There was a sense of calm in the markets this morning, evidently on the back of remarks made by Russian Foreign Minister. But we are still inside the eye of the storm. Don’t let this apparent calmness fool you.
European stock indices and US futures roared back to life this morning, while gold slid 2% amid calmer risk tones as it backed away from August 2020 highs. There was no stopping Nickel though, as it continued its historic surge. The markets moved after Russia’s foreign minister, Sergei Lavrov, struck a conciliatory tone. He said:
- Operation’s Aims Do Not Include Overthrowing Ukrainian Government
- It Would Be Better If Our Goals in Ukraine Are Achieved Through Talks
Talks are indeed always better than going to war, especially if there are no intentions of overthrowing the government. This might be a sign that Russia is blinking. But actions speak louder than words and Russia will have to do more than this. There is also the issue of trust, as this is the same people who told us that the troops on the Ukrainian border returned to base, only to then invade Ukraine shortly after.
Don’t forget that the US just yesterday decided to launch an all-out economic war against Russia, banning imports of oil and gas from the country. The UK has also announced it will phase out the import of Russian oil and oil products by the end of the year. There will be consequences: high gas prices, even more inflation and retaliation from Russia.
So, gold might be edging away from its record highs and stocks firmer, sentiment can turn negative very quickly. Volatile market conditions are not going anywhere until Putin ends the invasion of Ukraine.
For now, markets are relieved by the fact we haven’t had any fresh bearish news since yesterday’s announcement of a ban in oil imports from Russia. The markets were severely oversold, and any piece of good news would have always been amplified in terms of market reaction, which is what we have seen so far today. Also, let’s not forget that this is typical of a bear market when you sometimes see multiple percentage point gains in a short period of time as the shorts are squeezed, before the rally runs out of steam and the downward trend resumes.
Will it be another such scenario this time around? Time will tell. But for now, the markets are happy to buy downbeat stocks, especially as the ECB is seen dialling back its hawkish rhetoric tomorrow:
- Germany’s Dax Up 5%, Set for Best Day Since May 2020
- Euro Zone Banks Extend Gains, Up Nearly 8%
- Nasdaq 100 Futures Extend Rally, up 2%, S&P Futures Up 1.6%
