Talk of oil embargo hangs over Europe
The mood in the markets is subdued even though the war in Ukraine continues. European stock markets haven’t moved much today. The focus of the session is the possibility of the EU announcing an oil embargo on Russia. Considering that Germany and The Netherlands are dependent on oil from Russia, there is not too much concern that any import bans will be overly harsh. It is possible the EU might look to start to gradually move away from Russian oil, but the prospect of a hard-hitting ban seems slim – which could explain why the DAX and the CAC are only down 0.4% and 0.6% respectively.
BP and Shell are moving higher thanks to the rally in the underlying oil market, that in turn is helping the FTSE 100. Stocks in the US have handed back some of the gains that were added recently. Last Friday, the S&P 500 and the Dow Jones posted four-week highs, so it is not a surprise they have pulled back a little. Earlier this year, stocks came under pressure due to concerns about rising inflation and the possibility of several rate hikes from the Fed, but now it seems that traders are getting used to that idea.
WTI and Brent crude have spiked on the news the EU are mulling an embargo on Russian oil. Also assisting the upward move is the news that a rocket impacted oil production in Saudi Arabia. It is worth noting that even though oil is higher, it is still nowhere near retesting the 14 year high that was posted earlier this month – an indication that fears about supply levels are not actually that high.
Gold has been drifting lower recently as the rally in global stock markets has impacted the demand for the asset, as the yellow metal typically benefits in a risk-off environment. Earlier today, gold was down as the rebound in the US dollar weighed on the metal, but it has since turned positive. Silver is up over 1% on the session, and palladium is up almost 1.9% as supply fears circulate.
The US 10-year yield hit 2.24% - its highest level since May 2019 – it is clear the bond market is preparing itself for further rate hikes.