Elections in France – Macron and Le Pen are in the second round. New data on inflation in China

This week, investors will focus on inflation data in the US, UK, Germany, and China. In February, the US inflation reached 7.9%, the largest annual increase in 40 years. On Wednesday, inflation data are expected to show that the consumer price index in March will reach 8.5% in annual terms as the war in Ukraine has raised commodity prices significantly. The strong inflation figure confirms arguments for the Federal Reserve’s more aggressive rate hike, probably increasing investor fears that tighter monetary policy could significantly slow down the economy. Also, this week, the central banks of Canada and New Zealand will hold meetings on interest rate decisions. Analysts predict interest rate hikes in both cases amid rising inflation worldwide. According to surveys, markets estimate a 90% chance that the Reserve Bank of New Zealand will raise rates by half a percent and a more than 80% chance that the Bank of Canada will do the same.

Major US banks will begin their first-quarter reporting season this week, and analysts expect financial sector earnings to fall from last year. After Russia invaded Ukraine, investment banks’ profits fell, and some banks set aside reserves to cover losses. JPMorgan, the largest US bank, will report on Wednesday, and results from Goldman Sachs, Morgan Stanley, Citigroup, and Wells Fargo will be released on Thursday.

Tesla may start mining lithium. Lithium is a key component of batteries for electric vehicles, so automakers hurry to secure supplies in anticipation of growing demand amid the global drive to electrify transport. Over the past few years, Tesla has signed supply agreements with battery metal manufacturers, including a secret agreement with mining giant Vale SA. Benchmark Mineral Intelligence’s index of global lithium prices rose 490% last year. China is so concerned about lithium prices that it has convened several market participants for two days of talks to halt the sharp rise in prices. Due to Russia’s war against Ukraine, lithium prices have risen sharply.

France held its first round of presidential elections on Sunday, during which far-right candidate Marine Le Pen unexpectedly jeopardized President Emmanuel Macron’s hopes for re-election. The first exit polls showed an approximately equal number of votes.

Investors’ attention will also be focused on this week’s ECB meeting. However, given the conservatism of European politicians, analysts do not expect any changes, even though inflation rates in Europe are at record highs. In March, the ECB announced a reduction in its bond-buying stimulus program, which will end in September. At the same time, according to comments from ECB officials, an interest rate hike may occur “sometime later” after the end of bond purchases.

Danish investment bank Saxo Bank is suspending work with Russian and Belarusian clients due to new sanctions. The new rules will take effect on June 8. Until then, these clients will be able to withdraw cash and securities, but transactions will be under tight control.

Ukraine has banned all imports from Russia, one of its key trading partners before the war, with annual imports estimated at about $6 billion, and called on other countries to follow suit and impose tougher economic sanctions on Moscow.

Oil prices rose 2% on Friday but fell for the second week in a row after countries announced plans to release oil from their strategic reserves. The atrocities against Ukrainian civilians revealed by the withdrawal of Russian troops from areas north and east of Kyiv made it very likely that EU countries would impose sanctions on Russian oil in the coming months. However, China and India can make up for this loss and become major buyers of Russian oil. Usually, India imports only 2-5% of its oil from Russia, but now there is information about a “significant increase” in Russian oil supplies to India. But India may not be the only party helping to fund Putin’s illegal war. China may also increase oil supplies from Russia, but so far, in the first two months of the year, actual supplies from Russia to China fell by 9.1%.

Asian markets traded without a single trend last week. Japan’s Nikkei 225 (JP225) declined by 2.53% for the week, Hong Kong’s Hang Seng (HK50) gained 0.29% for the week, while Australia’s S&P/ASX 200 (AU200) was down by -0.21% over the week. China has updated its inflation data. The annual consumer price index increased from 0.9% to 1.5%, while the producer price index (inflation in factories and plants) declined from 8.8% to 8.3% in annual terms.

In the commodities market by the end of the week futures on natural gas (+10.51%), orange juice (+7.49%), palladium (+6.86%), soybeans (-6.71%), wheat (+6.63%), sugar (+5.06%), corn (+4.49%) and coffee (+1.75%) showed the biggest gains at the end of the week. Futures on BRENT oil (-1.91 %), lumber (-1.55%), and WTI oil (-1.38%) showed the biggest drop.