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LGT Navigator: Potential embargo continues to drive commodity prices

March 8, 2022

The war in Ukraine and soaring commodity prices are hitting stock markets and increasingly clouding the global economic outlook. Against the backdrop of a potential embargo on Russian oil, oil prices climbed to their highest level since 2008 and will slowly but surely strain consumer budgets and put a painful strain on consumption. Considering this, investor sentiment remains highly tense and concerns about potential stagflation are growing. Once again, direct talks between the conflicting parties failed to produce any tangible results.

Potential embargo continues to drive commodity prices

In Europe, stock markets initially opened deep in the red. In Frankfurt, the Dax lost up to -5% at the start of trading and fell back to its lowest level since November 2020. Since the beginning of Russia's invasion of Ukraine, the German benchmark index has at times lost around 2'000 points or around -14%. On Monday, the European indices were initially able to recover, but then closed with collapsing prices in New York nevertheless clearly in the red. On Wall Street, the geopolitical uncertainties and the sharp rise in commodity prices provided for continued pressure. The Dow Jones Industrial decclined at the beginning of the week by -2.37% to 32'817.38 points and the S&P 500 fell by almost -3% to 4'201.09 points. On the technology stock exchange Nasdaq, the indices fell by about -3.75%. The only winners now are more or less shares from the energy sector or defense equipment and defense technology manufacturers.

On Asia's stock exchanges, the negative trend continued for the most part on Tuesday. In Tokyo, the Nikkei 225 index lost around -1.8%. Against the backdrop of the Ukraine war, safe havens such as the Swiss franc or gold remain in demand. At the start of the week, the gold price in US dollars climbed for the first time since mid-2020 to more than USD 2'000. In euros, the gold price already reached a new record high due to the weakness of the euro. On the foreign exchange market, the euro fell against the US dollar in the meantime to its lowest level since May 2020. Meanwhile, the yield on ten-year US government bonds rose again from around 1.70% to around 1.79%,

Oil prices continue to rise sharply, and Russia threatens to turn off the gas tap

A now seriously discussed import stop for oil from Russia has driven the oil price quotations on Monday to the highest level since 2008. At times, around USD 139 had to be paid for a barrel of the North Sea sort Brent, nearly +18% more than on past Friday, before the price weakened on Monday again. Thus, Brent has become about one third more expensive since the beginning of the invasion of Russia, and by about two thirds since the beginning of the year. At the beginning of the week, the price of US West Texas Intermediate (WTI) crude climbed above the USD 130 mark for the first time since 2008. An embargo on Russian oil would hit Europe hard and jeopardize the continent's energy security.

For its part, Russia is now threatening to halt gas supplies through the Nord Stream 1 Baltic Sea pipeline. According to the International Energy Agency (IEA), the European Union covers around 40% of its consumption with Russian gas.

Investors' economic outlook dims sharply, according to Sentix survey

According to the assessments of German financial professionals, the outlook for the euro economy has again deteriorated significantly in view of the Ukraine war. The monthly economic indicator compiled by the financial market analysis company Sentix fell by 23.6 points to minus 7.0. The decline was thus even more pronounced than analysts had forecast. The expectations of the approximately 1,200 investors surveyed have become gloomier than ever before in the 20-year history of the Sentix economic index. The main reason for this was the feared further rise in energy costs.


Economic Indicators March 8

MEZ Country Indicator Last period
08:00 GE Industrial Production (January, m/m) -0.3%
11:00 EZ GDP Q4 (q/q, revision) +0.3%
14:30 US Trade Balance (January) USD -80.7bn


Earnings Calender March 8

Country Company Period
SZ Lindt & Spruengli Annual
FR Danone Capital Markets Day


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