Massive Week For Oil, Gold And Pound Sterling

Asian equities rose for a second day as Chinese tech shares extended a rally on Internationally renowned foreign exchange tradersprospects of more buybacks and as continued yen weakness boosted stocks in Japan. Oil rose on the possibility of new sanctions on Russia over its invasion of Ukraine, and US crude inventories declined.

Reuters reports Russian and Kazakhstan oil exports via the Caspian Pipeline Consortium from the Black Sea may fall by up to 1 mn barrels per day due to storm-damaged berths. A Russian official said on Tuesday. Deputy Energy Minister Pavel Sorokin said the maintenance could take two months. I guess when it rains, it pours.

Oil

It's a massive week for oil markets, with meetings of EU leaders and a NATO summit both happening over the next few days. A new wave of Russian sanctions is likely, and speculation in the press has focused on the probability of sanctions affecting oil.

The US and UK have already imposed bans on Russian oil, and many EU member states support a ban. Still, a few key players (notably Germany and Hungary) oppose, and a decision must be unanimous.

There is also speculation today about the possibility of a new Iran deal, with the US reportedly ready to remove the "foreign terrorist organization" designation for Iran's Revolutionary Guards Corps. Iran's ~1.3mb/d of production upside would hit the oil price under normal circumstances but represents only a fraction of what might be lost from Russia.

Gold

Gold seems to be mirroring moves in Brent, and rightly so. Possible EU sanctions on Russian Oil could send Brent +$125  and moonshot inflation expectations favourable for bullion. 

Sterling

The UK February CPI came in at 6.2% y/y against forecasts for 6.0% and after January's 5.5%. The headline RPI rate was 8.2%, in-line, and up from 7.8% in January.

Robust data, but the BoE had already previewed this (and the next few month's worths of data) last week. It warned that the CPI is likely to have topped 8% before the spring is out. Against that backdrop, the data is in the price as FX and rates markets are looking for much higher inflation prints given the aggressive rates pricing. 

That said, ahead of Chancellor Sunak's Spring Statement amid growing pressure to help ease the cost of living squeeze, Sterling should remain supported on the post CPI dip. 

One issue that popped up on this morning's radar is there are 30,000 UK corporates that source energy via contracts with Gazprom (OTC:OGZRY). The FT reports that if these UK companies lost their hedges with Gazprom, it would likely cost them a double-digit billion-pound due to being suddenly exposed to significantly elevated prevailing market prices. Indeed, that could keep the Cable bulls awake at night. 

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