Temporary comfort

European stock markets have been given an unexpected boost on Tuesday following reports that the bloc is close to an agreement on fresh joint bond sales to fund major projects.

It was reported that the joint bond sale will fund energy and defence spending across the EU following the Russian invasion of Ukraine. Europe has long been criticised for its over-reliance on Russian oil and gas, as well as its failure to hit its 2% NATO defence spending target, and the invasion has created the urgency to make the long-overdue changes.

While the short-term solutions will probably be focused on diversifying its supply, there will likely be a significant acceleration in its push towards green energy in the longer term. The size and make-up of the package could be announced in the coming days which will highlight just how seriously the EU is about transitioning away from Russia in light of recent events.

Unfortunately, these reports will only likely bring temporary reprieve in equity markets, a day after they were tipped into bear market territory. There still remains considerable uncertainty around the Russian invasion of Ukraine and commodity markets are continuing to see some extraordinary moves as a result.

The ripple effects from the invasion are severe and widespread and the worst may still be to come as traders desperately try to assess the fallout from potential supply disruptions of a wide range of commodities. The LME was forced to suspend nickel trading earlier after the price more than doubled to above USD 100,000 per metric ton in the mother of all short squeezes. Further market turbulence in the commodity space could easily follow.

Bitcoin facing major risk headwinds again

Bitcoin is recovering alongside risk appetite, up around 3% on the day. The realignment with broader risk appetite has been an interesting development, having gone through a period of gains on the back of increased adoption following the invasion and Russian sanctions.

There’s still scope for further support if we see more evidence of increased adoption but the realignment with risk could now be a headwind for the price. It’s hard to imagine a significant rebound against the backdrop of the terrible scenes in Ukraine and increasing sanctions.

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