Week Ahead: Russia/Ukraine Conflict, OPEC, Central Banks and NFPs
Will the war continue this week? Or will world leaders convince Russian President Putin and Ukrainian President Zelensky to meet for negotiations?
Russia invaded Ukraine last week and sent the markets into a tailspin, only to recover later in the week. The world reacted by imposing sanctions on Russia. Will the war continue this week? Or will world leaders convince Russian President Putin and Ukrainian President Zelensky to meet for negotiations? Additionally, OPEC+ meets this week on Wednesday. Will they increase production more than expected with Russia at war? With eyes on Russian/Ukrainian headlines, traders will also be watching central banks this week as the Reserve Bank of Australia (RBA) and Bank of Canada (BOC) meet on Tuesday and Wednesday, respectively. Will the RBA leave the door open for a hike this year? Will the BOC increase by 50 basis points? Additionally, the United States releases its Nonfarm Payroll report for February on Friday. Will it be able to top the January report?
Last week started with pins and needles markets waiting for Russia to invade Ukraine, even though Russia has said it has no intention of doing so. Mid-week, Putin declared the Donetsk and Luhansk regions as independent republics (although they are inside Ukraine) and sent in troops as “peacekeepers”. The gathered troops then began to invade Ukraine from Russia, Belarus and the Black Sea. Putin said the purpose of the invasion was to secure a new Ukrainian government favorable to Russia. Countries around the world have pledged to impose crippling sanctions on Russian entities, ranging from banks to corporations to Putin and Foreign Minister Lavrov. However, two sanctions targets that have yet to be hit are energy and SWIFT (the global financial transaction system). Putin has said he is ready to engage in high-level talks, but as of this writing, satellite images show large amounts of troops and equipment being built on the Belarusian border. Will Russia attack again or will negotiations begin (even China is asking for a diplomatic solution)? If the attacks continue, will they take the Ukrainian capital of Kiev? And how will the world react? Will they finally prevent Russia from supplying energy to Europe? Will they cut them off from SWIFT? So many questions to which the markets will seek answers this week!
OPEC+ is also meeting this week in what is expected to be an intense meeting with Russia. Reuters reports on Friday said “OPEC+ is expected to stick to the existing policy of increasing production quotas at a measured pace of 400,000 bpd at the next meeting.” However, will the events in Ukraine this weekend cause the member countries to change their tone at the time of the meeting? WTI and Brent crude oil were trading above $100 last week. Will OPEC+ want to increase supply to help bring the price down? Also, there may soon be a deal in place that will allow Iran to come back online to supply oil to the markets. How will this affect OPEC+ and the pace of supply production?
The RBA meets this week and is expected to leave rates unchanged at a record low 0.1%. At the January 2022 meeting, the RBA ended its A$275 billion bond-buying program. However, the board also said it will not increase the cash rate until real inflation is within the target range of 2-3%. Wage prices for the fourth quarter of 2021 released last week were 2.3%. Will this be enough for the RBA to present its rate forecast? The markets seem to think so, pricing in the first rate hike in August!
The last time the Bank of Canada met, it surprised the markets by not raising rates. However, they removed forward guidance language, which said it would hold rates at the lower bound. Since then, inflation has risen to 5.1% in January from 4.8% in December. This is the highest level since September 1991. Core CPI was 4.3% in January compared to 4.0% in December. This week, expectations are for a 25 basis point hike, which would take rates to 0.5%, but markets shouldn’t be surprised if they rise 50 basis points. Will the central bank increase by the larger amount? Or will the Russia/Ukraine conflict lead them to temper increases and only raise rates by 25 basis points?
Earnings season is coming to an end, but there are still a few major releases to watch, especially in the UK. They are: BNZL, ZM, LCID, HPQ, CRDA, SEA, BIDU, TGT, CRM, PSN, SNOW, BBY, AVGO, COST, ITV, LSEG, HMSO, LHA
The start of March brings with it early-month economic data, and it will be abundant. Australian, European and US manufacturing and services PMIs will be finalized, along with a review of Chinese PMI data. In addition, Germany and the EU will publish CPI data. To end the week, the United States will release February NFP data. Recall that the January impression was much stronger than expected. Can the February jobs report also beat expectations? The rest of the economic data schedule is as follows:
- Japan: Retail Sales (JAN)
- Japan: Prel Industrial Production (JAN)
- Australia: Prel Retail Sales (JAN)
- New Zealand: ANZ Business Confidence Final (FEB)
- Japan: Housing starts (JAN)
- Canada: PPI (JAN)
- United States: Chicago PMI (February)
- World: final manufacturing PMI (FEB)
- China: NBS Manufacturing PMI (FEB)
- China: NBS Non-Manufacturing PMI (FEB)
- China: Caixin Manufacturing PMI (FEB)
- Australia: RBA decision on interest rates
- Germany: Retail sales (JAN)
- UK: National Housing Prices (FEB)
- Germany: CPI Prel (FEB)
- Canada: GDP growth rate (Q4)
- United States: ISM Manufacturing PMI (FEB)
- OPEC+ meeting
- New Zealand: Building permit (JAN)
- Australia: RBA Map Pack
- Australia: RBA growth rate (Q4)
- Germany: Change in unemployment (FEB)
- EU: IPC Flash (February)
- United States: evolution of ADP employment (FEB)
- Canada: Bank of Canada decision on interest rates
- United States: Fed Beige Book
- Crude inventories
- Global: Final Services PMI
- Australia: trade balance (JAN)
- China: Caixin Services PMI (FEB)
- EU: Unemployment rate (JAN)
- EU: PPI (JAN)
- United States: Final unit labor costs (T4)
- United States: Final non-farm productivity (Q4)
- United States: ISM non-manufacturing PMI (FEB)
- Japan: unemployment rate (JAN)
- Australia: Final retail sales (JAN)
- Germany: trade balance (JAN)
- EU: Retail sales (JAN)
- United States: Nonfarm Payrolls (FEB)
- Canada: Ivey PMI sa (FEB)
Chart of the week: weekly CRB index
Source: Tradingview, Pierre X
So many commodities traded higher this week only to be pushed back and sent lower to end the week. From energy to metals to grains, shooting stars have formed on the weekly time frames. The CRB index contains many of these commodities. Note that the commodity index has been trading higher on a weekly basis in an orderly channel since bottoming in April 2020 near 101.38. Recently, the CRB index has traded higher for 10 consecutive weeks and 11 of the last 12. Last week, the index broke through the upper trendline of the long-term channel to reach a high of 269.02, just before the long-term horizontal resistance of 2014, and back into the channel. By doing so, it formed a shooting star formation, which is a 1-candle reversal pattern indicating that the price might be ready to pull back. Often when price fails to break out on one side of a channel, it moves to test the other side. Note that the RSI is also in the overbought territory, indicating that the price might be ready to turn lower. Horizontal support below is not until 241.18, then the lower trendline of the long-term channel near 235.00. Below, the price may fall to the 50-week moving average at 222.01. If prices continue higher, resistance is at last week’s high at 269.02, just ahead of the horizontal resistance from 2014 at 272.04. Above there, the price may trade up to the 50% retracement level from the June 2008 highs to the April 2020 lows at 287.73.
The Russian invasion of Ukraine will be in the headlines this week. However, don’t forget other potential events in the market this week, such as the RBA and BOC meetings, the OPEC+ meeting and the non-farm payrolls. These events all have the potential to move the markets!
Have a great weekend and be safe no matter where you live!