This week promises to be volatile again due to geopolitical tensions in Eastern Europe

by JustForex

Last week was very tense due to the situation in Eastern Europe. Financial markets remain extremely volatile. Any hint of a peaceful resolution pushes indices up, while any hint of escalation causes investors to buy defensive assets again, such as the dollar, Japanese yen, gold, and silver. Meanwhile, markets are completely ignoring the very strong fourth-quarter earnings results in the US and Europe. It is also unclear how the US Fed will tighten monetary policy, slowly or quickly, which adds to investors’ caution. According to JPMorgan, the Fed will raise rates by 0.25% nine times in a row, reducing inflation and not affecting economic growth.

Investors are likely to face another volatile week again as fears of a possible Russian invasion of Ukraine boost demand for safe-haven assets. Russia continues to build up weapons near Ukraine’s borders, and evacuations to Russia have begun in the self-proclaimed republics in eastern Ukraine. World leaders are trying to solve the problem through diplomacy, but with each passing day, the likelihood of a peaceful resolution of the issues decreases. According to Western leaders, Russia is not interested in a peaceful resolution of Ukraine’s conflict, but hope remains. The US Secretary of State Antony Blinken said that the events in the border zone over the past two days are part of a Russian scenario of creating false provocations. Yesterday, French President Emmanuel Macron’s administration said that US President Joe Biden and Russian President Vladimir Putin agreed to hold a summit on Ukraine. Blinken and Russian Foreign Minister Sergei Lavrov will also meet this week. This is a good sign of cooling the situation.

The foreign ministries of South Korea, India, the Czech Republic, Austria, and Germany have urged their citizens to leave Ukraine.

Lufthansa, SAS, Austrian Airlines, and Swiss airlines are stopping flights in the sky of Ukraine for a week (until February 27).

The US stock indices closed on Friday in the red zone. By the close of trading, the Dow Jones (US30) decreased by 0.68% (-1.77% for the week), S&P 500 (US500) fell by 0.72% (-1.44% for the week), NASDAQ Technology Index (US100) lost 1.23% (-1.60% for the week). All three major indices closed the week with a minus. Due to the holiday (President’s Day), the US markets are closed today.

European stock indices also closed in the red zone on Friday amid geopolitical tension in Eastern Europe. German DAX (DE30) decreased by 1.47% (+0.77% for the week), French CAC 40 (FR40) fell by 0.25% (+2.20% for the week), Spanish IBEX 35 (ES35) lost 0.94% (+0.75% for the week), British FTSE 100 (UK100) fell by 0.32%, and by the end of the week became the leader of the decline among European indices (-1.92%). The UK retail sales increased by 1.9% in January compared to the previous month, better than the market forecast. The consumer price index in France was 3.3% in annual terms in January. Thus, inflation eased slightly from December’s value of 3.4%.

Oil prices could be set for another mixed week, as traders weigh possible supply disruptions caused by the Russia-Ukraine crisis and the prospects for increased Iranian oil exports. On the one hand, fears of possible supply disruptions due to sanctions against the leading exporter, Russia, in the event of an attack on Ukraine, keep oil prices high. On the other hand, Iran is slowly and steadily returning to the oil export market with each passing day, which can significantly reduce oil prices.

Gold prices rose for the third week in a row as concerns over geopolitical tensions in Ukraine boosted demand for the metal as a safe-haven asset. Over the past week, gold has gained over 3%. Gold prices were also boosted by bets that inflation would remain at a high level. But it should be noted that after the reduction of geopolitical tensions, prices for precious metals may fall sharply against the background of a possible increase in interest rates by the US Federal Reserve. It will increase the dollar index and government bond yields, which have an inverse correlation with gold and silver.

Asian markets traded lower on Friday. Japan Nikkei 225 (JP225) decreased by 0.41% (-0.67% for the week), Hong Kong Hang Seng (HK50) lost 1.88% (-1.61% for the week), Australian S&P/ASX 200 (AU200) fell by 1.02%, but was +0.06% by the end of the week. The People’s Bank of China (PBOC) did not change its prime lending rate.

At the commodities market, futures on natural gas (+12.86%), palladium (+7.13%), platinum (+4.99%), lumber(+4.04%), gold (+3.19%), and silver (+2.49%) showed the biggest gains by the end of the week. Cocoa futures (-6.15%), heating oil (-3.83%), sugar (-3.45%), WTI oil (-2.77%) and coffee (-2.54%) showed the biggest drop.

Main market quotes:

S&P 500 (F) (US500) 4,348.87 −31.39 (−0.72%)

Dow Jones (US30) 34,079.18 −232.85 (−0.68%)

DAX (DE40) 15,042.51 −225.12 (−1.47%)

FTSE 100 (UK100) 7,513.62 −23.75 (−0.32%)

USD Index 96.11 +0.31 (+0.31%)

• – Australia Manufacturing PMI (m/m) at 00:00 (GMT+2);
• – Australia Services PMI (m/m) at 00:00 (GMT+2);
• – Japan Manufacturing PMI (m/m) at 02:30 (GMT+2);
• – Eurozone Germany Manufacturing PMI (m/m) at 10:30 (GMT+2);
• – Eurozone Germany Services PMI (m/m) at 10:30 (GMT+2);

by JustForex

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.