Equities Feel The Heat Due To The Ongoing Tensions In Eastern Ukraine
JFD Team | Feb 22, 2022 04:39AM ET
One of the main events yesterday was the announcement by the Russian President, Vladimir Putin, that Russia recognizes Donetsk and Lugansk regions as independent states. The Asian markets were also seen trading lower today. Indeed, due to the current tensions in Eastern Europe, global indices will remain vulnerable until some resolution.h2 Equities Slide On Tensions In Eastern Ukraine/h2
On that news, the Russian ruble took a beating against its major counterparts, moving back to the area, where it was at the end of January. The MOEX Russia index lost just over 10% and the RTSI index closed roughly with a 13% loss.
But the Russian indices started declining already after the opening bell rather than after Putin’s announcement. The US stock exchange was closed yesterday. However, the European bourses were operating. Those have also closed in the red due to geopolitical tensions.
Due to the current tensions in Eastern Europe, global indices will remain vulnerable until some resolution can be achieved. This morning, futures of the European indices were seen mostly trading lower, as tensions between the EU and Russia mean that there could be disruptions on the supply of natural gas from Russia.
That said, the timing of these geopolitical tensions is perfect, as we are now getting into a less-cold period of the year, meaning that the EU’s natural gas reserves might not suffer that much.
The Euro Stoxx 50 index had also dived recently, and it is now trading below a short-term downside resistance line drawn from the high of Feb. 10. Given the steep down move we saw recently, a small correction higher could be possible. However, we will stay bearish if the price remains below that downside line.
If the index moves back up a bit, we may class this move as a temporary correction before another possible leg of selling. That is, of course, if the price continues to trade somewhere below the aforementioned downside line. Euro Stoxx 50 might drift lower again, potentially aiming for the 3903 hurdle, marked by the lowest point of July 2021. If that area fails to provide support and breaks, this may open the door for some further declines, possibly clearing the path towards the 3855 level, marked by the lowest point of May 2021.
To shift our attention to the upside, we would prefer to wait for a break of the previously discussed downside line first and then move above the 4124 barrier, marked by the high of Feb. 21. This way, more buyers could join in and drive the index towards the 4180 obstacle, or even to the 4239 zone, marked by the high of Feb. 10.
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While all eyes are glued to the events surrounding Eastern Ukraine, China and some other developing countries are slowly growing their economies. Countries like Mexico are seeing growth levels returning to pre-pandemic ones, according to a report published on Monday by the Organisation for Economic Cooperation and Development (OECD).
According to OECD, the country’s GDP is expected to grow by 2.3% in 2022 and by 2.6% in 2023. One of the main contributors to this success is the US, one of the main importers of Mexican goods. And with the expected interest rate hikes by the Fed throughout this year, USD is expected to strengthen, especially against some of the Emerging Market currencies, such as the Mexican peso. Weaker MXN against USD could boost Mexican exports to the US, making them cheaper for the US consumer.
The tensions in Eastern Ukraine are playing out well for the oil-producing countries. Yesterday, WTI crude moved back closer to the high of last week, which is near the $95.80 mark. If the situation continues to escalate, we may see the “black gold” surpassing that mark and potentially heading towards the psychological $100 area. Interestingly enough, Western countries might forget their disagreements with Iran for a while and take in the Iranian oil, at least for the time being, until the tensions in Ukraine settle down. If so, this shows that all disagreements can be forgotten only if you are willing to take that step yourself.
h2 WTI Oil – Technical Outlook/h2Today, WTI oil was able to jump above the high of Feb. 14, which is at 95.85, creating a new high for February. The commodity continues to trade above a short-term upside support line drawn from the low of Jan. 10. As long as the price trades somewhere above that upside line, we will stay positive.
A further push north, away from the 95.85 barrier, may attract more buyers into the game. WTI oil could then drift to the 98.64 hurdle, marked by the highest point of August 2014. The move might get halted there temporarily. However, if the buyers still feel strong, they may overcome that obstacle and aim for the 101.00 level, which is the inside swing low of Jul. 25, 2014.
In terms of the downside, a break of the aforementioned upside line could spook the buyers from the arena for a while. The commodity may drift to the 90.65 zone, marked by yesterday’s low. If that hurdle cannot stop the fall, WTI oil might slide to the low of last week, at 89.24, or even to the 88.56 area, marked by the low of Feb. 9.
This morning we have received the BoJ’s core CPI figure from Japan. There was no initial forecast available. However, the actual number declined slightly, going from +0.9% to +0.8%.
Hong Kong’s CPI figure for January on a YoY basis was also released today. Initially, the expectation was to see quite a decent decline, going from +2.4% to +1.7%. The actual reading came out at +1.2%.
During the European trading session, Germany delivered its Ifo business climate index, which was initially forecasted to have ticked down a bit. The reading was expected to go from 95.7 to 96.5. The actual number comes out at 98.9, higher than the forecast or the previous reading.
We saw the euro rising against some of its major counterparts, such as USD. However, this might be a temporary occurrence, as the main focus would lie on the CPI figures delivered on Wednesday.
In terms of other economic events on Tuesday, the US will deliver its preliminary manufacturing PMI number, together with the preliminary services PMI figure. Both numbers are expected to grow slightly.
h2 As For The Rest Of Today’s Events/h2Also, the US will release the CB consumer confidence index for February. The current expectation is for the number to drop from 113.8 to 110.0. If the actual figure shows up even lower than the forecast, this could affect USD in a negative way against its major counterparts. That said, we believe that any effect may be a temporary occurrence, as USD could stay vulnerable to the broader market sentiment.
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