Ukrainian Crisis, Interest Rate Hikes Move Markets

The Ukrainian crisis and the possibility of an aggressive tightening by the US Fed as inflation hit 40-year highs could mean more ups and downs for the markets in an already volatile year. The news of a potential summit among US president Joe Biden and his Russian counterpart Vladimir Putin seem to have helped the “troubled by a possible invasion” markets to partially recover some of its losses. Investors’ interest will also focus on central banks’ policies as they will be looking for clues as to how often and how much interest rates will increase in major markets.

Global Markets

Limited gains were recorded today, Monday as the details of a proposed summit and its outcome remain uncertain. U.S. markets will remain close today due to a holiday. European and Asian stock markets traded higher today. Nasdaq 100, S&P 500, and European contracts erased losses and rose about 1%. In Europe, producer prices in Germany rose by 2.2% in January. The increase was higher than expected and indicates the pressures the European Central Bank is under to curb inflation. Investors will be looking for the release of the German manufacturing PMI data for February while the PMI figures from France, the Eurozone’s seconds biggest economy, were higher than expected both in the manufacturing and services sectors.

Forex

The euro went up while the dollar retreated on Monday. Investors withdrew funds from safe havens after Vladimir Putin agreed to meet with Joe Biden to discuss the tension between Russia and Ukraine.

Oil

Oil recorded losses last week, after two months of consecutive gains and reaching seven-year highs due to early signs of possible progress on a nuclear deal with Iran that could increase the market supply. On Monday, WTI went down. The price movement came with the release of the news for a potential summit between US and Russia leaders to talk about the tensions on the Ukraine border and the possibility of a nuclear deal with Iran that could mean fresh oil supply from Iran could reach the markets. Meanwhile, ministers from Arabic oil-producing countries didn’t agree to increasing oil pumping and added that OPEC+, its allies and other suppliers including Russia should stay within their current 400,000 barrels per day agreement.

Safe Havens

Demand for safe haven assets lowered with gold and US Treasury futures going down. Elsewhere in the world, Australian and New Zealand bond yields remained lower.

Fed & Interest Rates

Last week Fed officials supported the increase of interest rates to fight the biggest inflation in 40 years. Fed governor Lael Brainard, New York Fed President John Williams and Chicago Fed chief Charles Evans expressed their eagerness for the central bank to start tightening but not increasing interest rates excessively or proceeding with increases before the next scheduled meeting.

What to Watch out for this Week:

Monday Fed Governor’s speech China property prices China loan prime rates Wednesday New Zealand Interest Rate Decision Bank of England Governor appears before the Treasury Committee Thursday Bank of Korea Policy Decision EIA crude oil inventory report Fed officials’ speech US new home sales US GDP US initial jobless claims Friday US Consumer Income, US Durable Goods PCE deflator University of Michigan consumer sentiment This week: Russia’s foreign minister has agreed to meet US Secretary of State in Europe