Uncertainty keeps investors on edge

Stock markets in Europe are mixed, while US futures are edging lower on Thursday, as uncertainty remains around Russia’s intentions in Ukraine.

It’s been a rather strange week that started with warnings of an imminent invasion – repeatedly denied by Russia – followed by claims of troops withdrawing following the completion of planned drills which has since been rejected by Ukraine and NATO, who have instead insisted that numbers are rising, not falling. It’s no wonder investors don’t know which way to turn.

Clearly, tensions are going to remain until we see a confirmed and substantial reduction of troops at the border but rather than abandon risk as they did late last week and early this, investors seem comfortable sitting on the fence. Of course, that could change if we see any escalation or as we head into the weekend if we have no further clarity.

The West remains convinced that an invasion remains highly likely and that flare-ups in Eastern Ukraine between Russian-backed separatists and Ukrainian forces could be used to justify crossing the border. Whether the intelligence is trustworthy or hysteria, as Russia has labelled it, will soon become clear but in the interim, efforts towards a diplomatic solution continue which will keep investors on edge.

Fed minutes offer little insight into March hike

Inflation remains the key focus for investors as they navigate a tightening environment like no other. The pandemic has delivered widespread price pressures that have lasted longer and far exceeded expectations. Central banks have been forced into action while markets continue to price in more and more hikes this year.

The Fed minutes on Wednesday offered little new information on that front and anything in them that came across as potentially less hawkish is probably out of date by now. The central bank will kick off its tightening cycle next month and a number of consecutive hikes will likely follow. Whether they’ll kick things off with a 50 basis point hike isn’t yet clear and will depend on the data in the coming weeks but there doesn’t appear to be consensus for it yet, despite markets pricing in a fair chance of it happening.

Lira steady as CBRT leaves rates unchanged

The lira continues to trade in a relatively tight range after the CBRT left the repo rate unchanged at 14% for the second consecutive meeting. A series of rate cuts late last year triggered a collapse in the currency and sent inflation soaring – reaching 48.7% in January – as President Erdogan imposed his unconventional beliefs on the supposedly independent central bank. The stability in the currency has come as the central bank has paused its easing cycle while it conducts a comprehensive review of its policy framework. What the outcome of the review will be is anyone’s guess given how the central bank has behaved under the “leadership” of  Governor Şahap Kavcıoğlu.

Bitcoin struggling at key resistance

Bitcoin is almost 2% lower on Thursday, appearing to lose a little momentum on approach to USD 45,500, a major barrier of resistance. It has shown real resilience in recent weeks but is struggling to generate the momentum needed to take the next step. The uncertainty in the markets probably isn’t helping, although it hasn’t held it back recently. A break above here could be a very bullish development for bitcoin.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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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