Last week's changes in the international market, Russia-Ukraine negotiations once eased tensions, the United States released strategic reserves to suppress oil prices, and the inversion of the US Treasury yield curve caused concern.
In the market, U.S. stocks rose and fell, with the Dow down 0.1% weekly, the NASDAQ up 0.7% weekly, and the S&P 500 up 0.1% weekly. Europe's three major stock indexes were higher, with the UK FTSE 100 up 0.7% weekly, germany's DAX 30 up 1.0% weekly and France's CAC 40 up 2.0% week.
This week has a lot to watch, with the Russian-Ukrainian dialogue negotiation process continuing to be in the spotlight; the Fed and the European Central Bank releasing the minutes of the meeting, and a number of Fed officials will give regular speeches; the Reserve Bank of Australia and the Central Bank of India are expected to remain on hold, and the Polish Central Bank may raise interest rates by 50 basis points to 4.0%. Major European and American economies will update the final value of the services PMI in March, and the euro area PPI data may put policy pressure on the ECB.
Close to reaching an agreement?
According to CCTV News, on April 2, local time, Alahamiya, head of the Ukrainian delegation to the Russian-Ukrainian negotiations, said in an interview with the media that Ukraine and Russia are close to reaching an agreement. Arahamia said the talks were conducted online every day, and a working group of lawyers and diplomats was drafting the final document. With regard to the draft proposed by Ukraine in Istanbul, Russia has verbally accepted the terms except for the Crimean issue. The Ukrainian side is waiting for written confirmation from the Russian side.
In terms of European gas supply, Russian President Vladimir Putin announced that from April 1, "unfriendly countries" need to open ruble accounts to purchase Russian natural gas, otherwise they may face the risk of supply outages. Russian presidential press secretary Peskov said on the 1st that the decree on the conversion of rubles to settle natural gas does not apply to the natural gas that has been supplied, and the situation of gas outage without paying rubles has not occurred at present. "Today (the buyer) does not need to pay for supplies that are now underway, and should be made at the end of the month, the second half of the month, Sometime in April or even in early May." He said.
This week, Russia will release inflation data, the current agency forecasts that the consumer price index (CPI) growth rate will soar from 9.2% to 16.9%, and high price pressures have also posed a huge challenge for the Russian central bank. In addition, Russia will also disclose gross domestic product (GDP) data for the fourth quarter of last year, which is expected to increase by 5.0% year-on-year.
The Ministry of Economic Development and Trade of Ukraine issued a statement on April 2 local time, saying that the Ukrainian economy has been hit hard by the impact of the conflict, and according to preliminary estimates, Ukraine's GDP in the first quarter of this year fell by 16% compared with the same period last year, and it is expected that the GDP for the whole year may fall by 40%.
The details of the Fed's balance sheet reduction discussion attract attention
The latest U.S. non-farm payrolls report for March showed 431,000 new jobs, the smallest increase since November last year, and the unemployment rate fell to 3.6 percent in March from 3.8 percent earlier, approaching a half-century low. Against the backdrop of high price pressures, the recovery in the job market has increased the fed's rationale for aggressive rate hikes.
The Fed will release the minutes of its March meeting this week after the Federal Open Market Committee (FOMC) raised its inflation forecast for 2022 to 4.3 percent from 2.6 percent and its 2023 inflation forecast from 2.3 percent to 2.7 percent, while cutting GDP for 2022 and 2023 to 2.8 percent and 2.3 percent, respectively. The fed discussed how to reduce the Fed's massive $9 trillion balance sheet. Therefore, any hint of quantitative tightening in the latest minutes could trigger a reaction from US Treasury yields, which in turn would increase capital market volatility.
Multiple Fed officials will speak, and previous discussions about a 50 basis point hike at future meetings have been widely discussed, so the latest statements on the economy, inflation, and the path of interest rate hikes deserve close attention. The Fed will hold its next policy meeting on May 5. According to CME Group's interest rate watch tool, FedWatch, the market expects the Fed to raise rates by 25 basis points in May with a probability of 28.9% and a 50 basis point hike of 71.1%
On the data side, the ISM non-manufacturing PMI is expected to pick up slightly in March, which will reinforce expectations that the U.S. economy will be in a strong state. However, due to the situation in Ukraine pushing up the cost of upstream raw materials, the growth rate of factory orders may slow down in February. At the same time, data releases such as the number of initial jobless claims and changes in consumer credit in February also need to be noted.
