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Carlsquare weekly market letter: Inflation on the verge of a comeback

  • The general trend for the stock market is still up. Our mantra since October has been that it is best to follow the trend. However, we would like to point out a potential threat to the market. This is rising energy prices, which would most likely bring inflation back into the market
  • Rising inflation could be a new headache for the stock market that we need to watch closely
  • Focus on the Fed’s rate decision today and what Jerome Powell will tell the market.

It is a common misconception that the outbreak of war in Ukraine was the start of the global inflation spike. This is not true. Inflation was caused by the energy shock, when markets realised that the phasing out of nuclear power and the shift from carbon energy to renewables was creating a huge glut in the market that wind and solar could not fill. Opec (including Russia) also played its part by holding back production to give prices a boost.

Indeed, the oil price peaked at the time of the outbreak of the war in Ukraine, probably as the market priced in lower global GDP.

Since then, inflation has also come down and the Fed is writing in lower and lower inflation, creating expectations of lower interest rates and increasing appetite for equities.

This is all good. But there is a new risk in the market and it comes from the war in Ukraine. To win the battle against Russia, Ukraine has started bombing Russian refineries in Russia with drones. It is estimated that 50% of the larger refineries have been affected and perhaps 5-10% of production has been halted.

According to the Bloomberg article above, the price of crude oil has risen by USD 5 per barrel as a result of Ukraine’s new strategy.

This new campaign could hopefully be a major victory for Ukraine. If Russia cannot produce petrol, its war machine will have the same problem as Germany in the Second World War – you cannot win a war without diesel and petrol.

It is very interesting that Ukraine is going after the rafiners and not the oil wells or the pipelines. We have learnt in the last two years that Ukraine was not allowed to use Western weapons to bomb Russian targets in Russia. If that had happened, the West would have stopped supplying ammunition (not all countries, but some, at least Germany, as we understand the situation).

Somehow Ukraine has now been given the green light to bomb refineries.


Russia is not (yet) acknowledging the problem. According to the latest data we can find, petrol prices in Russia are still stable. We expect Russia to start rationing petrol at petrol stations soon.

If we look at the international price of petrol and Brent oil, we can see that there has been a huge gap in the price of petrol since the beginning of February. Brent is also following the price up, but not as much.

It is pure speculation on our part, but we believe that Western policy is saying OK to Ukraine to hit Russian refineries, but no to hit oil production. The reason is that Western Europe is much more exposed to oil prices than to Russian petrol prices. Even with huge sanctions, Russian oil will find its way onto the international market, which will keep a lid on energy prices and inflation.

CREA is an independent research organisation with a wealth of interesting material:

Above is an estimate of where Russian oil ends up. China is of course opportunistic and buys a lot from Russia, but the big increase comes from India and also from Turkey. As India then imports less from the Middle East, this offsets the sanctions from Western Europe not to buy from Russia. It is also the case that both India and China sell and export refined products and some of that oil of course comes from Russia.

So our conclusion is that Ukraine’s campaign is already pushing up energy prices. We know from 2022 that this can also push up inflation because energy is used in the production of all services and products. This may come as a negative surprise to the market one day and may be a new theme in the bond and equity markets. It is very important to keep this on your radar. If oil goes up, equities will eventually go the other way!

Brent oil is trading up in a clear channel. Keep a close eye on this as it will affect global inflation and eventually push it higher again.


The S&P 500 continues to trade in a rising wedge.

Eventually it will break, but there are no sell signals yet, so it is best to let the trend be your friend. The dotted red line is a technical measure of how far down the break could go from a purely technical perspective. The 100-day moving average (MA100) would then be a perfect support.

A warning sign is that the 3-hour chart of the Nasdaq has broken below its trend line.

NVDA is also showing weakness. The stock is struggling with EMA5 and EMA9. If they break, it will be a red flag for the entire market. Take it one day at a time. No need to fight the trend.

The setup for today’s Fed decision is that the market is weak, so any negative news could be a catalyst for further weakness.

If Powell has a bad day today, he will have another chance to make amends and adjust his communication on Friday.

Happy trading!

Week Ahead

Reports and event on Wednesday, 20 March: Skistar, Next, Micron Technology and General Mills.

UK CPI and PPI for February are due at 8.00 CET, as is the German PPI for February. From the Euro-Zone, construction output for January will be released at 11.00 CET. Five hours later, the Eurozone Household Confidence Indicator for March is due. From the United States, we get the DOE weekly oil inventories. At 19.00 CET we have the FED’s interest rate announcement followed by a press conference with Jerome Powell.

Reports on Thursday, 21 March: BMW, Accenture, Fedex, Lulemon Athletica och NIKE.

Japan starts the day with February Trade Balance at 0.50 CET. Otherwise, the day will be dominated by the March PMIs from Japan, France, Germany, the Eurozone, the UK and the US. From Europe, we will also get the French industrial expectations for March.From the United States, we get the current account balance for Q4 2023, Philadelphia Fed index for March, initial jobless claims weekly data, existing home sales and leading indicators for February. The Bank of England releases its interest rate statement.

Reports on Friday, 22 March:  –

We start with Japan’s February CPI at 0.30 CET. At 8:00 CET we get the UK Retail Sales for February and the German Import Prices for January. Germany’s IFO index for March are due two hours later.

Event on Monday, 25 March:  –

The Bank of Japan will release the minutes of its January meeting at 0.50 CET. From the United States, we get the Chicago Fed’s national activity index and new home sales for February and the Dallas Fed’s index for March.

Reports on Tuesday, 26 March: Pfeiffer Vacuum.

Statistics Sweden will release the PPI for February at 8.00 CET. At the same time, German GfK consumer confidence for April will be released. An hour later, it’s time for Spain’s Q4 GDP, while Sweden’s NIESR publishes its economic barometer. From the US, we get February durable goods orders, weekly Redbook retail data, January S&P/CS and NAHB house price index, March household confidence indicator and Richmond Fed index as well as weekly oil inventories (API).


The information in this presentation is based on what the publisher, Carlsquare, believes to be reliable sources. However, we cannot guarantee its content. Nothing in the presentation should be construed as a recommendation or solicitation to invest in any financial instrument, option, or the like. Opinions and conclusions expressed in the presentation are for the recipient’s use only. The contents may not be copied, reproduced, quoted, or distributed to anyone else. Carlsquare shall not be liable for any loss arising from any decision taken based on the information contained in this presentation. Past performance should not be taken as an indication of future results. Changes in foreign exchange rates may affect the value, price or income of an investment made abroad or in a foreign currency.

The analysis is not directed at U.S. Persons (as that term is defined in Regulation S under the United States Securities Act and interpreted in the United States Investment Companies Act of 1940), nor may it be distributed to such persons. The analysis is not intended for natural or legal persons where the distribution of the analysis to such persons would involve or entail a risk of violation of Swedish or foreign laws or regulations.



Carlsquare weekly market letter: Inflation on the verge of a comeback