Stock prices in Europe seem to be falling another day this week. Germany's DAX is losing more than 0.5 percent. Investors may be worried that Europe's economic recovery will lose momentum due to an increase in illnesses during the third wave of Covid-19 and the introduction of more restrictions that are expected to last until the second half of April. The Netherlands has joined France, Germany and other countries in extending the curfew in addition to the lockdown. According to the WHO, the current disease trend is again alarming.
The deterioration of the situation in Europe seems to be reflected on the euro exchange rate as well. EUR/USD quotations fell to the lowest level since November 2020, being already close to 1.1800. As a result, the entire US dollar index rose above 92.5 points. The shift in risk appetite seems to have favored flows towards the safe haven, with the overall better performance of the US economy compared to the rest of the world adding to the buying momentum.
In the broader scenario, the combination of very soft monetary policy, unprecedented government spending and the successful introduction of vaccines has led investors to bet on a faster US economic recovery and inflationary pressures. Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen reiterated during a hearing before the House of Representatives that the US economy is recovering from the coronavirus crisis. The most pronounced USD strengthening was seen against risk-sensitive currencies such as the Australian and New Zealand dollars, which have reached multi-month lows against the US dollar.
However, one of the more surprising events of Wednesday's trading turns out to be the blockage of the Suez Canal by a 400 meters container ship that stood almost across the canal, completely blocking shipping traffic on it. We knew before noon on Wednesday that several attempts made to unblock the canal were failing. It seems that we could already see the first reaction to this event on the oil market, which rose by more than 1 percent, to $59 per barrel WTI. According to the U.S. Energy Information Administration, nearly 10 percent of total oil trade and 8 percent of global LNG trade passes through the Suez Canal. Oil market participants are now awaiting the EIA's weekly inventory reports, which will be released later in the day.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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