US Open Note – Risk appetite improves on President’s Putin remarks

Alleged Putin comments improve market sentiment

Global markets seem set to finish the week on a risk-on mode as the Russian President Vladimir Putin was reportedly cited saying that talks with Ukraine have been positive, offsetting yesterday’s defensive mood. This appears to have weighed on safe haven demand with the US dollar staying relatively flat against a basket of currencies, while the Japanese yen and gold have witnessed significant pullbacks on Friday. Moreover, US sovereign bond prices eased, sending the 10-year Treasury yield above the psychological 2% level.

However, the longer the conflict lasts, commodity prices are expected to remain elevated, increasing fears of higher future inflation and depleting economic growth prospects. Despite the US economy being energy independent, increasing energy bills faced by consumers could defer the purchases of other discretionary items, weighing on the country’s economic outlook. Hence, investors will nervously anticipate Fed Chair Jerome Powell’s comments after the FOMC meeting on Wednesday.

Euro surge on hawkish ECB

The European Central Bank caught markets by surprise on Thursday, announcing an end-date to its asset purchase program. This was a clear signal by the ECB that inflationary pressures outweigh the downside risks of economic growth, as the re-routing of supply chains away from Russia could lead to further bottlenecks, driving inflation for the years to come. On Friday, the euro edged higher against most of the major currencies.

Earlier today, monthly UK GDP data for January came out stronger-than-expected, showing that the country’s economy has bounced back from the Omicron drag witnessed during the previous months. Sterling managed to capitalize on the data release, gaining ground against the US dollar. Also Canadian jobs report came out much stronger-than-anticipated, with the loonie emerging as the undisputed winner of the FX arena.

Wall Street: the name of the game is volatility

On Thursday, US stocks finished lower as investors assessed another ‘hot’ US inflation data and the unfolding geopolitical developments in Ukraine. The S&P 500 index slid by 0.4%, while the tech-heavy Nasdaq Composite fell by 1%. In corporate news, Amazon announced a $10 billion share-buyback plan and 20-to-1 stock split, raising speculation that the move is a precursor to the stock’s inclusion in the Dow Jones index.

Looking ahead, stocks are likely to continue oscillating between panic-selling and dip-buying as the unfolding crisis in Ukraine is expected to drive inflationary pressures and diminish global economic growth. However, on Friday the mood in equity markets improved significantly after President Putin’s ‘positive’ remarks, with futures for all major US indices pointing to a higher opening. Meanwhile, Europe’s Stoxx 600 index surged by over 1.5% at the time of writing.

On the commodity front, WTI crude eased on Friday after a two-day heavy losing streak. However, with energy export sanctions on Russia expected to remain in place in the near-term, it is likely that oil prices will continue trading at elevated levels. To address this issue, the Biden administration is looking to Venezuela, Iran and Saudi Arabia to offset Russia’s rapidly shrinking exports.

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.