All eyes on the events unfolding in UkraineFeb 22, 2022
- EUR/USD 1.1340
- DOW JONES 33,596
- USD/CHF 0.9210
- SMI 11,959
- EUR/CHF 1.0445
- WTI CRUDE OIL 92.08
- USD/RUB 78.95
- XAU/USD 1,896
As you may have noticed, these days there is much less talk about COVID and much more about geopolitics and military strategy. After Switzerland, England has put an end to health-related restrictions, going ever further than we have: from Thursday onwards, those who tests positive for COVID will no longer be obliged to quarantine themselves. But of course, it is the situation in Ukraine that is dominating the news and agitating the political and economic spheres. In a televised address on Monday evening, Vladimir Putin chose to recognise the independence of the separatist republics of the Donbas region, effectively ending up the Mink agreements. Following the address, Mr Putin ordered his army to go in and ‘maintain peace’ in the separatist territories. The Western response was swift as Europe and the United States announced a first wave of sanctions. Germany was the first to react halting the approval of the Nord Stream 2 pipeline. And far from a de-escalation, the last few hours have seen an increase in tensions which have also been felt on the financial markets. Unsurprisingly, safe havens were in high demand. The Swiss franc appreciated to a level of 1.0338, a 1% gain, against the euro. The dollar also gained against the euro, which fell to 1.1288. To a lesser extent, the yen also rose, while the pound sterling remained stable. Gold rose to $1,914 an ounce while bitcoin fell to around $36,000, calling into question its safe haven status. Lastly, the rouble took a pounding: at its lowest point on Monday morning, it traded at about 80 roubles to the dollar, a drop of more than 5% compared to the previous day. On the commodities side, oil continued to rise towards $100 a barrel (so far peaking at $96). Aluminium and nickel, metals dependent on Russian supply, are also up. Nickel actually reached its highest level in over ten years at $25,000 per tonne. Wheat, which is heavily cultivated in Russia and Ukraine, was also affected by developments in the Ukrainian crisis: its price rose by 6% on Monday. On the Chicago stock exchange, it traded at a price of $810, up from $650 one year ago.
World stock markets continue to move downwards. On Monday the Russian stock market lost 10% before trading was suspended. European stock markets were also in the red on Monday (and Tuesday for the US). In addition to geopolitical tensions, equity markets are being weakened by rising inflation and the prospect of rising interest rates. In China, a new regulatory tightening is also weighing on prices. Most assets are experiencing large price swings as the week begins, and volatility is definitely back.
It is noteworthy, however, that there was a rebalancing on Tuesday. With no progress on the geopolitical front, and even with a Russian presence in the Donbas region, safe havens have given up much of their gains. The euro/Swiss franc exchange rate rose to 1.0461. The euro rose against the dollar and gold fell back below $1,900 an ounce. European stock markets saw almost no change: despite the tensions, the market was no longer in panic mode. Last night the US announced a first wave of sanctions with restrictions on Russian sovereign debt and targeted sanctions against certain Russian banks and elites. These sanctions do not directly target President Vladimir Putin, nor do they involve disconnecting Russia from the SWIFT network. The sanctions were welcomed by the market: oil fell to $92 per barrel.
In other financial news, the latest economic figures released have been generally good. Industrial production in Europe improved more than expected in December. In Germany, both investor sentiment (ZEW index) and business sentiment (IFO index) are up. US retail sales rose more than expected in January. While part of it is obviously the result of inflation, it should also be seen as a result of increased consumption as restrictions have been lifted. Industrial production is also up, and yesterday’s Purchasing Managers’ Index (PMI) shows that US activity continues to accelerate.
There is not much to say about central bank this week, aside from the fact that the Reserve Bank of New Zealand raised its main interest rate by 25 basis points to 1%. This is the third consecutive hike. The kiwi dollar continued to rise in February after hitting a one-year low at the end of January.