March 8, 2022

“Sterling rose by 1.2% against the Euro last week – the strongest advance since November 2021, as Europe’s economic outlook darkens, and its currencies are struck by the market response to Russia’s war on Ukraine.”

Sam Cornford, Partner – Head of Trading

Main Headlines

The spike in oil and gas prices triggered by the Ukraine conflict and western moves to punish Moscow has raised the threat of the worst stagflationary shock to hit energy importing economies since the 1970s. Crude prices surged after US secretary of state, Antony Blinken, said that the US and its allies are engaged in a “very active discussion” about banning the import of Russian oil and natural gas, in a new escalation of sanctions in retaliation for its invasion of Ukraine. On Monday, US politicians were discussing bipartisan legislation while European officials were devising plans to reduce reliance on Russian fossil fuels. Even without a ban on exports from Russia, the second-biggest crude producer, many experts doubted whether the global economy, and Europe’s in particular, was robust enough to escape a new oil crisis and recession.

Prime Minister Boris Johnson rejected calls on Monday for Britain to ease visa requirements for Ukrainian refugees fleeing conflict, saying Britain was a generous country but it needed to maintain checks on who was arriving. Responding to criticism Britain was not doing enough and was far behind its European neighbours in helping address the continent’s biggest humanitarian crisis since World War Two, Johnson said: “We are a very, very generous country. What we want though is control and we want to be able to check. I think it’s sensible given what’s going on in Ukraine to make sure that we have some basic ability to check who is coming in.” The British government has been condemned by charities, opposition lawmakers and France, after its insistence that refugees first acquire a visa meant some Ukrainians have been stuck in the French city of Calais, unable to enter Britain.

GBP

Sterling is weaker than most major currencies in the early morning trade. Boris Johnson is preparing to unveil a new UK “energy supply strategy” in the wake of Russia’s invasion of Ukraine that could involve more oil and gas production in the North Sea. The Prime Minister insists he is not reneging on the government’s pledge to cut carbon emissions, but says the UK needs to be more self-sufficient in terms of its energy sources. As Britons grapple with a widespread cost-of-living crisis, the government’s new energy supply strategy is not expected to provide immediate relief to households facing the crisis. Johnson said at a news conference on Monday that ministers were looking at the option of using more oil and gas from British sources: “It is absolutely the right thing to do to get rid of our dependence on Russian hydrocarbons, but we have to take it step by step. We have to make sure we have alternative supplies. One of the things we’re looking at is the ability to use more of our own hydrocarbons. We need to strengthen our self-reliance.”

EUR

The Euro is stronger against British Sterling and weaker against the US Dollar this morning. Today, the European Union will outline a plan to cut Russian gas imports by two-thirds within a year, as it seeks to reduce its reliance on the country’s fuel supply following Moscow’s invasion of Ukraine. European Green Deal commissioner Frans Timmermans said the bloc could import more liquefied natural gas, promote faster renewable energy production and cut demand with efficiency measures. Timmermans added that the EU could still meet its goal of limiting global warming by cutting greenhouse gas emissions by at least 55 percent by 2030, and a target of net zero by 2050, as long as renewable energy has increased. The commission’s proposed savings double those suggested by the International Energy Agency in its 10-point plan last week, and gas prices have hit record lows on rising global demand and the prospect of Russia cutting supplies. The proposal also relies on curbing energy use by lowering thermostats and improving home insulation.

USD

The US Dollar is well bid against most major currencies overnight. The US Treasury department is warning US banks and financial institutions to be on alert for attempts by Russian state actors and oligarchs to evade sanctions, including via cryptocurrency transactions, as it tries to pre-empt efforts to circumvent measures imposed on Moscow for its invasion of Ukraine. The Treasury department’s Financial Crimes Enforcement Network (FinCEN) sent a note on Monday to US financial institutions advising extra “vigilance” over potential sanctions evasion activity and offering guidance on “red flags” to spot such moves. The message from FinCEN follows heavy sanctions imposed by the US and its allies on key Russian financial institutions, oligarchs and their family members as well as the country’s central bank and state-owned enterprises. It comes amid concerns that some Russian entities and individuals might try to use cryptocurrency to elude the US and European sanctions.

Markets

Stocks in Europe gained, and the Euro strengthened after a report that the European Union is considering joint bond sales to finance energy and defence spending, as the bloc copes with the fallout from Russia’s invasion of Ukraine. European bonds declined. The Stoxx Europe 600 index reversed an early decline to climb more than 1%. Futures on the S&P 500 and Nasdaq 100 erased declines. Treasury yields ticked higher, and the dollar slipped. Nickel rose as much as 111% to $101,365 a ton on the London Metal Exchange. Oil in New York pushed past $122 a barrel on fears of disarray in commodity flows stemming from the war in Ukraine and sanctions on Russia. European gas futures jumped as much as 32%, after Russia threatened to cut natural gas supplies to Europe via the existing Nord Stream pipeline.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: Germany Jan. industrial production
8:00 a.m.: Norway Jan. GDP
9:00 a.m.: Spain Jan. industrial production
9:05 a.m.: Riksbank’s Jansson speaks
10:00 a.m.: Italy Jan. retail sales
11:00 a.m.: Euro-area 4Q GDP, household consumption index
11:00 a.m.: Hungary Feb. budget balance
12:00 p.m.: Ireland Jan. industrial output
Poland’s rate decision
Apple new product event
EIA releases Short-Term Energy Outlook
International Women’s Day

Corporate Events

Earnings include Ashtead, Lindt

To learn more about Ballinger & Co., please visit our website or our LinkedIn page.