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Monday 7th 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 7th of March 2022. The Russian war on Ukraine continues. The humanitarian crisis develops. The
invasion has stalled. 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.
The West prepares for greater sanctions. The threat of an oil embargo from the Uncle Sam looms. Equity prices are falling around the world. Bond yields are tumbling. Commodity prices are soaring. We cover oil in this edition but oil, gas, gold, aluminum, copper, palladium and platinum are all on the radar. Yep we even monitor rape seed oil. Gold, the barbarous relic, trades at $2,000. Inflation set to soar, growth set to stall.
We have suspended coverage of tech and crypto in this week's update. We had some doubt about whether to publish at all, such chaos in the news headlines but then again ...
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 4.1%. Overvaluation 1..2% ... Our global equity index basket closed down 4.1% this week. In the USA, the Dow, S&P and Nasdaq closed lower, just over 1.5% with the Nasdaq, the most badly hit.
In Asia, Shanghai was largely unchanged. Nikkei down almost 2%, the volatile Hang Seng index down almost 4%.
Europe was in the war zone. The CAC and Dax were down 10%. The FTSE, bolstered by oil and gas was down slightly less around 7%.
So what can we make of values? Our overvaluation rating closed at -1.2%. A near 6% correction would be required to return US markets to fair value, 8% for the Dow, S&P, just 2% for Nasdaq.
In Asia, the Hang Seng looks over sold, so too the markets in Europe. European and Asia markets are set to open some 3% lower this morning. Buy when the tanks are rolling into the abyss? Time to average in? The situation in Ukraine is fast becoming a humanitarian crisis with continuance.
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| | Bond Market Sentinel ... US Ten Year Yield 1.72 ...
Flight to safety, more money into bonds, especially in the U.S. and UK.
US ten year bond yields closed down 26 basis points in the week at 1.72.
In the U.K. ten year rates closed 25 points lower at 1.21. Euro rates closed 30 points lower back into negative territory.
We said, we expect U.S. bond yields to test the 2.00 level 'ere too long. A return to 2.00 soon, 2.50 the forecast for Easter. We are now in the war zone. The illogical may persist much longer than thought but not for ever.
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 over stated.
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| | Exchange Rates ... Sterling Down $1.33 ...
Markets were steady in the week. Sterling closed unchanged against the dollar at $1.33 and unchanged up the Euro at €1.21. The Euro was lower against the Dollar at $1.11 from $1.13.
Last week's moves look over played. Sterling trades at $1.32 against the Dollar, unchanged against the Euro this morning. The Euro is drifting against the Dollar at $1.08. The Euro move difficult to call this week but some rally may ensue soon.
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 Renminbi not yet ready to assume the role.
["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 higher ... $118.11 ...
Oil
prices Brent Crude closed higher last week at $118.1.
Trading at $125 this morning, markets are adjusting to the threat of an American embargo on Russian oil. Easy for Uncle Sam to say, it is not clear if Europe would be in a position to match the move.
JPMorgan Chase said Brent could end the year at $185 a barrel if Russian shipments continue to be disrupted. They fail to take into account the Shanghai roll round. China will be a willing buyer of Russian oil and gas. Even Shell was tempted to pick up some barrels at discount prices, as western buyers turned away from tainted oil.
Last week, talk of $100 dollar oil "seemed" farfetched. Fundamentals should rule to push prices lower we said. The US oil rig count hit 518 last week, up from 480 at end of year. Should be 900 at this price, according to our long run model. The gas rig count was up to 130 from 80 at start of year. The Yanks are coming, they just seem to be taking their time. Saving the planet may just have to wait.
OPEC will enjoy the higher price levels, as long as demand compression is contained. Biden's call for more, largely unheeded for the moment.
$95.00 may be the range in the first quarter. $75- $80 Brent Crude through 2022 was benchmark call. Tad optimistic? Perhaps.
"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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