Markets unnerved by tensions with Russia

Equity markets fell sharply yesterday, particularly in the US, after a US official warned of an “imminent invasion” of Ukraine by Russia. The flight of investors to safe havens such as US Treasuries and gold resumed: the US 10-year yield fell from 2.03% to 1.96%. The subsequent announcement of a meeting between the US and Russian heads of diplomacy next week of course had the opposite effect: stock market futures rebounded and rates rose slightly. The EUR/USD exchange rate is stable at around 1.136-1.137.

The markets appear disoriented in a context already made uncertain and unfavourable by the monetary tightening that accompanies the surge in inflation. The small rise in weekly US jobless claims does not challenge the downward trend that reflects the decline in the Omicron wave. In other words, wage pressures are not about to subside and the Fed will not be able to count on a moderation in core inflation until probably the end of the year.

UK retail sales rebounded by 1.9% in January after a sharp decline in December, in line with what happened in the US. The economic agenda is not very full today. Geopolitical risk should continue to be the main market mover.