A quiet day in an otherwise busy week. There are no important data on the global scene. However, developments in Russia/Ukraine will continue to attract attention. The next points of interest in terms of data will be tomorrow's ISM service and ADP employment.
Selected market news
All eyes remain on the situation in Ukraine and particularly on developments in Crimea. Yesterday, the sharp increase in geopolitical tensions put the European stock markets under significant selling pressure and the Russian rouble dropped sharply despite significant intervention in the FX market from the Russian central bank and a 150bp rate hike. In our view, the significant capital outflow from the Russian markets combined with the monetary tightening is likely to have significant negative impact on Russian growth and there is now a significant risk of an outright recession in the Russian economy this year.
The negative sentiment in the European markets carried over to trading in the US stock markets yesterday. Hence, the major US stock markets dropped close to 1% in yesterday’s trading.
However, this morning the Asian stock markets are mostly trading moderately higher, maybe reflecting that there has been no escalation in the geopolitical tensions overnight. Chinese stocks are, however, mostly trading moderately lower.
It is also notable that the Ukrainian crisis now is pushing up commodity prices. Yesterday we saw natural prices in Europe increase more 12%, while wheat prices also spiked. Gold prices are this morning trading near a four-month high.
While geopolitical events this week seem to overshadow macroeconomic releases, it is notable that yesterday we got good news on the US economy and the ISM indicator inched up to 53.2 in February from 51.3 in January. This indicates that the US economy continues to expand. However, as noted, the good news on the US economy was not enough turn around sentiment in the US stock market.
This morning it seems as if the markets are calming down a bit and some risk appetite is returning. This for example means that the Japanese yen is weakening a bit, reversing recent strong gains. That said, there is certainly still quite a bit of nervousness in the markets and particularly the Emerging Markets currencies still look quite shaky. This morning the Indonesia’s rupiah dropped by the most in two weeks after the January trade balance unexpectedly turned into deficit.
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