Europe rallies, oil tanks
Germany’s DAX, hit its highest mark since late February as the mood in Europe is optimistic, despite the fact the war in Ukraine is not showing any signs of ending soon. Delegates from Ukraine and Russia will meet in Turkey this week, but political pundits are not holding out too much hope that major progress will be made. There is talk that Russian forces are changing their tactics – that they are doing their best to occupy a large portion of Eastern Ukraine, and use that as a starting point for negotiations. Ukraine’s President, Volodymyr Zelenskyy, has talked about the prospect of his country adopting a neural position in a bid to appeal to the Russian government.
The US dollar is dominating the currency market. USD/JPY registered a fresh six year high, and the dollar is up versus the euro, the pound and the Swiss franc. USD/CAD is driving higher too as the slide in the oil market is giving the currency pair an extra boost. Recently the greenback has rallied and today it hit its highest mark in two weeks. In light of the comments by Federal Reserve members last week, including Jerome Powell, there is speculation the US central bank might hike rates by 50 basis points in May, and that is fuelling the strong dollar.
Sterling is largely lower today as Andrew Bailey – the governor of the Bank of England – stated the bank would be issuing cautious forward guidance from now on due to the uncertainty in the global economy. Mr Baily warned the shock to the energy market is likely to have a severe impact on the world.
It is a double whammy for gold, firstly, the jump in the dollar is denting the asset, secondly, the rally in European stock markets is impacting demand. The gains posted in European stocks could be a sign that much of the fear surrounding the conflict is waning, and risk-on sessions usually hurts gold. Silver is in similar situation.
WTI and Brent crude are enduring large losses as traders are less fearful about the situation in Ukraine. Last week, the EU announced it signed a natural gas agreement with the US – the move is to reduce the bloc’s dependence on Russian energy. On account of rising coronavirus cases, the Chinese government has imposed a lockdown on Shanghai. The news has sparked fears about demand levels and that is contributing to the large fall in oil.
