Calendar Week 10 – 2022
Last week we said the Aussie dollar should do OK, in fact most commodity currencies would. I’d like to run through the price of commodities for you since the Russian invasion of Ukraine just two weeks ago. This is from global Futures markets as of the closing price from Feb 18th to March 5th.
- Bloomberg Commodity Index is up 15 points which is +14%, the biggest move since 1974 and also a record high.
- Gold is up 4%. However, the energy and industrial metals markets are truly kicking higher.
- West Texas Oil is up 26%, whilst UK Brent Oil is up 28%, and Natural Gas up 16%.
- Iron ore is up 8% with Copper up 9% and Coal a staggering 134%.
- If you think energy prices are going to hurt your disposable income, lets take a look at some of the soft commodities.
- Beef Cattle is a little cheaper, down 5% and Oats also down 3%. But Milk is +8%, Rice +9%. Corn is +15% and wheat is +50%.
Russia is a large exporter of energy and wheat so it is understandable that these rises would occur during the confrontation. What is also affecting prices is supply lines still not fully operational thanks to COVID and countries like China still operating under restrictions. This is going to impact not only you at home but all globally and the poorer third world countries are really feeling the pinch right now.
If you thought inflation was high here in Australia, or even higher in the USA, well it ain’t over yet.
FOMC Meeting
Yes the US Fed will most likely raise rates next week, by at least 25bps, even though the bond yields are collapsing – signalling a potential QE5 by year end. But what will they do about petrol bowser prices and everyday food prices? Will the government be forced to provide food and fuel stamps – which is another form of fiscal stimulus? We will have to wait and see, but it will be tricky so trade accordingly.
European Sell Off
All this commodity and safe haven flow has hit the global stock markets and anything European too. Thanks to the spiking energy and commodity markets, the Aussie and Canadian (stocks and currencies) have bucked the selloff trend. Whilst the US dollar, Yen and the Kiwi dollar also finding (safe haven) flows, but their stocks were in line with the global trend.
The week ahead on the economic calendar brings us the European interest rates and US inflation numbers. The ECB last month indicated a potential end to their loose monetary policy as signs of growth flourished in the union. That now has vanished I would suggest and think the ECB will remain on the fence both with the headline rate and forward guidance. The silver lining for them is the Eurodollar tanking which will give them some breathing room anyway. US Inflation numbers is expected to still be in the high 7% range.
So back to FX markets, the trend of stronger Safe Haven currencies (JPY, USD, CHF, NZD) and Commodity currencies (AUD, CAD) should continue but maybe not at the pace of last week. Look to buy and dips of these and to fade any rallies in the weaker currencies of EUR and GBP.
