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Monday 14th March 2022
Hi Friend,
TSE Monday Morning Markets ...
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| | The Saturday Economist Monday Morning Markets ...
This is our Monday Morning Markets Update for the 14th of March 2022. The Russian war on Ukraine continues. The humanitarian crisis develops.The Russians have upgraded the levels of civilian attacks
and large scale destruction. It is like watching a 1930's news clip. The
annexation of a sovereign state, millions of refugees feeling across
Europe, a dictator unchallenged at home.
Confrontation with NATO looms. Bombing closer to Poland. Military supplies from the west "a legitimate target". Warnings to Sweden and Finland about joining the alliance. Warnings to the U.S. and Germany about direct engagement. The threat of nuclear escalation, an ever present.
In the latest in our trilogy on Putin, we make it clear, war with the west, is a war Putin cannot win. The combined NATO spend on military defense is over $1 trillion dollars, compared to Russia's $48 billion. Russia's GDP was an estimated $1.6 trillion dollars last year compared to a combined NATO countries GDP of $45 trillion. The Russian economy may shrink by 10% or more this year. Biden has made the call, NATO territory will be defended, so too will air space. Putin cannot push too far.
It was an interesting week for markets. Oil and gas prices eased. Bond yields bounced back. The Dollar enjoyed favoured currency status. Markets eased lower but over sold signs are flashing. Gold and metal prices moved lower. Bitcoin was unchanged at $38,600 despite the test of $42,000 mid week.
We have suspended coverage of tech and crypto in this week's update. Our analysis continues off line for the moment.
Top line, "Cash is Trash, (Jamie Dimon), Bonds are Garbage ( Bill Gross), Equities Are Overvalued (Everyman), Bitcoin is worthless (Jamie Dimon), Most NFTs are junk (John Hargrave)" ... When it comes to understanding market moves, "Any explanation is better than none" (Nietzsche). Be careful out there ...
"To understand the markets, you have to understand the economics".
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| | Markets down 0.98%. Overvaluation -2.3% ... Our global equity index basket closed down 0.98% this week. In the USA, the Dow, S&P and Nasdaq closed lower, almost 3.0%. Again Nasdaq most badly hit.
In Asia, Shanghai was down 4.0%, Nikkei down 3%, the volatile Hang Seng index down over 6%. Tech stocks are hit by the threat of US legislation. Shanghai stocks now threatened by the Covid lock down in Shenzen.
Europe the bright spot. The CAC and Dax were up 3% and 4% in a partial rally. The FTSE, was up almost 2.5%
So what can we make of values? Our overvaluation rating closed at an oversold -2.3%. Just 5% required now to push the Dow & S&P into buy territory. The Nasdaq is already oversold. The FTSE offers fair value. Opportunities abound elsewhere.
In Asia, the Hang Seng looks heavily over sold, so too the markets in France and Germany. Buy when the tanks are rolling into the abyss. The contrarians will pick the opportunities in Central Europe and the East.
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| | Bond Market Sentinel ... US Ten Year Yield 2.01 ...
Big reversal this week, US bond yields jumped 29 points to 2.01. In the U.K. ten year rates closed 31 points higher at 1.52. Euro rates closed 34 points higher back into positive territory.
We said last week, we expect U.S. bond yields to retest the 2.00 level 'ere too long, 2.50 the forecast for Easter. UK rates at 1.50 then 2.00 the call. US, UK ten year yields trade at 2.08 and 1.58 this morning.
Central banks may lose their commitment to the escape from Planet ZIRP. Rate rises may be mitigated in the face of lower growth and rampant inflation. Possibly! This is not our Friday Forward Guidance at present. The bond moves appear to be back on track.
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| | Exchange Rates ... Sterling Down $1.31 ...
Dollar strength was evident in the week. Sterling closed lower against the dollar at $1.31 from $1.33 and lower against the Euro at €1.19 from €1.21. The Euro was lower against the Dollar at $1.10 from $1.11.
Last week's moves look over played. Sterling trades at $1.3041 against the Dollar, unchanged against the Euro this morning. The Euro is steady against the Dollar at $1.0961.
We expect Sterling to average £1.35 through the year. Against the Euro, we model €1.18 with a slight uplift in the Euro Dollar rate to $1.15. The Dollar is the safe haven. The latest moves a measure of the oversold.
["One of the nice things about being a currency forecaster, is that expectations of you are very low. Moderate success is a great surprise". Professor Avinash Persaud].
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| | Oil Brent Crude lower ... $111.70 ...
Oil
prices Brent Crude closed lower last week at $111.70.Trading at $108.33 this morning, markets are adjusting to a life with restrictions on Russian oil.
Overtures continue to persuade Saudi Arabia to pump more oil. US delegates are in Caracas, with a view to easing sanctions on Venezuelan oil. The U.S. oil rig count jumped to 527 last week. The count could well double, if oil rests at the $100 dollar mark.
The gas rig count was up to 135 from 80 at start of year. Natural gas prices eased lower to $4.50 dollars from 5.00 at start of week.
The Economist Intelligence Unit, thinks oil will remain above the $100 dollar level, as long as the conflict "rages in Ukraine." The US Energy Intelligence Authority is forecasting oil prices Brent Crude to average over $100 dollars in the year, easing to $95 dollars in the final quarter.
It is possible oil may average $95 dollars in Q2, then through to the end of the year. The situation in Ukraine could change quickly and hopefully for the better. "Volatility remains in price levels, exacerbated by geopolitical supply side complications." Yep we really did say that!
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| | That's all for this week's Monday Morning Markets, have a great week ahead.
John
To understand the markets, you have to understand the economics
Friday Forward Guidance, The Saturday Economist, Monday Morning Markets.
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© 2022 John Ashcroft, Economics, Strategy and Financial Markets, experience worth sharing.
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