Crude oil and gold
International oil prices fell sharply last week, driven by news of the U.S. sell-off of strategic reserves and the coordinated release of emergency reserves by the International Energy Agency (IEA). WTI crude oil closed at $99.27 in the recent month contract, down 12.8 percent weekly, its biggest weekly drop in two years. Brent crude oil closed at $104.39 in recent months, down 11.1% for the week.
IEA member states, including Europe, Canada, Mexico, Japan and South Korea, said on the 1st that they agreed to release oil from their emergency reserves to stabilize oil prices, and the IEA plans to release details about the release early next week. DTN senior market analyst Troy Vincent said that the US dump alone cannot balance the market and offset the structural supply problems facing the global market, and the supply loss in Russia alone is expected to exceed 2 million barrels per day in the coming weeks.
Sevens Report Research wrote in the report that OPEC+ continues to reject calls from the United States and other Western powers to raise production to calm market tensions. The alliance of oil producers is very disciplined in this high price environment, which adds a tailwind to the market in the coming months and quarters. Although the current long-term trend remains markedly optimistic, a reaction to the sell-off news is expected once Russia and Ukraine finally reach a ceasefire agreement.
International gold prices weakened on the US Non-Farm Payrolls report in March and the upward trend in US Treasury yields. The COMEX gold futures contract for April delivery on the New York Mercantile Exchange closed at $1923.70 an ounce, down 1.6% for the week.
Bart Melek, head of commodities strategy at TD Securities, said expectations of aggressive Fed rate hikes were pushing gold lower because the rate hike would mean a higher opportunity cost of holding non-yielding gold.
Kitco senior analyst Jim Wyckoff believes the non-farm payrolls report is good, a fact that suggests the Fed's aggressive approach to rate hikes will not be affected. This could be bad for gold in the short term, as rising interest rates will support the U.S. dollar, including higher Treasury yields. However, in the long run, the impact of inflation should support gold and may make the bottom of the market well below the current price level.
The ECB faces heavy price pressures
Eurostat data released last week showed that the Euro area consumer price index CPI rose 7.5% year-on-year in March, a record record, marking the fifth consecutive month of record inflation in the euro area. Germany, Europe's largest economy, saw its CPI increase by 7.3% year-on-year in March, the highest in 41 years.
High prices will increase pressure on the ECB to raise interest rates. ECB President Christine Lagarde said last week that the situation in Ukraine would push inflation higher in the short term and pose a significant risk to the eurozone's growth prospects. She cited three major factors driving inflation: rising energy prices, blocked Ukrainian wheat exports, and global manufacturing bottlenecks. Eurozone manufacturing slowed further in March. The final PMI for German manufacturing fell to 56.9, the lowest since September 2020. The French manufacturing PMI was 54.7, the lowest level since October last year.
This week the ECB will release the minutes of its March meeting. At the time, the ECB left the three major interest rates unchanged and planned to steadily scale back its asset purchase program over the summer with a view to ending in the third quarter, a move that would help provide options for central banks to raise interest rates before the end of the year. Recent comments by some ECB policymakers suggest that there is growing concern that the ECB is lagging behind. Concerns about rising inflation in the Nordic countries are on the rise, and Bundesbank Governor Nagel has spoken many times before about the need to tighten policy.
Bank of England Governor Bailey will speak on Monday, with clues about interest rates coming into the spotlight. The Bank of England softened the tone slightly after the last meeting, but the market is pricing high for 25 basis points of consecutive rate hikes in the next five meetings, with benchmark rates likely to rise to 2% by the end of the year. Given current inflationary pressures, as well as upward movements in commodity and energy prices, any attempt to appease expectations of rate hikes is likely to have little effect.
Highlights for the week
