Business Activity Worries Amid Energy Crisis

Yesterday were published data on business activity in Europe from Markit. On the one hand, everything seems to be not bad: business activity in the service sector and manufacturing is growing (indices above 50). On the other hand, in most cases the data came out worse than expected, and in the service sector of the Eurozone it is generally at the lowest level since April last year.

Well, and another alarming signal (according to British data) more and more companies as a method of dealing with rising costs are choosing to raise prices for their products. That is, the inflationary spiral unwinds.

It will be all the more interesting to follow the results of the meeting of the Federal Open Market Committee on Wednesday. Moreover, the competition among analysts who will give a larger forecast for the number of rate hikes in 2022 continues. According to Goldman Sachs, the Fed could raise rates 7 times (!) in 2022. In addition to this, according to Goldman experts, the Fed may announce the beginning of balance sheet reduction in May already in May. But we will talk about this in more detail on the eve of the announcement of the results, that is, tomorrow.

And today I would like to note the high prices for energy assets. The threat of Russian military action against Ukraine greatly worries market participants, especially at the peak of gas consumption. Recall that it was the situation on the European gas market that provoked the energy crisis. In this light, the continued rise in oil prices looks quite natural. But our medium-term position is still unchanged - we believe that the worst-case scenario will not come true, which means that current oil prices are definitely overpriced.

We also note that negotiations with Iran seem to be close to a happy ending. And this means the lifting of sanctions, which almost automatically means an increase in supply on the oil market.