The cautious easing in yesterday’s European session was short-lived. Sentiment soured as the United States joined President Biden in announcing additional sanctions against Russia. Ukrainian government and banking websites have been targeted by cyberattacks and added to lingering fears of an impending all-out war. European equities erased >1% gains to end in negative territory. Wall Street fell 1.4 to 2.6%. Core bonds traded atypically with German yields still up 4 bps ahead (2 years). US yields even added 3.2 to 6.4 basis points across the curve. The Swiss franc performed well, closing again below EUR/CHF 1.04. The euro, but also the dollar and even the yen all traded mixed. But while yesterday may not have been a classic risky session, today absolutely is. Before dawn, Russian President Putin ordered a special military operation to target military installations across Ukraine. Putin has declared that he does not wish to occupy Ukraine but to demilitarize it. Ukrainian President Zelenskiy called it a “full-scale invasion” and imposed martial law. The United States has already responded that it will impose severe sanctions on Russia. Other countries, including Australia, also unveiled new sanctions. The Moscow Stock Exchange halted trading in the ruble, stocks and futures, but the damage to other financial markets is significant.
Shares: Asia-Pacific stock markets collapse with losses reaching more than 3%. Equity futures point to heavy losses of >4% for Europe and over 2% in the US. The EuroStoxx50 will likely lose support from the pre-pandemic high at 3867.
Obligations : US Treasuries and German Bunds surge amid safe haven flows. US bond yields are currently falling 9 to 13 basis points, with the underside of the curve outperforming. The 10-year rate (-12 bps) is targeting support around 1.84%. Germany’s 10-year will most likely deviate below the 0.15% support.
Currencies: a stellar performance by the Japanese yen. EUR/JPY slips from 130 to 128.7 with support at 128. USD/JPY gives up the fight at 115 and is currently down at 114.5. The Swiss franc takes second place. EUR/CHF intraday set a new 7-year low below 1.03. The dollar finishes in the top three. EUR/USD hit its lowest level since the ECB pivot in early February at 1.1236. Every currency with the slightest hint of risk is sold. NOK and SEK lose 0.6-1.5% depending on which major they are plotting against. Central European currencies depreciated by 1 to 1.4% against the euro and up to 2% against the dollar. The Czech koruna (EUR/ZK 24.91) underperforms its regional peers. The Turkish lira drops by 2 to 2.5%. The Russian ruble in interbank trading approached 90 USD/RUB, registering losses of more than 5%.
Amenities: Brent oil (>5%) tops $100 a barrel for the first time since 2014. Natural gas prices jumped more than 10% and are going wild with a 25% rise in the open. Ukraine being the main exporter of corn and wheat, the prices of the two raw materials increase by 4 to 5%. The price of gold, a safe haven, jumped 1.8% to $1,943. Other metals increased by 3%
Uncertainty and risk are the name of the game for today. Although the impact of geopolitical events on the market tends to fade after a relatively short period of time, we advise you not to row against the tide.
The Bank of Korea kept its key rate unchanged at 1.25% as expected following consecutive rate hikes of 25 basis points in November and January. Upward revisions to inflation forecasts suggest further tightening is underway. The BoK raised its 2022 forecast from 2% in November to 3.1% while bumping the 2023 figure from 1.7% to 2%. Growth forecasts remain unchanged at 3% and 2.5% respectively. Price pressure come both internally from the costs of services and externally via the prices of raw materials. Ukraine’s conflict in this regard poses both upside inflation risks and downside growth risks. Governor Lee, at his last meeting, said that another rate hike would still not be considered tightening. Market expectations of a policy rate of