By Hussein Sayed, Chief Market Strategist at Exinity
US markets are closed Tuesday in observance of President’s Day. Still, many traders will find it challenging to take a break with the ongoing uncertainty over the Russia-Ukraine crisis.
While investors may attempt to model the market’s reaction to changes in monetary policy and quantitative tightening, the tail risk now is on the Russia-Ukrainian border. That is almost impossible to model, given that the inputs remain unknown.
The S&P 500, Nasdaq Composite and Dow Jones Industrial Average futures contracts have turned positive after a negative start to the week. Investors’ sentiment improved after the presidents of US and Russia accepted the principle of a French proposed summit to ease tensions, in what seems to be the last possible effort to avoid conflict.
Demand for safe havens eased following the news, with gold prices falling below $1,900 and the dollar retreating against a basket of currencies. However, Asian stocks remain in the red in a sign of ongoing caution as investors don’t want to be caught off guard.
Expect volatility to remain elevated in all asset classes as markets continue to move on intraday headlines. However, that could also bring an opportunity for long-term investors who are looking for stocks valuations to drop to more reasonable levels in the hope of picking up some bargains.
Cash is king
Owning cash in portfolios is essential to benefit from market selloffs, and there seem to be many wealthy investors hanging on to cash.
Being one of the most sensitive commodities to geopolitical risks, crude oil also declined after surging more than 2% in early Asia trade.
While the oil market is heavily influenced by Russia-Ukraine developments, traders are also closely watching US-Iran negotiations. If a new nuclear deal is reached, that will bring more than one million barrels a day in new supply which could eventually drag prices down into a range of $80 to $90.
On the other hand, failing to reach a deal may send oil above $100 as consumption is expected to rise above pre-Covid crisis levels by year-end, and many OPEC+ members are struggling to reach their targeted output.
Once the geopolitical tensions ease, markets will shift focus to macro-economic data, monetary policy actions, particularly in the US, and whether the economy can manage a soft landing or not.
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Exinity ME Ltd, a company registered under the Laws of the Abu Dhabi Global Market (ADGM), is authorised and regulated by the Financial Services Regulatory Authority (FSRA)