Russia-Ukraine fears hits Europe
Traders continue to be in selling mode as fears mount surrounding the Russia-Ukraine situation. Also playing into the mix are the concerns the Federal Reserve will issue a hawkish update on Wednesday. The growing Russian military presence on the Ukrainian border is adding to the speculation there will be an invasion, and those fears have been fuelled by the news that UK and US embassy staff in Ukraine have been instructed to leave the country. Dealers are worried about the prospect of a war in Eastern Europe as the human and economic cost would be huge. Some central European economies like Germany are heavily dependent on energy from Russia, and should a war break out, it’s a possibility those energy supply lines would be cut, which would cripple economic output in the EU, hence why the DAX and the CAC are down over 3%. The FTSE 100 is suffering too as it is down 2.2%.
Its déjà vu in the US as worries about several interest rate hikes from the Fed this year is hammering stocks. The NASDAQ 100 is once again the underperformer of the bunch as its large exposure to the technology sector is acting like a millstone around its neck. The US central bank is due to make their latest interest rate decision on Wednesday, and even though rates are likely to be lifted, the language used will be in focus. Dealers will be trying to decipher the commentary to try and figure out how rate hikes can we expect in 2022.
The US dollar index hit its highest mark in over one week, as traders are buying up the greenback ahead of the Fed meeting. In the past couple of years, the dollar has benefitted from the safe haven trade, and to a certain extent that is what we are seeing today. EUR/CHF has tumbled to its lowest mark since 2015 due to the risk-off strategy. The Russia-Ukraine tensions has driven up demand for the Swiss franc as the possibility of a war has boosted the “swissy”. Gold is also benefitting from the flight to quality trade. The fact the metal is higher despite the 0.35% jump in the dollar speaks to the high level of demand for the asset.
