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European markets slip back after Kremlin plays down Biden, Putin Summit

Russia and US flags

European markets have continued to be susceptible to headline risk today and are likely to remain so for some time to come, with today’s price action a perfect example of how a single headline can turn sentiment on its head.

Europe

We initially started the day on the front foot on optimism over a report that there had been a discussion over an agreement in principle for US President Biden, and Russian President Vladimir Putin to meet to avert a further slide into hostilities. Any meeting would be contingent on the basis that Russia stays out of Ukraine.

The reports suggested that the details of any meeting would be thrashed out at a scheduled meeting this Thursday, between US Secretary of State Anthony Blinken, and Russian Foreign Minister Sergey Lavrov.

This early optimism proved to be rather short-lived after the Kremlin released a statement that there were no concrete plans for a Biden-Putin summit at this time.

Putting to one side that we already knew there were no concrete plans on this even before the market opened, markets still reacted by immediately turning over in the aftermath of the announcement and sliding into negative territory.  

Once again markets have done the equivalent of hearing what they want to hear, ignoring the escalation in violence and other flashpoints on the eastern Ukraine border, although volume has been light given that it’s the President’s Day holiday in the US.

On the upside AstraZeneca shares have moved to 3-month highs after the pharma giant said that its Enhertu drug improved survival rates in late-stage trials for patients with low metastatic breast cancer.

The biggest fallers today have been predominantly geared towards the Russian miners of Polymetal and Evraz on the basis they could well be on the frontlines of any sanctions imposed in the event of a Russian invasion.

Scottish Mortgage Investment Trust is also slightly lower with US futures signalling further losses when they reopen tomorrow.  

US

US markets are closed.

FX

Despite the slightly negative tone in equity markets, the US dollar has slipped back, which suggests that currency markets aren’t as concerned about events on the Ukraine, Russia border as equity markets are. The Swiss franc is outperforming being a haven currency, though on the flip side of that the Japanese yen isn’t, which is also traditionally a haven currency.

The pound is slightly firmer after the latest PMI numbers showed the UK economy rebounded strongly in February, in the wake of the relaxation of Plan B restrictions at the end of January. Growth in new orders saw its fastest activity in 8 months, with strong activity in travel, leisure, and entertainment.   

Commodities

Crude oil prices have edged higher after posting their first weekly decline since mid-December. Brent prices do appear to be building up a base at the $90 a barrel level for a possible move towards $100 a barrel. The pouring of cold water on immediate plans for a Biden/Putin summit appears to have put in a bit of a bid to prices. Despite the optimism over a return of Iranian supplies the prospect of this still seems a long way off and isn't likely to happen quickly.

Gold prices briefly pushed above $1,900 to a new 8 month high in early Asia trade, however, reports of a possible Biden/Putin summit have seen prices slip back, with headline risk continuing to drive moves in the price.

Volatility

The last week proved incredibly subdued for digital assets, with cryptos typically showing lower levels of volatility on a daily basis compared to the month. There was something of a break out approaching the weekend break on IOTA which ranged as much as 15% against the greenback, driving one-day vol to 250% on Thursday against a monthly print of 120% but otherwise, the asset class was unremarkable – quite possibly because there’s no shortage of risk to be had elsewhere.

Single stocks saw some spikes in volatility, with a notable recurrence of themes we’ve seen previously. That cost-of-living squeeze – something that will be very much in evidence in the UK – has been driving interest in discretionary consumer stocks such as Boohoo and JD Sport, whilst Evraz remains in focus, too. The steelmaker is seen as a key casualty of economic sanctions if Russia invades Ukraine. Shares clawed back some losses mid-week, gaining almost 20% before retreating as the narrative turned darker again. On Monday, one-day vol hit 208%, well ahead of the 84% for the month.

For equity indices, there was no real pattern in play, although European markets were feeling pressure of the threat that gas supplies could be cut as an easy economic retaliation by Russia. That said, the more impressive price action was seen in smaller German risk-on indices at the start of the week, with the midcap 50 posting daily vol on Monday of 61.6% against a monthly reading of 29.3%.

Unsurprisingly, energies remained of interest in terms of commodity prices, with daily vol on both UK and US crude oil contracts sitting around 50% by the end of the week, up from the monthly readings which had been in the mid-30’s. And in terms of fiat currencies, the Rouble has dominated with daily vol against the greenback on Monday of 34.6% against a monthly print of 20.7%, whilst Aussie Dollar crosses have also been in focus as the market digested divergent economic data here. AUD/JPY by Friday recorded one-day vol of 15.16% against a monthly print of 11.93%.


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