between now and the decision day.
Russia and Its Economy
The Russian currency, Ruble, not “Rubble,” which Biden joked about, moves from strength to strength. The sanctions imposed by the US and its allies pushed the prices of the energy sector sharply higher, and that helped the country post its largest current account surplus on the record since 1994. Traders are likely to keep a close on the RUB/USD pair as the current strength in oil and gas prices has made authorities pay for imports, which has supported the economy and that in return, restores confidence in the Ruble.
Commodities: Palladium, Gold and Oil
Oil prices continue to retrace from their highs, and there is no doubt that strength in the upward trend that we have seen for the past number of months has lost its momentum. Three factors are very much influencing oil prices:
- The US’s massive strategic oil reserve release has influenced the supply side of the equation.
- The ongoing outbreak covid situation, which has led to several lockdowns in China, is waning oil demand.
- The conflict between Russia and Ukraine seems to have peaked, and there are fewer chances of any immediate threat to Russian oil output or its demand.
As long as Crude and Brent oil prices continue to struggle to stay above the $100, the chances are bulls are likely to keep shaving some profit off from their recent rally in oil prices, which will only create further downward pressure on oil prices.
In terms of precious metals, palladium is the one to watch as its prices surged more than 5% yesterday due to a supply shock following a suspension of the metal trading, which is sourced from Russia in the London hub. As for the gold, its prices are very closely linked to the Federal Reserve’s monetary policy, and today’s CPI number is likely to set the tone for the Fed’s next meeting. Even if the US CPI number matches the expectation, it will be pretty much a done deal that the next rate hike by the Fed is likely to be 50 basis points, not 25 basis points. The Fed wants to lower inflation at any cost, and FOMC members like James Bullard are further pushing gold traders on the edge as he believes that the Fed is massively behind the curve, indicating that the Fed may adopt about even hawkish monetary policy.