The economic consequences of Russia declaring war on Ukraine is likely to impact markets everywhere. Energy prices are likely to rise, as will inflationary pressures in most parts of the world. Unsurprisingly, markets have tanked.
The Straits Times Index had broken out 3,240 at the start of the year, a level which is likely to provide temporary support, depending on the ferocity of the sell-off. Most likely the upside indicated from the breakout may no longer be valid.
Bloomberg reported on Feb 24 that North Sea Brent crude surged past US$100 ($135.24) a barrel for the first time since 2014 as Russian forces attacked cities across Ukraine in a dramatic escalation. That has raised the alarm that crude could keep shooting higher, adding inflationary pressure to the global economy, Bloomberg reports. “We view the likelihood of sanctions being placed on Russian crude oil as relatively low, so any risk premium would quickly be erased should the risk subside,” say ANZ Banking Group strategists.
Interestingly, Bloomberg highlights that Iran has millions of barrels of oil stored offshore that could flow into a tight global market if a nuclear deal is agreed, with refiners in South Korea likely to be among the first in line to take cargoes. Iran may have 65 to 80 million barrels on stationary tankers, according to data intelligence firm Kpler, Bloomberg says. About four-fifths is condensate, a super-light oil that is a by-product of natural gas extraction. The overall Iranian volume is higher if crude that is already in transit is included. If an Iranian deal is possible, that would pave the way for US sanctions on Tehran’s oil to be lifted, Bloomberg says.
Will the US Federal Reserve start a rate hike cycle, given the market sell-down? Kenneth Lai, head of treasury at Oversea-Chinese Banking Corp, says the Fed is likely to start a rate hike cycle come what may. The Russia-Ukraine crisis is not likely to deter the Fed from interest rate hikes, he says. “The question really is whether, you’ll see a 25 basis point hike or 50 basis point hike in March. The markets are already pricing in about six hikes for the year,” he says. “If the markets were to sell off too fast and too drastically, the Fed might tone down the rate hikes.”
Among the stocks that are attempting to bottom is Singapore Exchange. Its share price — which took a tumble between August and December last year — has been trading within a range since Dec after touching a low of $8.93. The price pattern shows attempts at building a base, with the top of the base at the four-times tested $9.73 level, which is a neckline. Since shortterm indicators are neutral, prices can fall from current levels, towards the low end of the base formation at the $8.93 to $9.10 range.
See also: STI’s upside from breakout remains valid as risk-free rates fade, but stay watchful for FOMC
iFast Corp’s chart pattern displays a clear downtrend and a base formation has not quite started. As such, a base is unlikely to start till market turmoil has subsided. The downside of $8 from the breakdown from the double top has been reached and breached. Subsequently, prices attempted to consolidate at $7.90, following which the downside was $5.90. Prices have consolidated around $6, and, since the downtrend remains intact, a break below $5.90 provides a downside of around $5.
