Market Overview [41] - Europe is in trouble
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It is now six months after Russia started their ‘military operation’ in Ukraine. While Europe is fighting hard to prevent a recession, economical damage since the war is becoming clear with high energy prices, record breaking inflation and a falling euro €.
Europe’s Economy
Monday was not a good day for Europe when the price of natural gas hit a new all-time high through Gazprom’s new unannounced maintenance break.
European TTF prices increased more than 14 times their average of the past decade, this may crimp industrial production in Europe and push the region into a recession. Widespread fears of shortages this winter have led gas users to try to lock in supplies, pushing up prices even more as fears of a severe economic slowdown grow.
All this fear had also impact on the euro, the currency slumped on Monday to its lowest level since 2002 as a fresh surge in gas prices heightened worries over the region’s economy. But we believe that the euro has been through the worst and that the dollar will be next to fall.
Another problem is high inflation. Consumers are paying every month more for basic necessities like food and energy and if we look at the image above it looks like the trend isn’t slowing down.
Another problem lies with the the ECB, europe’s central bank. it is currently with its back in a corner because it can’t hike interest rates fast enough to dampen inflation, this is because lower developed counties with the biggest debt will be hit the hardest if interest rates increases, and would likely default on their debt.
Ukraine News
Zelenskiy says Russia has placed the world “on the brink of a radiation disaster”. “The Russian military made the territory of the largest nuclear power plant in Europe a combat zone. Now all of Europe and all neighbouring regions are under the threat of radiation pollution,” he said in a Wednesday evening address. Zelenskiy also called for the UN’s nuclear watchdog to take “permanent control” of the situation at the Zaporizhzhia nuclear power plant.
The US president, Joe Biden, will speak with the Ukrainian president, Volodymyr Zelenskiy, after the announcement of a further $3bn in US military aid for Ukraine. John Kirby, the communications coordinator at the national security council, said the phone call would also provide the Ukrainian president with an update on US arms shipments.
Russia Military
Vladimir Putin has signed a decree to increase the size of Russia’s armed forces from 1.9 million to 2.04 million, as the war in Ukraine enters its seventh month with no signs of abating.
The Russian president’s decree appears to point to the country’s aim to replenish its military, which has been heavily damaged in Ukraine and has failed to achieve its objective to capture the capital, Kyiv.
The order, which will come into effect on 1 January, includes a 137,000 rise in the number of combat personnel to 1.15 million.
It marks a noticeable increase in army personnel since the last time Russia expanded the size of its military in 2017, when it added 13,698 military personnel and 5,357 non-combatants.
Asia
On the other side of the world, South Korea started their biggest military drill since years with the United States. This is because of the ongoing threats of North Korea with their active nuclear program which has become more aggressive in the recent years.
This is another conflict in Asia what is escalating more with time.
Technical Analysis
In this week their wasn’t much of good news, so how are the indices like the S&P 500 reacting to it? Not that bad actually, while the index fell Monday, it is currently recovering some of the losses.
Would we invest in the S&P 500 in the mid- to longterm timeframe? Probably not. While the index is making higher highs (like the Nasdaq and Dow Jones) we prefer to hold cash or to invest in safe havens like gold. Because when the full impact of hiking interest rates finally hits, we expect a huge sell off in almost all investable assets when investors loses faith in the Federal Reserve.
However, short-term price action remains bullish for now.
Euro
The euro bounced off its strong support for the second time in the last weeks.
If we look at the RSI indicator we can see that the RSI made a divergence relative to the price. This is considered a bullish development and we believe that the euro will start a counter rally in the coming weeks.
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