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Markets stabilise despite uncertainty

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By Craig Erlam

A little bit of positivity seems to have returned to the markets on Wednesday, but there’s still plenty of underlying unease amid a mixed bag of earnings and rising uncertainty.

Earnings season will continue to be a core focus for investors, despite the wide array of factors that have been dominating market sentiment for months. It has gone quite well so far, but it’s clear that there are some big challenges ahead which explain why we’re not seeing the lift we may otherwise see.

And when Russia is cutting off gas supplies to Poland and Bulgaria in response to their refusal to pay in roubles, following Putin’s decision to change the terms of payment, you can understand why. This may be a warning sign to others in the hope that they don’t follow suit, but if they do, the standoff could play havoc with energy prices.

It will also continue to be a headwind for European stock markets as a result of the bloc’s heavy reliance on Russian gas.

The weaponisation of gas was long seen as an unlikely last resort, but now the Kremlin has got the ball rolling, the risk has become significantly greater which could pose a massive economic threat to the EU.

Oil prices slip as gas prices soar

Natural gas prices in Europe have understandably spiked in the aftermath of Russia’s decision to cut off Poland and Bulgaria.

Suddenly, the market is forced to price in the Kremlin taking similar action against much larger customers, having decided that the threat of Europe imposing the embargo was low, given certain resistance.

With the Kremlin putting itself in a position where it must apply the same punishment to all if they don’t comply, Europe may find itself without Russian gas or looking weak.

Oil prices have continued to slip despite the ramp-up in tensions between the EU and Russia. Chinese lockdowns have helped ease some of the upward pressure on crude prices in recent weeks which is offsetting the hit to Russian supply as a result of sanctions.

Still, it remains above $100 and it’s hard to imagine the price falling significantly below against the backdrop of such uncertainty and an inability of OPEC+ to hit targets.

Lost appetite for gold?

It’s been a strange month for gold which rallied towards $2,000 on seemingly little, before plunging back below $1,900 on very little as well.

The spike in volatility has left the yellow metal not far from where it was throughout much of March.

I find it very hard to believe that the appetite for gold is waning, given the immense uncertainty and inflationary pressures that still exist. A break below $1,880 may suggest otherwise.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.