Another troubling start to the week

Ukraine jitters send markets tumbling

Stock markets are getting pummelled on Monday, as investors prepare for a potential Russian invasion of Ukraine this week.

Reports since Friday suggest an invasion has gone from being a risk to highly likely and the late sell-off in the US followed by today’s plunge reflects that. Coming during a period of high anxiety in the markets and a cost-of-living crisis in many countries, the timing couldn’t really be much worse.

Europe now finds itself in a very uncomfortable position. We’re in the midst of an energy crisis and the bloc is incredibly over-reliant on Russia for supplies of gas. To make matters worse, Russia is also a major oil producer which is why the price of crude is inching ever closer to USD 100 a barrel.

The inflationary consequences of all of this at a time when central banks are already eyeing multiple rate hikes and paring back bond-buying is making investors even more nervous. It’s the perfect storm at a time when countries are already navigating through the global pandemic and managing major supply chain issues, all of which are already generating massive inflation.

This has forced traders to aggressively price in multiple rate hikes from central banks this year, despite many continuing to push back against market expectations. They have gradually come around to the market’s way of thinking in recent months but they remain behind the curve.

So speeches from various policymakers, including ECB President Christine Lagarde and the Fed’s James Bullard today will continue to be closely monitored. The two are very much at the opposite ends of the scale, with Bullard not just supporting a full percentage point increase by July, but even floating the idea of an inter-meeting increase.

That’s in contrast with Lagarde who recently appeared to finally acknowledge that a hike this year is possible. Any further hawkish shift from Lagarde could generate quite a reaction in the markets, although they have already priced in four 10 basis point hikes this year.

A bullish signal for bitcoin?

Bitcoin is a little flat at the start of the week but continues to show resilience in otherwise volatile and risk-averse markets. We’re not seeing it be as negatively affected by the news as other risky assets, which could be viewed as a bullish signal. It continues to see resistance around USD 45,500 but declines have not been particularly severe and it’s not even tested USD 40,000 since breaking back above there 10 days ago. Things may be looking up for cryptos.

For a look at all of today’s economic events, check out our economic calendar:

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam