The early day rebound that we saw in European markets yesterday fizzled out quickly in the afternoon session, largely over concern that Ukraine was about to find itself on the receiving end of an imminent Russian invasion, after Ukraine reported it was experiencing a DDOS attack, in what was feared was likely to be a precursor to an invasion.
US markets were equally as jittery with another negative finish, as the Nasdaq 100 and S&P500 closed at their lowest levels in 8 months, on reports that Russian separatists had formally asked Moscow for help in repelling Ukrainian aggression.
This request offered Russia the perfect excuse to cross the border this morning in what looks a carefully coordinated move, as it moves its forces into Eastern Ukraine, with a view to potentially annexing the rest of the country.
Russian President Vladimir Putin went on Russian state TV to demand that the Ukrainian army lay down its weapons, and that he was not planning to occupy Ukraine, but that the Russian army was going in to defend people who have been victims of abuse and genocide, saying he wanted to de-Nazify Ukraine. He went on to warn NATO not to intervene.
Reports of missile strikes on various targets around Kyiv, Kharkiv and Dnipro, and heavy fighting has seen oil prices surge over $100 a barrel, gold to move above $1,940 an ounce, while Asia markets have plunged, with the Nikkei down 2%. The US dollar has also risen sharply and government bond yields have dropped sharply as investors move into haven trades.
European markets are set to follow suit when they open later this morning as the US, EU and UK ponder their next moves with further sanctions likely, but which will in all likelihood get ignored. It’s probably not hyperbole to say that Europe is now at its most dangerous juncture since World War 2.
After a strong rebound in UK retail sales in January, today’s latest CBI retail sales numbers for February, could well give us a steer as to whether the consumer rebound seen after Christmas has carried over after restrictions were eased at the end of January. Initial forecasts would appear to suggest that sales growth may well have seen a plateau with a modest pullback to 25, from the strong January rebound to 28, from December’s 8 month low of 8.
Although the US economy slowed in Q3, it still did better than initial estimates in the final upgrade to 2.3%, which we saw at the end of last year.
The initial Q4 numbers that we saw a few weeks ago saw a much bigger rebound than expected, despite concerns over an uneven recovery and fragile consumer confidence. A rebound in hiring has certainly helped, as well as a strong recovery in both manufacturing and services activity, despite the end of the year Omicron disruption, which saw weekly jobless claims rise sharply. Q4 GDP came in at 6.9%, well above expectations of 5.5%, even though personal consumption rose less than expected, by 3.3%.
The main reason for the outperformance was our old friend, supply chain issues. Having used up inventory in Q3 which caused a drawdown, US companies used Q4 as an opportunity to front run these problems by ordering early and front running demand and rebuilding their stock ahead of the Thanksgiving and Christmas period, which saw inventory levels come back higher again.
This trend, or pull forward effect could well spill over into this year as well, given that economies all over the world are experiencing shortages in various parts of the global supply chain, semiconductors being a case in point. Today’s revision is expected to see a modest uptick to 7%, with personal consumption set to drive that with an uptick to 3.4%.
The US labour market continues to look fairly resilient despite last week’s surprise uptick in weekly jobless claims to 248k, from 225k.
The continuing claims numbers gave a much better directional steer of the US jobs market, dropping below 1.6m for the first time this year, and likely to fall further to 1.58m, and the lowest level since the record low we saw at the end of last year.
EUR/USD – dropped sharply below 1.1270 as we look to open up the lows this year at 1.1120. Resistance now comes in at the 1.1270 area, and behind that at 1.1320.
GBP/USD – fallen back below the 50-day MA and now closing in on trend line support at 1.3460, from the December lows. Resistance comes in at the 1.3640 area and behind that at 1.3720. Below 1.3450 targets 1.3380
EUR/GBP – rebounded from the 0.8310 area, but while below the 0.8410/20 area the bias remains for a move back towards the recent lows at 0.8280.
USD/JPY – support remains at the 114.50 area, trend line support from the September lows. A fall below here targets the 113.80 area. We have resistance just above the 115.20 area as well as 115.80.