European stock markets received an unexpected boost on Tuesday after reports that the bloc is close to an agreement on recent joint sales of bonds to finance major projects.
It was reported that the joint sale of a bond finances energy and defense spending across the EU after the Russian invasion of Ukraine. Europe has long been criticized for its over-dependence on Russian oil and gas, as well as its failure to meet its 2% target of NATO defense spending, and the invasion has created the urgency to make the long-awaited changes.
While the short-term solutions are likely to focus on diversifying its supply, there is likely to be a significant acceleration in its push towards green energy in the longer term. The size and composition of the package could be announced in the coming days, which will highlight how serious the EU is about moving away from Russia in the wake of recent events.
Unfortunately, these reports are likely to only bring a temporary ban on stock markets, a day after they were overturned into bear market territory. There is still considerable uncertainty surrounding the Russian invasion of Ukraine and trade markets continue to see some extraordinary moves as a result.
The wave effects of the invasion are severe and widespread and the worst is yet to come, as traders are desperately trying to assess the outflow of possible temporary disruptions of a wide range of goods. The LME was forced to suspend nickel trading earlier after the price more than doubled to more than $ 100,000 per tonne in the mother of all short pressures. Further market turbulence in the cargo space could easily follow.
Higher oil while US prepares for Russian import ban
There is a lot going on in the oil market in a minute, which contributes to the huge amount of volatility and uncertainty we are seeing. It’s such a title-driven market nowadays and today is certainly no different. U.S. President Joe Biden is reportedly preparing to announce a unilateral ban on imports of Russian oil, LNG and coal as part of the latest actions to hold the country responsible for its invasion of Ukraine.
The “one-sided” aspect of this is the most important in terms of markets, which is why oil prices are only 5-6% higher today, rather than 15-20%. However, it is a bold move by the United States, even though Russian imports make up a relatively small number. It is a further step towards the West turning its back on Russia and leaving it isolated in the world. Europe’s movement will be slower, but debt relief is a big first step towards something similar.
At the same time, the IEA warned that the 60 million barrel coordinated reserve release last week was only an initial response and accounted for only 4% of IEA member stores. The group is expected to go further to lower the price and we can only hope that future efforts will be more successful.
Of course, against the background of war in Ukraine and severe sanctions against Russia, that is easier said than done. There has been less subtle digging in Saudi Arabia and the UAE as well, where both have refused to use spare capacity to ease supply problems and have instead stayed with their OPEC + counterparts.
Rarely has there been a stronger bull case for gold as it approaches all-time highs
We may see a temporary rebound in risk appetite today, but that doesn’t weigh on gold demand, as commodity prices continue to spur fears of soaring inflation and recessions. The yellow metal has stormed over $ 2,000 to trade around 2% in the day and it doesn’t look like it’s slowing down.
Record highs are not that far off and it is difficult to imagine a scenario in which demand does not remain strong. We see such significant amounts of volatility and uncertainty today that there has rarely been a stronger bull for a traditional safe haven like gold.
Bitcoin is once again facing serious risk breaches
Bitcoin is recovering along with a risky appetite, about 3% in the day. The harmonization with a wider risk appetite was an interesting development having experienced a period of gains due to increased adoption after the invasion and Russian sanctions.
There is still room for further support if we see more evidence of increased adoption, but the harmonization with risk could now be counterproductive for the price. It is difficult to imagine a significant rebound on the background of the horrific scenes in Ukraine and growing sanctions.