
Please try another search
Geopolitical tensions have returned to haunt financial markets. The US president called on all American citizens to leave Ukraine immediately on Friday, citing the threat of a Russian invasion that could begin at any moment. It is still unclear how much of this is political grandstanding as the White House may be trying to put Russia under the global spotlight to deter military action.
Nonetheless, market participants took the warning seriously, which sparked a classic flight to safety. Stock markets tanked as investors slashed their exposure to riskier assets and sought shelter in safe havens, driving gold prices to three-month highs.
Bullion has displayed remarkable resilience to fading central bank liquidity and soaring bond yields this year, essentially defying gravity thanks to demand for geopolitical hedges. The heated rhetoric has also been a blessing for oil prices, which rose to fresh seven-year highs amid fears of an energy crisis in case Western sanctions cripple exports from Russia.
Euro suffers, dollar and yen shine
In the FX arena, the euro came under heavy fire as traders priced in the collateral damage from a potential conflict at the Eurozone’s doorstep and the spillover effects from spiraling energy prices. This is already a huge problem in Europe as consumers are being squeezed by rising electricity bills.
Of course, the Russian ruble got eviscerated too despite the spike in oil prices. On the opposite side of the risk spectrum, the US dollar and the Japanese yen shined bright as traders looked for protection from the storm.
Beyond defensive flows, speculation around what the Fed will do next has also put the wind back in the dollar’s sails, after another scorching hot US inflation print sent bond markets scrambling to price in aggressive rate increases.
Six and a half rate hikes are now priced in for the year, the probability of a 50 basis points move in March has gone through the roof, and there is all kinds of speculation about an emergency Fed meeting being called this week.
What’s next
Global markets are at the mercy of politics for now and whether the Ukraine crisis evolves into a kinetic war is what matters most. The German Chancellor will head to Kiev today in an attempt to defuse the situation, so the diplomatic effort continues.
On the bright side, there’s so much geopolitical risk premium priced into most assets right now that if the situation de-escalates peacefully, the ensuing relief rally could be powerful. The next few sessions might be gloomy as the fog of war descends on financial markets, but the trading playbook generally says that war concerns tend to fade.
Indeed, equity markets have had everything thrown at them lately - from rising Fed bets to war threats - and have escaped with only minor injuries. The volatility will likely continue as investors learn to live without endless liquidity, but with the economy still in good shape and buybacks going strong, the market is unlikely to crash either. The turbulence might even be a gift to investors with long time horizons.
As for today, we will hear from ECB President Lagarde at 16:15 GMT.
There’s an old joke in the world of statistics that says if you torture the data long enough, it’ll say anything you want. But sometimes torturing is redundant....
The GDP of the United States in the fourth quarter of 2022 recorded an increase of +2.90%, the consensus was +2.60%. Growth was largely fueled by changes in inventories and public...
Wall Street in buoyant mood despite mixed earnings as Tesla (NASDAQ:TSLA) surgesDollar firms after solid growth data, PCE inflation coming up nextYen edges up as BoJ yield policy...
Are you sure you want to block %USER_NAME%?
By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.
%USER_NAME% was successfully added to your Block List
Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.
I feel that this comment is:
Thank You!
Your report has been sent to our moderators for review
Add a Comment
We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
Enrich the conversation, don’t trash it.
Stay focused and on track. Only post material that’s relevant to the topic being discussed.
Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.