Risk-Aversion Returns After Brief Rally

Stock markets were back in the red again on Thursday, as we await further talks between delegations from Ukraine and Russia.

Wednesday’s rebound was predictably short-lived against the backdrop of reports of intensifying attacks by Russian troops as they close in on cities across the country. The sanctions that have been levelled at Russia since the invasion started have been far more severe than many expected and we’re learning more about their devastating impact with every passing day.

While there is some hope that talks between the two countries can yield a breakthrough, it’s tough to see where a compromise can be found or whether Russia is even interested in one. It was involved in talks before it crossed the border and it’s clear now that there was no intention to find a diplomatic solution.

Any rebounds we’re seeing in risk appetite appear more driven by hope than reality and as we’re seeing today, they’re not lasting. And with further sanctions to follow as Russian forces continue to commit atrocities in Ukraine, I struggle to see market sentiment dramatically improving for the foreseeable future.

Powell lines up March hike, ECB minutes allude to hawkish shift

We didn’t hear anything surprising from Jerome Powell during his second day of testimony, with the Fed Chair reiterating the need to deal with inflation now, backing a 50 basis point hike if needed at future meetings, and highlighting the uncertainty arising from the invasion of Ukraine. There appears to be little doubt now that the Fed will hike by 25 basis points in a couple of weeks and again at the following couple of meetings.

There’s been a flurry of economic data throughout the day as well as minutes from the last ECB meeting. There were no enormous surprises from the minutes which highlighted shifting views towards inflation which lay the groundwork for a far more hawkish outlook next week when the central bank has new projections. US unit labor costs were revised significantly higher for the fourth quarter but against the backdrop of strong productivity gains, the response has been relatively mild.

Bitcoin runs into temporary resistance

Bitcoin also pared gains on Thursday, falling close to 4% after running into significant resistance at $45,500. This is the next major hurdle for it as it charges higher on the back of the Russian sanctions and Ukraine crisis. It seems crypto may benefit from the tragic events in Ukraine but to what extent is hard to say. It may well depend on the level of adoption we see over the coming weeks and months. Speculation also plays a massive role in the space though and a move above $45,500 could see it take off regardless.

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