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.