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Swift risk-reversal

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European markets have made significant losses again on Thursday, as risk appetite reversed following unsuccessful talks between Ukraine and Russia.

There can’t have been much expectation for anything more given the wide-ranging demands and ridiculous justifications we’ve seen from Russia for the invasion, or “special military operation”. But I guess high-level talks are a small step in the right direction which has provided some hope.

With the lack of progress and the continued assault on Ukraine and its people, the sanctions from the West will keep coming which should ensure uncertainty remains high in the markets and any rallies vulnerable. Today’s declines only partially offset yesterday’s gains but I wouldn’t read too much into that. The worst is probably yet to come for Ukraine.

ECB proceeds with tapering despite downside risks to the economic outlook

Regardless of what the market reaction would have us believe, I’m not sure what about the ECB decision and press conference today was actually surprising. Markets were already pricing in rate hikes this year so the phasing out of net asset purchases over the coming months and the end of PEPP this month falls very much in line with that.

The revision to the inflation forecasts was not surprising given the recent data. It was still mildly shocking to see the 2022 number as you don’t see such revisions too often but under the circumstances, it was always going to be substantial.

The press conference from Christine Lagarde contained all of the context and caveats you’ve come to expect from these events. Just the right amount of ambiguity that leaves traders with barely more information – to put it generously – than they had before it started. All in all, today went as you’d expect and the outlook remains highly uncertain and dependent on how the crisis in Ukraine plays out.

US inflation is near the peak

US inflation rose again in February by a staggering 0.8%, or 7.9% on an annual basis. The number was in line with expectations though and the likelihood is we’re near the peak which could come next month. That won’t comfort those feeling the squeeze as a result of these widespread price increases, especially when faced with much higher energy prices, but the trajectory should start to look more promising after that. This leaves little doubt that the Fed will raise rates next week and at the upcoming meetings though, as it hopes to get to grips with inflation having already ignored it for too long.

Bitcoin remains vulnerable to shifts in risk-appetite

Bitcoin is back below USD 40,000 after giving up almost all of Wednesday’s gains in early trade. The surge in risk appetite saw bitcoin soar higher yesterday, a move that was always vulnerable given the massive volatility and headline-driven price action. There was also a suggestion that President Biden’s executive order on digital assets may have been behind the rally but perhaps not. Cryptos remain very sensitive to gyrations in risk-appetite and today they’ve been caught on the wrong side of it.

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

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