US equities were weaker Wednesday, S&P down 1.2%. US10yr yields fell back 9bps to 2.29%. Oil up 5.1% after Russia indicated it had temporarily limited capacity on a significant pipeline after storm damage.

As traders digest higher yields and higher inflation signals via the oil price channel, stocks are lower. We may see volatility increase further regarding multiple 50bp hikes and even emergency rate hikes in the near term.

Pressure points are building again with oil back on the boil, resulting in stagflation weighing on sentiment again.

Reports are circulating that the US is restoring 64% of the product exclusions from former President Donald Trump’s China duties. The exclusions will run from October 2021 until December 2022.


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This looks to be net China positive here as this would exclude tariffs on certain goods. USDCNH is unchanged on the headlines, though the New York session was winding down.

On the US restoring some Chinese product exemptions, I think this could have some interesting implications on a two-fold basis:

It would appear the US extending an olive branch to China to put some further pressure on Russia to deescalate conflict with Ukraine
This could likely reduce some inflationary pressures on the US consumer because tariffs are a tax at the end of the day, and the US consumer is bearing the brunt through higher prices.


Gold seems to be catching the attention of markets tourists as there was a burst of sudden demand, and it feels as if something is cooking.

Bullion has weathered the FED storm and based well and hasn’t had any severe downside reaction to Powell’s “Whatever it will take” moment.

Strategically, gold has been mirroring moves in Brent OIl, and rightly so. The Russian supply disruption and possible EU sanctions on Russian oil could send Brent above recent highs +130 and moonshot inflation expectations favourable for bullion.


EURUSD has been quiet since Fed Chair Jay Powell’s hawkish comments on Monday night. The market focused on the possibility of 50bp hikes at some point and is now pricing nearly another eight hikes for 2022. US rates sold off, and the USD rallied. Even though sentiment had been constructive of late, the stalled Russia/Ukraine talks aren’t helping the single currency. But we may see the higher oil, lower EURUSD correlation set in again.

The Pound could feel the heat from rising oil prices. There are reportedly 30,000 UK corporates that source energy via contracts with Gazprom UK. If these hedges were not honoured with Gazprom Energy, it would likely cost them a fortune if they had to go to market at current prices to replace those hedges. Indeed, that could keep the Cable bulls awake at night.


It’s a massive week for oil markets, with meetings of EU leaders and a NATO summit both happening over the next few days. A new wave of Russian sanctions is likely, and speculation in the press has focused on the probability of sanctions affecting oil.

The US and UK have already imposed bans on Russian oil, and many EU member states support a ban. Still, a few key players (notably Germany and Hungary) oppose, and a decision must be unanimous.

There is also speculation about the possibility of a new Iran deal, with the US reportedly ready to remove the “foreign terrorist organization” designation for Iran’s Revolutionary Guards Corps. Iran’s ~1.3mb/d of production upside would hit the oil price under normal circumstances but represents only a fraction of what might be lost from Russia.

Meanwhile, the big elephant in the room is the US President, who will join the NATO meeting and EU Summit in Europe to pressure Germany. Sanctions and the Russian oil embargo will be the topics.

While anti-Putin public sentiment runs deep in Germany, policymakers are stuck between a rock and a hard place trying to balance public opinion vs the chance of an economic implosion by turning off the Russian oil supplies.

From Stephen Innes Managing Partner at SPI Asset Management