Notices To air missions, Russian “operations” begin

Once again, the relief rally has quickly reversed course, and once again the culprit is the Ukraine situation. The Ukrainian government declared a state of emergency across the nation and Russia issues notices to airmen (NOTAM’s) closing eastern Ukrainian airspace to civilian aircraft, something they cannot legally do but that hasn’t bothered them so far. The Ukrainian government has since closed the country’s airspace completely it appears, citing safety concerns. All of it points to an imminent “peacekeeping” mission by Russia, even as the UN Security Council meets over the matter.

The earlier announcements were enough to see a flight to safety overnight once again, The US dollar rose, stock markets and oil and gold jumped. Somewhat surprisingly, US yields held steady, but I suspect they too will fall as investors park their money in the US government debt market. US 10-year yields are already falling in Asia this morning as investors pile in. Markets are pricing an imminent invasion and an end to the spin/disinformation false flags, and I cannot disagree.

One thing I have noted since my return this week is the weakening power of the buy-the-dippers. Any retreat by equities over the past two years has been met by a wall of money causing just as abrupt reversals. That is not the case now and is yet another warning sign that more pain may be ahead for equities and other asset classes, pimped up by the bottomless central bank money that flooded the world over the pandemic.

Although the rumours are swirling that an Iran nuclear deal is imminent, releasing potentially, another 1.5 million bpd onto world markets, it won’t save markets from an abrupt leap in energy prices if the Ukraine situation escalates, as seems inevitable. The timing cannot be worse as inflation soars anyway across the world, something that cannot be explained away anymore by “covid difficulties” alone. If the Ukraine situation forces central banks to halt policy normalisation efforts, a stagflationary shock to the world is on the way. That won’t be good for equities, high yield credit, EM currencies, anything European or risk sentiment currencies such as the New Zealand dollar. Either the Ukraine gets thrown under the Russian tank tracks in a gross act of appeasement, or the rest of the world aligned against Russian aggression will have to wear some economic pain. I am not sure how much stomach, despite the rhetoric, there is for the latter.

In breaking news, a NATO official has told Reuters that it looks like the invasion of the Ukraine has begun, even as news wires report Putin using neo-Nazis as a justification, and while the UN Security Council debate over the situation is going on. Brent crude has hit USD 100……….

I’d talk about something else, but to quote Metallica, nothing else matters.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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