The stock
market in the United States seemed to be recovering after the first shock of
military conflict between Russia and Ukraine. But this week sanctions against
Russia are on the front page as U.S. President Joe Biden announced the ban on Russia’s
oil imports that will begin this April. This is the ultimate devastating
economic weapon against Russia that will also hit the American economy.
The United
States imports 8% oil liquid fuel from Russia. Such harsh restrictions will
certainly push energy prices up along with the inflation in the United States.
The United Kingdom followed in America’s footsteps by announcing a gradual oil
import ban from Russia by the end of 2022. The Commonwealth oil and oil
products that are imported from Russia stand at 8% of demand. Brits have also
refused to ban gas imports from Russia.
The U.K may
be looking at an inflation rate of up to 8.5-9.0% in the second quarter of 2022
after this decision, while GDP may slow down to 1.9% from 4.2% forecasted
before. Real incomes may deteriorate by 4.8%, which is the highest drop in the
last 67 years.
The market is
now expecting the European Union to make the next move and join in the energy
ban of Russia. However, the EU is much more dependent on oil and gas supplies
from Russia as oil imports accounts for 30% of the total and gas imports are at
40% of the overall demand. These numbers are critical. But European
policymakers seem to forget their own economic interests amid fears of Russian
aggression. Even Serbia, a true historical ally of Russia, is now ready to join
the European oil ban if it is imposed. “Unfortunately, I would like to say that
I expect the situation to calm down. It is important for us to analyze the
events. There have been terrible disturbances that will affect Serbia as well.
Joe Biden has banned the import of oil. There are 3.4 percent of Russian oil on
the American market. We expect an EU decision tomorrow," Serbia’s
President Aleksandar Vucic said on Tuesday. So far Serbia has not put any
sanctions on Russia, but it has banned imports of wheat, corn, flour and
cooking oil to counter price increases. Serbia is a candidate to join the EU,
but such words from Mr. Vucic may mean some restrictions on oil imports from
Russia are likely to be imposed on the European level.
The consequences
of such a decision could be catastrophic not only for the EU, but for the
entire global economy as it may prompt Brent crude to soar to $160.00-180.00
per barrel and bring forward an inflation tsunami just like in 2008. Even if
the U.S. succeeds in significantly increasing oil pumping in Venezuela, Iran,
Saudi Arabia, and United Arab Emirates this would not improve the overall
economic situation. Major central banks have no other choice but to hike
interest rates sharply to tackle blistering inflation. That would force
economies to slide into a recession and provoke stock markets to crash.
This week
investors will be anxious to see February inflation data from the United States
and also the statement of the European Central Bank (ECB) after its meeting on
Thursday. Both are important for the market, but the levels of the oil bank are
far more significant. This issue will certainly impact prices and ECB’s moves.
The technical
picture for the S&P 500 broad market index has changed dramatically after
the index fell on Monday. Aggressive sell positions from 4310-4330 points with
the target at 3950-4050 points could be considered.
The oil
market is preparing for the exponential growth to the ultimate target of
$160.00-180.00 per barrel of Brent crude. The rally might be stopped at the
resistance level of $132 per barrel, but it is likely to resume once the EU announces
some kind of oil imports ban from Russia.
Gold has
strongly reacted to the oil ban on Russia by the U.S. and the U.K. as prices
peaked $2060-2070 per troy ounce. Technically we may expect a turnaround of
gold prices with the downside target at $1840 per ounce, or even $1750-1760.
However, in case of further developments, geopolitical factors may keep gold
prices at record highs.
EURUSD
reached its downside targets and is trying to bounce back towards
1.12000-1.13000. This scenario is highly likely. So, in case of a downslide to
1.08900-1.09200, some long positions with the target at 1.10000-1.10500 by the
end of this week could be considered.
GBPUSD is
on the downside track. If the pair succeeds to rise to 1.31900-1.32000 it could
be a signal for an upside correction. Only some small aggressive long positions
could be considered at 1.31200-1.31400 with the target at 1.32100-1.32300.