US and European futures are trading higher as traders build on yesterday’s momentum. The consensus among traders and investors is that worst may be behind them, and they want to look at things beyond the current conflict between Russia and Ukraine. The factors that matter for them are the health of the US economy, the monetary policy stance of central banks, especially the Fed, the price of oil, and the situation with inflation. Yesterday, we had two good pieces of news in terms of US equity markets supporting the bullish moves in the markets today. Firstly the US ADP number was thriving, and the reading came well ahead of the market expectations. It has also set s positive for the most critical economic reading on earth- the US NFP, due tomorrow. Secondly, Jerome Powell, the Fed Chairman, floated a more supportive tone in his speech yesterday.
The impact of war In Ukraine has consequences for Russia, and companies and governments continue to cut their ties with Russia as a punishment. The Russian stock market remains close, and the Russian Ruble remains under tremendous pressure. The fact that the MSCI and the FTSE Russell will cut Russian stocks from their widely tracked equity indices is bad news for the Russian economy and its stock market. In addition, Fitch also slashed Russia’s credit rating to junk, which will make traders think twice before investing in Russia. When it comes to the Russian economy, there is no shortage of bad news because yesterday, VanEck also halted the process of creating shares for its VanEck Russian ETF.
Black gold remains under focus among traders and investors. Yesterday, we learned not so much positive news from the OPEC+ cartel. Firstly, OPEC+ announced only a gradual increase in its output shows that the cartel has no interest in lowering the oil price. Since then, we see oil prices continue their climb, and both WTI and Brent are trading at their highest level since 2008, and the current momentum may likely continue. This is because it doesn’t look like anything will stop oil bulls from pushing the oil prices lower. One factor that can ease off the current oil price is Iranian oil. So far, it doesn’t seem likely that we will see a day when Iranian oil will hit the market, and the threat of sanctions on Russian oil remains a real possibility. Many traders believe that oil prices have already priced in sanctions on Russian oil prices due to its invasion of Ukraine, but we think that isn’t the case. If sanctions are imposed on Russian oil, a $150 b/d will be the most modest scenario. Under a coordinated action by the US and its allies, strategic oil reserve release isn’t going to help oil prices.
It is important to note that oil, where it is today, will only worsen the inflation situation for central banks trying their best to control inflation. Higher inflation fuelled by higher oil prices will also decrease the spending power of consumers, which is likely to have an adverse influence on global economic growth.
Bitcoin prices are holding on to their recent gains, but there is little evidence that bulls are serious or fully committed to pushing the BTC price higher. In terms of fundamentals, the Russian situation has shaken some beliefs about bitcoin, such as if it is a safe haven asset. Secondly and more importantly, if there is a collaborative effort by the US and its allies to shut down Bitcoin, it can happen. Bitcoin represents a massive threat to the US dollar as the global currency, and it is an easy way to avoid sanctions. Having said this, it isn’t only Bitcoin that is an actual threat to the dollar index; the digital Chinese Yuan and other CBDC could change the game for the dollar.