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Daily Wrap Up 31 March 2022

31 Mar 2022 06:23 PM

Russia issued an icy warning to European governments that unless natural gas payments are made in roubles, the contracts will be halted. The new payment process will come into effect from tomorrow. Selling pressure on European stock markets picked up in the wake of the announcement as it is clear the Russian government are willing to inflict financial pain on country’s that don’t want to play ball. Governments have a difficult choice to make, either pay in roubles or face a lights out scenario.

Putin is turning up the heat on countries like Germany and Italy as their economies are heavily reliant on natural gas from Russia. On Tuesday, the DAX hit its highest mark in over one month as there was a moment of hope that we could be nearing the beginning of the end of the war, but the German market declined yesterday, and it is on track to lose in excess of 0.8% today. The euro is feeling the pinch too from Putin’s demands, and the single currency is in the red versus the US dollar, the British pound, the Swiss franc and the Yen.

Not surprisingly, gold and silver are seeing an increase in demand due to the renewed bout of nervousness in stock markets. The rally in the commodities is made all the more impressive by the fact the US dollar is gaining ground. In the past few months, gold has typically had an inverse relationship with the greenback, so the rise in gold in the face of a firmer US dollar underlines the risk-off mood.

Inflation continues to be a headache for the Federal Reserve as the US core PCE rate increased to 5.4%, up from 5.2%. The Fed’s target is 2%, so the metric is moving further away from where it should be. It is worth noting, the reading does not include the shock to the energy market that was caused by the Russian invasion of Ukraine, so things are likely to get worse in the near-term.

WTI and Brent crude are suffering large losses as the US is considering releasing 180 million barrels from its strategic petroleum reserve. OPEC+ agreed to lift output by 423,000 barrels per day from May – in line with its current policy – so there were no surprises there.

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