Geopolitical tensions | 18 February 2022

#SP500:

U.S. Investment Banks said it expects seven 25 basis point interest rate rises from the Federal Reserve this year, up from its previous forecast of five and updating its forecast after U.S. inflation data. U.S. consumer prices surged 7.5% last month on a year-over-year basis, topping economists' estimates of 7.3% and marking the biggest annual increase in inflation in 40 years, further adding to pressure on the Fed to raise rates more aggressively. Fed to front-load rate rises more than previously anticipated, with a 50-basis point hike in March and four additional quarter-point rate rises in 2022. This is a negative signal for the stock market.

Trading recommendation: sell 4488 and take profit 4315.

#WTI:

Oil prices ended 3% higher on Friday at fresh seven-year highs as escalating fears of an invasion of Ukraine by Russia, a top energy producer, added to concerns over tight global crude supplies. Russia has massed enough troops near Ukraine to launch a major invasion, Washington said, as it urged all U.S. citizens to leave the country within 48 hours. U.S. Secretary of State Antony Blinken expressed hope that Putin would choose diplomacy but said Washington would impose swift economic sanctions if Moscow invades. Two calls in December between Biden and Putin produced no breakthroughs but set the stage for diplomacy between their aides. The two leaders have not spoken since, and diplomats from both sides have struggled to find common ground. Ukrainian officials have tried to tamp down Washington's assessment an invasion could be imminent. A reduction in geopolitical tensions will have a negative impact on the price of oil.

Trading recommendation: sell 93.44 and take profit 90.00.

#FTSE100:

Investors expect the Bank of England's Monetary Policy Committee to raise interest rates by an unprecedented half a percentage point at its March or May meeting, and to make a quarter-point rise at the other. Markets now price in a 98% chance of a total 75 basis points of tightening by May's meeting. British two-year government bond yields, which are sensitive to speculation about BoE rate decisions, climbed by around five basis points to a peak of 1.414%, their highest since 2011. The BoE has said it will stop reinvesting the proceeds of gilts which mature from its 875-billion-pound quantitative easing stockpile, placing extra pressure on gilt yields. It reiterated last week that it would consider actively selling gilts once Bank Rate reaches at least 1%.

Trading recommendation: sell 7610 and take profit 7500.