The spillover was most obvious in bullion where gold traded above $2000 for the first time since July 2020 and in Brent crude oil which soared 18% to more than $139 a barrel, building on its 21% gain last week.
In the equity space, the oil-importing Asian equity markets were amongst the hardest hit following their reopening.
The Hang Seng fell 3.22% adding to its three-week loss of approximately -12% compounded by spiralling Omicron cases. While the Japanese stock index, the Nikkei, traded down 3 ½% to start the new week.
U.S equity futures were able to outperform after their re-opening. Case in point the Wall Street falling about -0.93% likely due to a belief that the U.S. is energy self-sufficient.
While this is broadly true, the U.S. exports crude oil (unrefined) and in turn, it imports diesel and gasoline. This is partly because U.S. refineries were built when the U.S. was an importer of heavy (i.e. high sulphur) crude from Mexico and Venezuela and as such, U.S refineries are poorly suited to refine shale crude.
While the base case is the conflict in Ukraine is likely to get worse before it gets better, and due to the impact of high energy and commodity prices that bring an undesirable mix of higher inflation and slower growth, the preference is to remain underweight equities with a preference to buy weakness and to strictly avoid chasing rallies.
From a trading perspective, we adopt a similar approach mindful that there is a range of outcomes for the war in Ukraine, from a full-blown disaster to a complete de-escalation via regime change in Russia, hence the use of stop losses is imperative.
Trade Idea: Look to buy the Wall Street into new lows near wave equality at 32,100, with a stop loss placed at 31,100. The target for the trade would be a return to resistance at 34,100 providing a trade with a 2:1 risk-reward ratio.
Source Tradingview. The figures stated areas of March 7th, 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
How to trade with City Index
You can trade with City Index by following these four easy steps:
Latest market news
Open an account today
Experience award-winning platforms with fast and secure execution.
Web Trader platform
Our sophisticated web-based platform is packed with features.