Ukraine crisis moves to next round of sanctions
Markets woke up to another Ukrainian drama on Tuesday as Europe, the UK and the US came to threaten the first round of sanctions against Russia after Putin recognized two ex-Soviet regions and backed by Moscow in Ukraine, Donetsk and Luhansk on Monday evening, which could strategically allow Russia to strengthen its military forces.
Traditional safe-haven gold opened the day with a slight positive spread, but upside pressures subsided immediately before the price hit June’s high of $1,916 after Ukrainian President Volodymyr Zelensky said he there would be no war or escalation with Russia, with the price dropping as low as $1,891 in stride. Of course, he called on his foreign allies to use punitive sanctions, and some of them, including the United Kingdom, have already announced bans on Russian banks and individuals, with the European Union also preparing to unveil its own countermeasures later today, including in regards to shutting down the Nord Stream 2 gas pipeline. But honestly, it remains to be seen if the countermeasures will be unleashed, especially while there is will be no official invasion, given Europe’s dependence on energy sources. Therefore, the severity of the penalties will determine the magnitude of gold’s bullish moves in the coming days or weeks.
The euro cuts its losses but the pound remains gloomy
In other safe-haven assets, bond markets also lost ground, pushing the 10-year Treasury yield above 1.90%. European yield equivalents rallied faster as risk sentiment improved a bit. The latter is also evident in the forex and stock markets. Although the geopolitical impact on currencies was relatively less vigorous, the euro/dollar reacted quickly to the latest encouraging headlines, dropping from a low of 1.1280 to 1.1366. Likely, the upside surprise in Germany’s Ifo business climate index, which signaled that EU power will benefit massively from the easing of the coronavirus crisis, also provided a helping hand.
The Yen came under pressure, helping the Dollar rebound near key support at 114.70, although the 115.00 number remains a key hurdle for now.
On the other hand, the pound has not yet shown any bullish appetite against the dollar and the yen. Perhaps BoE policymaker Dave Ramsden’s comments backing only modest monetary tightening in the coming months negated any upside as rate expectations for 50 basis points eased. The pound/dollar was last seen falling at 1.3547, while the pound/yen was more or less stable at 155.88. The euro/pound rebounded strongly to 0.8382, erasing a four-day losing streak.
RBNZ to hike rates for third time
The New Zealand dollar will attract particular attention when the Reserve Bank of New Zealand (RBNZ) announces its policy decision in the early hours of trading in Asia on Wednesday. Investors are fully confident that the central bank will make its third straight 25 basis point rate hike, while there is also a 30% chance of a 50 basis point hike. Therefore, unless the RBNZ acts quickly with a 50 basis point rate hike to ease strong inflationary pressures and/or uses a hawkish tone to brighten the future of the economy, the announcement The policy itself might even be a classic sell case for the Kiwi/Dollar, blocking the way above the tough resistance at 0.6730.
Stock sell-off halts, oil hits new highs
In equities, European indices avoided the slump in Asia, recouping earlier losses to turn nearly neutral on the day as traders pushed some funds out of safe havens. Energy, real estate and consumer discretionary stocks were the best performers. Futures on the S&P 500, Nasdaq 100 and Dow Jones also point to a softer negative open.
Finally, oil continues to dominate the headlines. International benchmark Brent crude was poised to hit the crucial $100 a barrel threshold before slipping to $97.42, while WTI crude extended Monday’s rally to a new seven-year high of 94, $90, fueling fears that global inflation could continue to rise. While progress in Iran-US nuclear talks could be a headwind to the oil rally, the war factor in Ukraine threatens another supply shock should it materialize.