Cautiously optimistic

European equity markets have recovered most of their earlier losses but remain a little lower on the day.

Stocks are coming off two positive sessions which probably contributed to the downside we saw earlier on despite there being no real negative developments in Ukraine. In fact, commodity prices have continued to decline today which could take the gale-force out of the coming headwinds for the global economy.

This remains an incredibly headline-driven market which means investors will likely continue to tread cautiously as they’re tempted back in. But the headlines have been more promising than what we’ve become accustomed to even if I remain highly sceptical given the vast difference between Russia’s words and actions in recent months.

There’s a long way to go regardless and the sanctions keep on coming which will further isolate Russia and risk unintended consequences elsewhere. The view in the markets though appears to be that the worst has happened, as far as sanctions are concerned, which perhaps makes the outlook a little less foggy.

Fed and BoE prepare to raise rates

While the Ukraine invasion remains the dominant driver of market sentiment, there will be some focus in the coming days on central banks as the Fed and BoE both prepare to raise interest rates. For the Fed, it will be the first of the tightening cycle, with further increases expected at most meetings this year. For the BoE, it will be the third consecutive hike and many more are expected.

The lesson from the ECB last week is that central banks won’t be deterred in the short term as huge inflationary pressures preceded the invasion and must be dealt with head-on. Especially given the moves we’ve seen in commodity markets which threaten to increase the headline rates even further. I expect they’ll maintain their hawkish stance this week but that could change as we move into the second half of the year, depending on how things unfold in Ukraine.

Bitcoin slips after failed break higher

Bitcoin is continuing to struggle even as other risk assets are buoyed by the improved sentiment in the markets. A push higher earlier in the session was short-lived and met significant resistance around USD 40,000 where it is now slipping back from. It’s now treading water but there’s little indication that the consolidation we’ve been seeing is nearing an end.

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

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