A new sub-variant of covid 19 in China is affecting oil demand, thus promoting an economic slowdown and fears of a possible recession.

A new sub-variant of covid 19 in China is affecting oil demand, thus promoting an economic slowdown and fears of a possible recession.

— June 13, 2022

This is another week where risk aversion dominates the markets. Fears of an economic recession, new COVID outbreaks in China and energy shortages in Europe are demotivating factors for investors.

The giant gas pipeline which supplies Russian natural gas to Germany has entered into annual maintenance, resulting in a stoppage of flows for 10 days. This has resulted in the increase in the cost of energy in Europe. Investors meanwhile fear the shutdown could be extended due to the war in Ukraine, further restricting European gas supplies and tipping the already struggling Eurozone economy into recession. On the other hand, we are seeing a decline in global equities.

In China, many cities including the commercial center of Shanghai will adopt new restrictions against covid 19 after the discovery of a highly transmissible sub-variant of Omicron named BA.5.2.1. This discovery is also high on the list of worries for investors and slows down demand for crude oil, thus causing the fall in oil prices.

In the foreign exchange market, the tumble of the euro continues and the common currency reached parity with the dollar on Tuesday. The US dollar is still benefiting from its safe haven status and rising against its main rivals. Cryptocurrency prices fell as bitcoin fell 0.9% to $19,769.95 on Tuesday.

This week the focus will be on US inflation data on Wednesday. The Fed will then be able to determine at what pace it will continue to tighten its monetary policy.

Written By Steve Keutcha  –  Head of Trading