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14 Apr 2022
1 min read

Stocks Rise As Macro And Geopolitical Headwinds Mount

Global Macroeconomic Analysis

Stocks are lower at the start of the week on growing evidence that the Federal Reserve will be more committed to its monetary policy inflation-fighting stance.

However, markets have been surprisingly resilient on the surface. Discussions have centered on whether this week’s US March CPI data will point to the pinnacle of the inflation cycle and assist the Fed’s chances of better engineering a soft landing. But, perhaps most importantly, it may alleviate some of the market’s recession obsession, which is based on a Fed policy blunder. This is still a very volatile market, with investors chasing marginally positive and negative news as a proxy for where we are in all of this; so, predicting bull or bear on an intraday basis is difficult.

French Elections, Macron vs. Le Pen, And The EUR/USD

The first round of the French presidential election appears to be setting up a second-round showdown between Macron and Le Pen. According to the most recent projections based on votes cast, President Macron will receive 27.6% of the vote, while Le Pen will receive 24.0%, with the incumbent improving on his 2017 first-round result by 3.59 percentage points. A larger improvement than the challenger’s 2.7 percentage point gain.

The combined polling (52.4%) of anti-establishment contenders (Le Pen 24%, Melenchon 21.4%, Zemmour 7%) may temper any comfort in the EUR and narrower OAT/Bund spreads when European markets open. Most of those who voted for Melenchon on the far left are unlikely to vote for Le Pen. Nonetheless, increased uncertainty on this issue heading into the second round on April 24 should deter significant positions in EUR longs and OAT/Bund tighteners in the interim. According to the Ifop institute’s most recent poll, Macron will win by a margin of 51% to 49%.

Fundamental Analysis of Oil

Brent briefly fell below $100 per barrel again on Friday, as the IEA’s hefty emergency release weighed on prices. Despite more aggressive central bank policies, oil price advances remain constrained by China covid concerns and global recession fears. Still, after Russian Deputy Prime Minister Alexander Novak warned that Russian output could be down 4-5 percent m/m, or 550kb/d, in April, declines are encouraged. According to the most recent figures, production had already dropped to this level at the start of the month.

The market’s expectations for Russian export disruption look to be unrealistic. For starters, we’ve already surpassed Novak’s predictions. Second, more businesses are committed to a ‘private sector embargo,’ such as Total, which is slowing down its purchases by end of the year.

Fundamental Analysis of Gold

The market is forming a base around 1915-25, and gold is beginning to trade more proactively. With the majority of the Fed’s rate hikes being priced in, it appears that time is on the bulls’ side; as long as inflation remains at 7% y/y in key nations throughout the world, Gold should continue to be supported.

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*OspreyFX would like to state that traders should research extensively before following any information given hereby. Any assumptions made in this article are provided solely for entertainment purposes and not for traders to guide or alter their positions. Please read our Terms & Conditions and Risk Disclosure for more information.

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