Oil

Oil has now reached a new high for the week. This is the third consecutive week of gains.

The oil market’s resilience this week is astounding.

Nonetheless, oil is poised to gain for the third week in a row. The previous week’s close was $109.77, and it is currently trading at $110.16. The $110 level is also significant because it is close to the late-April interim high and the pennant that it formed.

The demand side is clearly hampered right now, and this will worsen. Nonetheless, the market remains buoyant. The only nagging concern is that some major players in the EU or Asia may be aggressively stockpiling.

Russia has talked a big game, but people have realised that they can’t keep delivering oil.

Oil bulls must raise their forecasts significantly. This week, Pierre Andurand mentioned $180 oil, which is suddenly very realistic.

Just as importantly, barring a global economic disaster, you can set a floor for oil near $80. There will be no new supply, and investment this year (both planned and executed) will be significantly lower than in 2019.

US Stock Markets

• The collapse of US stock markets late in the week would be a devastating blow.
• Stocks cannot afford another loss.
• The price action in risk assets over the last hour has been depressing. The S&P 500 has reduced its 110-point gain to a 60-point gain. That’s still a 1.5 percent gain, but there are still 90 minutes of trading left.
• If the index has already been down for six weeks and can’t muster a decent relief rally, it’s game over.
• Part of the issue is illustrated by the cross-asset look. Today, US 10-year yields are up 11 basis points. As a result, stocks experience a negative feedback loop.
• In the crypto space, bitcoin has been a good leading indicator for risk sentiment, and it’s now back below $30,000, with the lows of US trading at $29,480.

ECB

• Two powerful economic forces are exerting pressure on the ECB’s monetary policy.
• The asset purchases could be terminated at any time during the third quarter.
• The European Central Bank kept its benchmark credit costs unaltered, exactly as expected, and stuck to its decision to end the improvement program in the second from last quarter of this ongoing year, but gave no additional nuances, discouraging business areas, as many expected a hawkish reaction considering rising extension, which incited different critical public banks to begin fixing courses of action.
• The main obstacle, according to ECB President Christine Lagarde, is growing uncertainty about the war in Ukraine, but the central bank will maintain optionality, gradualism, and flexibility in conducting monetary policy.
• The end of asset purchases could occur at any time in the third quarter, with no further information on the timing, as well as no timeframe for when the central bank would begin to raise rates, adding that rate hikes could occur weeks or even months after the stimulus ends and when the ECB arrives.
• The European Central Bank’s startlingly timid position proposes that it is separating from all significant companions, as the US Federal Reserve and the Bank of England have proactively started to fix their approaches after almost three years, with the US national bank driving on assumptions for at least eight climbs in the following two years.
• On the other hand, the European Central Bank is concerned that raising interest rates at a time when the economy has yet to recover from the Covid pandemic will have a negative impact. Overall, the EU is in a difficult situation, as five top German economic agencies sharply reduced their forecasts for the bloc’s largest economy’s GDP growth, which is expected to reflect on the entire union’s economy, with a dramatic warning that the economy would fall into recession as the EU sanctioned itself by imposing sanctions on Russian energy.

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