Ongoing Market Commentary: Cap on Russian oil

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

European equities gained ground on Monday, with the Euro Stoxx 50 adding roughly 1%, buoyed by bargain hunting for beaten-down shares. Elsewhere, US stock markets remained closed yesterday for the Juneteenth holiday. 

Summary

• Shares in Asia rose on Tuesday, with the Nikkei bouncing back from a 3-month low and the ASX recovering from 19-month lows. In addition, equities in Hong Kong hovered at a near 2-week peak, boosted by Evergrande’s restructuring plan, while those in China edged up after being muted in the prior session. 
• European equity futures also rose this morning with US contracts amid steadier investor sentiment compared with last week’s rout. 
• Oil prices rose more than 2% on Tuesday, recouping some losses from last week. US Treasury Secretary Janet Yellen said on Monday that the US is in talks with Canada and other allies globally to further restrict Russia’s oil revenues by capping the price it would get for its crude. 
• The Reserve Bank of Australia flagged more rate hikes over the months ahead amid current inflation pressures and the still very low level of interest rates in the country, the minutes of the cental bank’s June meeting showed. Meanwhile, Governor Philip Lowe said in a speech that Australia’s inflation is to peak at around 7% by the end of the year as pandemic-related supply chain disruptions resolve. 
• China Evergrande Group late on Monday said it will announce its preliminary restructuring plan before the end of next month, sticking to its original deadline even as the world’s most indebted property developer struggles to emerge from its financial crisis. 
• Danone announced that it will be trimming its product range to cut costs. On Friday, Tesco warned Britons are buying less, switching to cheaper products and shopping more often as they try to cope with the cost-of-living crisis.