16:25 BST Monday 4 April 2022
Gold shines on talk of extra sanctions
By David Madden (Market Analyst at Equiti Capital)
Stock markets are subdued today as the war in Ukraine continues. Allegations of deliberate attacks on Ukrainian civilians by Russian forces have been made. As a result, there is talk that Western governments might impose additional sanctions on Russia as punishment. European stock markets are trading in a small range as the prospect of a fresh wave of sanctions is flickering away in the background. The DAX, the CAC and the FTSE 100 are all showing modest gains. In the past week, the major European indices drifted lower due to renewed tensions surrounding the Ukraine-Russia war, but they have all gained significant ground since mid-March, so over the overall sentiment has improved greatly in the past three weeks. A strong rally in tech stocks is propping up the NASDAQ 100, the index is up over 1%, in turn the S&P 500 is also up on the session. Elon Musk acquired a 9% stake in Twitter, sending shares in the social media group soaring by 24%.
Worries about additional sanctions being introduced is having the largest impact on the euro, as the single currency is down versus other major currencies. EUR/USD dropped below the 1.1000 mark – its lowest level in almost one week. The euro is under pressure from both sides, as not only is the eurozone potentially going to feel the fallout from extra sanctions, but the firmer greenback is weighing on the currency too. Last Friday, the US revealed a strong jobs report, so it is obvious the Federal Reserve are going to continue down the route of monetary tightening. Speculation of a 50-basis point hike from the Fed next month is still in circulation. The Bank of England hiked interest rates three times in recent months, but BoE deputy head, Jon Cunliffe, said that further monetary tightening might be necessary. High levels of inflation pose a threat to economies as it eats away at savings, and even though central bankers were burying their heads in the sand for too long, they now seem eager to tackle the rise in the cost of living.
Gold has pulled back some of the losses it incurred last week. President Biden announced that more sanctions should be imposed on Russia, and that is helping the asset. Industrial metals like silver and palladium are higher too due to supply fears – Russia is a large produced of the metals and it is possible that supply will be impacted on account of sanctions. WTI and Brent crude are up over 3%, following on from last week’s declines. The chatter of new sanctions against Russia has promoted traders to snap up oil, as any future punitive action against Russia could target its vast energy reserves.