US and European futures are moving lower today after recording their worst one-day sell-off since June this year. We have started to see another wave of sell-off in the equity markets because now traders have begun believing that inflation isn’t going to go away by turning off a switch. It is a very painful process, which means that inflation is likely to remain anchored in place for a long time.
We are still unsure if energy prices have changed their direction, meaning they will not soar anymore, which is a matter of concern. It is pretty clear in Europe that energy prices will increase in the coming months, which will only make the inflation move higher, and as for the US, the situation is no different.
So, if this is true and it plays how we anticipate, then it could be foolish to think that inflation has reached a peak level. Very soon, we could see another higher reading of inflation.
The US and its allies’ war with Russia is cutting them deep, and the evidence of this can be seen quickly by looking at the natural gas prices. This is a one-way trade that has been moving in one direction only, and that is to the upside.
Gazprom announced it would again be closing Nord Stream One for “maintenance” for three days starting from the end of this month. Traders know this will not stop here as this is only a beginning, and Russia is going to play this game with Europe a lot more now, especially since summer has come to an end and winter is just around the corner.
The forex market is the one to watch, as yesterday we saw the dollar index picking up more strength and reaching its best level in nearly 20 years. Traders are betting on one thing and one thing mainly: the Fed in the US is going to stay on the hawkish monetary policy path, and the interest rates in the US are going to continue to move higher.
When we look at the dollar against the Euro, the strength of the dollar index becomes even more prominent. This is because Euro is the currency getting battered by traders as they believe that the Eurozone will face a lot more difficult time and recession is not avoidable here.
This is why we saw the EUR/USD drop to its new low this year and below parity. Given that the EUR/USD is sitting at a level we have not seen for over a decade, it seems that traders do not have the stomach to take the other side of the trade, which is buying the Euro. Most believe it is a losing trade, which has left the Euro in a free fall.
Many traders thought that rally in oil prices had ended as investors were again worried about weak demand and excessive supply. But OPEC’s members have many tactics to balance the oil prices without doing anything. The Saud Energy Minister said that there is a need to adjust oil output has put the oil bears on their toes and brought oil bulls back into the market.
Crude and Brent oil prices have been trading lower for a while now, but this trend has changed and is likely to see serious volatility as many speculators could begin to place bullish trades.