Market Commentary – February 24, 2022

Kevin Jock

24th February 2022

Global equities have suffered on Wednesday, with the US stocks closed at their lowest levels since June of last year, all the major indices dropped especially the Nasdaq in which it declined by 2.6%, almost 17% lower for the year of 2022. In terms of the recent updates, there is no doubt that the fog of war is descending on Ukraine. Russian troops pour into Ukraine on three fronts, starting what could be the largest conflict in Europe since the second world war.

Russian president Vladimir Putin ordered an operation to demilitarize the country, in what Ukraine’s foreign minister called a “full-scale invasion”. In the downtown area of Kyiv, people were sent to shelters as the air raid siren sounded during the morning of Thursday. Across the country, several airfields were hit by Russian missiles that fired from both land and sea. As the invasion continues, the Russian stock indices plummet by 45% in which the Moscow stock exchange suspended all trading after the dramatic decline, which is unprecedented. All the other major European indices tumbled as well, with both the CAC 40 and DAX fell sharply by over 4.5% during the current trading hour. Asian markets did not escape the hit as well, benchmarks ranging from Japan and Hong Kong all closed in red territory, as investors sold shares with panic.

Brent crude is now through $100 a barrel, while price of gold hit the highest since early 2021, reaching as high as $1974 during today’s trading session. Condemnation has been swift, with U.S. President Biden calling the move “an unprovoked and unjustified attack by Russian military forces” and vowing more actions in coordination with NATO allies today. So, what can we expect? The general theme as of now is probably risk-off, with bouts of extreme volatility.

Figure 1 (Source: IS Prime) USD/RUB daily: Ruble plunged to a record low on Thursday, as low as nearly 90 against the dollar, while the greenback strengthened 1% due to its safe-haven asset characteristics.

Headliner to Review

  • New Zealand central bank (RBNZ) rose interest rate to 1%, in line with market expectations, with the newly released rate statement being hawkish as they also tend to start quantitative tightening due to the near-term rise of inflation.
  • Bank of England’s monetary policy report hearings are conducted yesterday, with the overall tone being negative. The policy makers face their toughest challenge since 1992 with soaring prices which reduces people’s living standards, while raising interest rates could only make things worse.

Headliner to Watch

  • The Core Personal Consumption Expenditures (PCE) report is due to release on Friday. Arguably the most important data release ahead of Fed’s expected rate liftoff, which is unlikely to show an immediate ease of price pressures. Market forecast that the PCE index will increase 0.5% on a month-to-month basis.
  • The final quarterly GDP figure in Germany is expected to contract by 0.7%.
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Authors:

Antony Tan

Kerry Man

James Husband