Equities buoyed by ceasefire talks

Equity markets are continuing to bounce back strongly on Wednesday, as talks between Ukraine and Russia appear to be nearing a conclusion that could put an end to the invasion.

Given how the events have unfolded over the last month, I remain cautiously optimistic at best about a deal. Especially when you consider that Russian attacks on Ukraine are continuing during the negotiations. There is still every chance the talks fall apart over the remaining issues and Russia continues its offensive and investors should be wary of that.

But it’s hard not to be at least a little encouraged by what we’re hearing from both sides involved in the negotiations. The horrific scenes that have unfolded in Ukraine over the last weeks have been incredibly disturbing and any hope of an end to that can only be a good thing.

While an end to the fighting will reduce the cloud of uncertainty for the global economy, it will not put an end to the sanctions that have already been imposed on Russia, or any that will follow. That could still mean high commodity prices for an extended period which means high inflation and more cost pressures for households and businesses.

China’s “whatever it takes” moment

Chinese stocks received a massive boost on Wednesday as Beijing sought to shore up confidence in financial markets and the economy following a particularly rough period. The statements covered everything from the economy to domestic markets, US listings of Chinese stocks, the tech crackdown, and the property market.

There was no limit to the assurances that were on offer. There were also few details which may come as a concern later down the line but it certainly did the job for now. It really feels like Beijing’s “whatever it takes” moment at a time of immense uncertainty and fresh lockdowns across the country. Perhaps a sign of desperation from the authorities as they try to deliver on ambitious growth targets this year.

How hawkish will the Fed be?

As if that wasn’t enough for one day, the Fed meeting should be one to remember later. Not only will it mark the beginning of the post-pandemic tightening cycle, but it will also tell us just how seriously the central bank is taking inflation having dragged its feet to this point.

It’s been talking a good game in recent months but its first hike comes at a time when inflation is 7.9% and rising. If not for the invasion of Ukraine, the Fed would surely be contemplating a 0.5% hike more seriously but as it is, 25 basis points at the next few meetings is a minimum. After that, they should have a clearer idea of the inflation and geopolitical situations. It will be interesting to see the dot plot though and what the base case is for this year, given how hawkish the market positioning currently is.

Bitcoin cautiously higher ahead of the Fed

Bitcoin is trading back above USD 40,000, finally capitalising on the improved mood in the markets as ceasefire talks continue to head in the right direction. The rally did run into some resistance around USD 42,000 earlier in the session and we could see some nerves creep in ahead of the Fed decision, with increased tightening expectations having not been particularly kind to it in recent months.

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

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