Gasoline drips from the nozzle of a fuel pump at a gas station of Brazilian oil company Petrobras in Brasilia, Brazil March 7, 2022. REUTERS/Adriano Machado
March 8, 2022
A glimpse of the day ahead at the Sujata Rao markets
All problems pale in comparison to the tragedy of Ukrainians fleeing bombed cities.
Others see a different kind of damage – from near-worthless Russian securities on investors’ books to rising commodity prices that will make consumers’ food and energy bills visible everywhere.
And the domino effects are still spreading.
After the S&P 500’s worst day since October 2020, equity markets showed no sign of recovery on Tuesday, with Wall Street futures down another 1% and Europe lagging. Since mid-February, European banks have lost a quarter of their share value and a drop in earnings seems inevitable
The next step under consideration – a ban on Russian energy imports – could make matters worse; Capital Economics expects Brent (currently around $120) to rise to $160 a barrel from currently around $215 a barrel and European natural gas to €300 a megawatt-hour.
Europe and a number of emerging countries would slide into recession.
Europe is resisting this ban, but it hasn’t stopped Brent from surging another $4 a barrel. Meanwhile, the green transition is becoming increasingly costly – from aluminum and steel used in wind turbines to nickel, a crucial component in electric vehicle batteries, prices continue to rise.
Supply chain disruptions are estimated to have pushed average transaction prices for new vehicles in the United States nearly a fifth above last year’s levels. The hit could be bigger in the coming year, and even more so in Europe – almost half of Germany’s nickel is sourced from Russia.
Rapid events and daily jumps in commodity prices make economic data stale. Still, they’re useful for anticipating what might come next; Oil import costs triggered Japan’s largest current account deficit since 2014, data showed.
The US February CPI, due Thursday, is expected to be up 7.9%y/y, but as last week saw the fastest gasoline price rise in 17 years, March prints could eclipse that.
As a result, the central banks are faced with the dilemma of growth and inflation. In the eurozone, where policy options are arguably the most limited, two-year German breakevens, a future measure of inflation, have risen above 5%.
Key developments that should give markets more direction on Tuesday:
– BOJ’s Kuroda rules out policy tightening to counter cost inflation
-German industrial production increases in January
-US trade balance/stock levels
-Poland central bank meets.
(Reporting by Sujata Rao; Editing by Dhara Ranasinghe)
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