Russia has invaded Ukraine. Russian troops have entered Ukraine from the north, south and east. There have also been reports of missile strikes at strategic points for the Ukrainian military across the country. Russian President Putin’s chilling address early this morning was tantamount to a declaration of war. Russian officials have claimed that this move is to demilitarise Ukraine.
The reaction on financial markets has been swift, with a huge flight to safety where any assets deemed to be higher risk have been sold. Market participants should be aware that these are fast-moving markets today, with elevated volatility. Wild swings in pricing can be expected.
On the data front, be on the lookout for US Prelim GDP and New Home Sales. However, understandably we will see markets predominantly focusing on Ukraine.
Sentiment has sharply deteriorated: Anything deemed high risk has dived lower amid a big flight to safety. Indices and cryptocurrencies are sharply weaker, with the JPY and USD significantly outperforming in forex. Precious metals and oil have spiked higher.
Treasury yields dive: US bonds are the ultimate safe haven and there has been a flood to buy Treasuries today. This has sent yields spiking lower. The US 10 year fell -14 basis points at one stage, but are now just -8bps down on the day. [Risk negative]
Russia invades Ukraine There have been reports of cruise missile attacks on Ukrainian airports across the country. Russian troops are reported entering the country from Belarus in the north, Odesa in the south, and into the Domass region of eastern Ukraine. [Risk negative]
Volatility spikes higher: The VIX has jumped to 36 which is significantly elevated (its 21-day moving average has already risen to around 26 in recent weeks, a near 15 month high). Expect volatile swings in prices across major markets.
Oil spikes above $100: Brent Crude has pulled sharply higher this morning. [Risk negative]
Cryptocurrency takes a bath: Higher-risk cryptocurrencies are getting hit hard. Bitcoin is currently down over -5%.
- US GDP – Q4 Prelim (at 1330GMT). Consensus is expecting a slight positive revision to 7.0% annualized growth (up from 6.9% at the Advance reading).
- US Weekly Jobless Claims (at 1330GMT). Claims are expected to reduce slightly to 235,000 (from 248,000 last week).
- US New Home Sales (at 1500GMT). January sales are expected to fall slightly to 806,000 (from 811,000 in December)
MAJOR MARKETS OUTLOOK
Broad outlook: Market sentiment has plummeted this morning with a big flight to safety.
Forex: JPY and USD are significantly outperforming major currencies. NZD and AUD are leading the others lower along with EUR.
- EUR/USD has fallen sharply to breach 1.1270/1.1280. This now opens the lows of the range with support at 1.1120/1.1180. 1.1270/1.1280 now becomes a basis of resistance overhead. The near-term outlook is negative but this is a highly volatile moment and big swings could be seen.
- GBP/USD has fallen sharply to break the mini trading range of 1.3485/1.3645 in the past few weeks. A closing breach would imply a move towards the key higher low of 1.3357. Near term, resistance is now at 1.3485/1.3540.
- AUD/USD is falling to test the recovery uptrend and initial price support around 0.7165. A close under 0.7150 would be a negative move that opens a retreat towards 0.7085. Initial resistance is now at 0.7205/0.7235
Commodities: Prices for precious metals and oil have spiked higher this morning.
- Gold has spiked through resistance at $1914 to move to levels not seen since January 2021. The next resistance is a band of key highs at $1965/$1973. Whilst volatility and the market fear over Ukraine continue, we expect gold to be bid higher. There is a risk of the spike unwinding if markets settle down, so we prefer active trade management with profit-triggers. Initial support is not until $1907/$1914.
- Silver has spiked above $24.70 resistance to open $25.40, the key November high. Near-term momentum is strong and the move is not stopping yet. The risk is of an unwind to the spike higher, but as with gold, we would prefer to use active trade management here. Initial support is now $24.70.
- Brent Crude oil has accelerated higher above $100 this morning and shows little sign of stopping. There is almost no resistance (the price is up around 8-year highs). Once more, the risk would be a sharp unwind to the spike higher. Initial support is at $99/$100.
Indices: Equities have sold off hard early this morning. A minor recovery has been seen in the past couple of hours, but it is too early to suggest real support has formed.
- S&P 500 futures have spiked lower below 4212 support and hit the lowest since May 2021 today. There are hints of consolidation on the hourly chart but further downside below 4101 cannot be ruled out. Given the sharp move lower, there is a potential for a rebound, but this is a high-risk strategy.
- DAX spiked sharply lower to hit 13,798 as an intraday low this morning. A rebound in the past couple of hours could be a dead cat bounce and will need to overcome 14,508 initial resistance as a first test.
- FTSE 100 has fallen along with other equity markets. An intraday rebound from 7214 will need to move decisively back above 7332/7354 resistance to suggest a recovery forming.