European Union announces cuts in Russian oil imports - 1.6.2022

On Tuesday, the US dollar index rose, it was supported by good economic data. The increase in indicators of consumer confidence (Conference Board United States Consumer Confidence) and Chicago PMI (Chicago Business Barometer) in May exceeded forecasts. Today, the strengthening of the US dollar continues, but the euro falls for the 2nd day in a row. Preliminary inflation in the European Union in May was a record and amounted to 8.1% y/y. The next meeting of the Bank of Canada will take place today, at which the rate is expected to increase to 1.5% from 1%. The Chinese yuan resumed weakening against the US dollar this morning after the release of the Caixin China PMI index for May. It amounted to 48.1 points and is below 50 points for the 3rd month in a row. Good 1Q Australia Gross Domestic Product data came out this morning. Its growth amounted to 3.3% y/y, which may support the Australian dollar.

Bitcoin is trading in a tight range this morning for the 2nd day in a row. On Monday, it managed to bounce up from the psychological support level of $30,000 thanks to the positive announcement of the launch of a new cryptocurrency, LUNA 2. It is designed to restore the activity of the Terra ecosystem. Another good news for the entire crypto market was the announcement of the Central Bank of the Russian Federation that it could allow the use of cryptocurrencies in international payments against the backdrop of anti-Russian sanctions.

Yesterday, the US stock market saw a decline in quotations. The main reason for this was the statement by Federal Reserve Governor Christopher Waller about the need for a stronger and faster increase in the Fed's rate in order to reduce inflation. Recall that in April the United States Consumer Price Index fell to 8.3% y/y from a 40-year high of 8.5% y/y in March. At the same time, the Fed rate in March and May increased twice from 0.25% to the current level of 1%. Inflation for May will be released on June 10, and the next Fed meeting will be held on June 15. An increase in the Fed's rate has a negative impact on stock prices. It should be noted that performances of St. Louis Federal Reserve President James Bullard and New York Fed President John Williams. They may provide further clarification on the Fed's future policy. This morning, futures for US stock indices are showing an increase. Victoria's Secret & Co.'s strong quarterly results contribute to this. Its shares soared 7.3% after the close of trading (After Hours). In addition, investors expect the publication of important economic indicators on the labor market and activity in the industry: United States JOLTS Job Openings, ISM Manufacturing PMI and some others. Market participants are also hoping for information about the reduction of the Fed's balance sheet ($8.9 trillion), which may be indicated in today's economic review of the Federal Reserve System Beige Book.

On Tuesday, oil quotes fell. The European Union has decided to reduce imports of Russian oil as part of the strengthening of economic sanctions. According to the President of the European Council Charles Michel, supplies will decrease by about 70% compared to last year. Note that the share of Russian oil and oil products in European imports is not dominant and is less than 30%. Yesterday, for some reason, market participants decided that EU anti-Russian sanctions would destroy the OPEC+ agreement on limiting production. After that, Saudi Arabia, United Arab Emirates and other Middle Eastern states will gladly increase oil production and bring down its quotes. It is still difficult to say from what this could happen, even theoretically. Oil prices are going up today. The Russian authorities are now considering the possibility of reducing oil production by 2-3 million barrels per day. This proposal was made by the management of some private oil companies from Russia, which previously supplied their products to the European Union. If this happens, then this volume will be replaced by Middle Eastern producers, if they succeed. Overall OPEC+ production is unlikely to change. An additional positive for the quotes was the cancellation of the coronavirus lockdown in the Chinese city of Shanghai. This could increase China's oil consumption. American Petroleum Institute data on the change in US oil inventories will be released today, with a delay of 1 day due to Memorial Day on Monday.