Ukrainian crisis moves to the next stage of sanctions
Markets woke up to another Ukrainian drama on Tuesday as Europe, the UK and the US came to threaten the first barrage of sanctions against Russia following Putin’s recognition of two ex-soviet and Moscow-backed regions in Ukraine Donetsk and Luhansk late on Monday, which could strategically allow Russia to enhance its military forces.
The traditional haven gold opened the day with a soft positive gap, but bullish pressures fade immediately before the price touches June’s peak of $1,916 after the Ukrainian president Volodymyr Zelensky stated that there will be no war or wide escalation with Russia, with the price falling as low as $1,891 in the aftermath. Of course, he called his foreign allies to use punishing sanctions, and some of them including the UK have already announced some bans against Russian banks and individuals, with the European Union also set to unveil its own countermeasures later today, particularly regarding the halt of the Nord Stream 2 gas pipeline. But honestly, whether the countermeasures will go wild, especially as long as there is no official invasion, remains to be seen given Europe’s reliance on energy sources. Hence, how painful the penalties will be will determine the size of upside movements in gold in the coming days or weeks.
Euro pares losses but pound still bleak
In other haven assets, bond markets also gave up some ground, pushing the 10-year Treasury yield back above 1.90%. The European yield equivalents staged a swifter recovery as risk sentiment improved a bit. The latter is also evident in FX and stock markets. Although the geopolitical impact on currencies has been relatively less vigorous, euro/dollar responded quickly to the latest encouraging headlines, running from a low of 1.1280 to 1.1366. Probably, the upside surprise in the German Ifo business climate index, which signaled that the EU’s powerhouse will benefit massively from the easing of the coronavirus crisis, provided a helping hand as well.
The yen came under pressure, helping the dollar to rebound near the key support of 114.70, though the 115.00 number remains a key barrier for now.
On the other hand, the pound has yet to show any bullish appetite against the dollar and the yen. Perhaps comments from the BoE policymaker Dave Ramsden supporting only a modest monetary tightening in the coming months canceled any upside moves as rate expectations for a 50 bps eased. Pound/dollar was last seen lower at 1.3547, while pound/yen was more or less steady at 155.88. Euro/pound bounced strongly up to 0.8382, erasing a four-day losing streak.
RBNZ to raise rates for the third time
The New Zealand dollar will attract special attention when the Reserve Bank of New Zealand (RBNZ) announces its policy decision during the early Asian trading hours on Wednesday. Investors are fully convinced that the central bank will deliver its third 25 bps rate hike in a row, while there is a 30% chance for a 50 bps rise as well. Hence, unless the RBNZ moves fast with a 50 bps rate hike to mitigate the hot inflationary pressures and/or uses a hawkish tone to brighten the future of the economy, the policy announcement itself could even be a classic selling the fact case for kiwi/dollar, blocking the way above the tough 0.6730 resistance.
Stock sell-off pauses, oil hits fresh highs
In equities, European indices avoided the slump in Asia, recouping earlier losses to turn almost neutral in the day as traders pushed some funds out of safe havens. Energy, real estate and consumer cyclicals shares were the top performers. Futures tracking the S&P 500, the Nasdaq 100 and Dow Jones are currently pointing to a milder negative open as well.
Finally, oil continues to make headlines. The international benchmark Brent crude was close to touch the crucial $100/barrel before sliding to $97.42, while WTI crude extended Monday’s rally to a fresh seven-year high of $94.90, stoking worries that global inflation may keep trending higher. While progress in the Iranian-US nuclear talks could be a headwind to the oil rally, the war factor in Ukraine is threatening another supply shock If materialized.
