By Han Tan, Chief Market Analyst at Exinity Group
Markets are peeking out from behind the risk-off curtain, as sanctions announced by the US, UK, and Europe against Russia didn’t live up to the market’s worst fears. Most Asian markets are rising alongside European and US equity futures, as equity bulls attempt to pull the S&P 500 out of a technical correction once more.
Meanwhile, safe havens have moderated with spot gold easing back below $1900, Treasury yields are pushing higher, and the dollar is ceding ground to most of its G10 peers.
Instead of sending the strongest message possible, the first tranche of sanctions by western allies are seen as mere thumbtacks that only induce limited discomfort on Russia, at least for now. Some of the sanctions on Russian banks are largely symbolic and have limited impact on its financial dealings with the rest of the world.
Although the western allies have highlighted further scope for economic retaliation, Tuesday’s announcements suggest more leeway for Russia in the interim, noting that the EU’s measures still require confirmation from member states, while US lawmakers continue wrangling over a bipartisan package of Russian sanctions.
Still, the potential ramifications from the Ukraine crisis have been felt more keenly within the commodities complex.
Natural gas futures in Europe surged by 10% after Germany halted the approval of the Nord Stream 2 pipeline. On Tuesday, Brent futures took a massive stride towards $100, aluminum traded close to its all-time high, and wheat futures in Chicago saw their biggest single-day advance since 2018.
Further economic sanctions that make commodities scarcer could ramp up global inflationary pressures, which in turn could further drain risk appetite.
The Ukraine crisis has added to the wall of worries that market participants are contending with, including signs of persistently elevated inflation and the risk of a Fed policy error.
Financial markets are expected to remain sensitive to every development and nuance in this standoff between Russia and the West, with investors and traders bracing for the unending barrage of headlines headed their way.
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