Developments in the Russia-Ukraine standoff seems to have been the main focus this week, sparking short-term reactions in risk sentiment and creating choppy price action in the broad financial markets.
In FX, the Aussie and Kiwi took the top spots this week, possibly benefiting from the gains in commodities and a shift in rate hike expectations.
Notable News & Economic Updates:
On Monday, Russia’s Lavrov urges Putin to allow more time for diplomacy amid Ukraine crisis
U.S. producer prices increased by 1.0% m/m in January vs. 0.4% in December; the biggest jump in 8 months
Biden administration says more Russian troops arrived at Ukraine border Wednesday
CBA forecasts RBA rate hike as early as June 2022; Westpac reiterated August rate hike
UK inflation jumped to a 30-year high of 5.5% in Jan, raising odds of BOE rate hike further
FOMC Meeting Minutes show that the Fed is ready to raise rates, shrink balance sheet soon
Ukraine, Russia-backed rebels trade accusations of shelling across front in early Friday Asia session
Russian-backed separatists evacuate civilians from eastern Ukraine on Friday
Intermarket Weekly Recap
Dollar, Gold, S&P 500, Oil, Bond Yield, Bitcoin Overlay 1-Hour
As mentioned in the intro, price action was mainly influenced by geopolitical headlines this week, where a potential invasion of Russia into Ukraine was the focus.
Broad market behavior clearly reflected this as gold and oil rallied on any negative developments (traders priced in potential disruptions to oil markets/ran to gold for safety) and vice versa when Russia-Ukraine tensions eased a bit.
Broad risk sentiment also followed the headlines, generally leaning positive with positive developments in Ukraine, mainly seen in gains equities and crypto markets. We saw this on Monday as Russian Foreign Minister Sergei Lavrov suggested more time for diplomacy to President Vladimir Putin, and on Tuesday with headlines from Russia that military drills have finished and troops were to return to their bases.
But in general, the headlines on the situation have been net bearish, most notably the latest news of shelling in eastern Ukraine on Friday, and reports that Russia still has 150K troops standing ready at the Ukraine border ahead of the weekend.
In forex, price action was mostly mixed as traders balanced heavy geopolitical news flow and individual currency stories. This week’s economic updates continued to show high inflation rates around the globe, but forward looking sentiment survey data shows an economic slowdown ahead may be growing in possibility.
But overall, the Australian dollar took the top spot, likely with the help of rising gold prices, and a better-than-expected employment report from Australia, pushing forward forecasts of a rate hike from the Reserve Bank of Australia.
On the other end of the performance spectrum is the euro, likely not only hurt by the situation in Ukraine, but also the string of negative economic/sentiment survey updates earlier in the week.
USD Pairs
Fed’s Daly: Being too aggressive on rate hikes could be destabilizing
FOMC official Bullard emphasizes need to “frontload removal of accommodation
NY manufacturing index up from -0.7 to 3.1 in Feb but below the expected 12 reading
U.S. headline retail sales rose 3.8% vs. projected 2.1% increase; U.S. core retail sales jumped 3.3% in January after earlier 2.8% slump
U.S. industrial production rebounded by 1.4% after earlier 0.1% dip
U.S Existing Home Sales rose 6.7% in January
GBP Pairs
U.K. claimant count fell 31.9K vs. projected 36.2K drop
U.K. average earnings index up from 4.2% to 4.3% vs. projected 3.8% reading
U.K. retail sales: +1.9% in Jan vs. 4.0% decline in Dec; the fastest increase since April
EUR Pairs
Overlay of EUR Pairs: 1-Hour Forex Chart
Eurozone Q4 GDP second estimate +0.3% vs +0.3% q/q prelim
Euro area international trade in goods deficit €4.6B in December 2021; €10.0B deficit for EU
ZEW economic sentiment index rose to 54.3 from 51.7 in January
Euro area consumer confidence was down 0.3 points to -8.8 in Feb. vs. January
ECB Economic Bulletin, Jan. 2022:
- Growth likely to remained subdued in first quarter of 2022.
- Labor & material shortages remains an issue in some industries.
- High energy costs continue to hurt household incomes and business earnings
- “Governing Council will continue reducing the pace of its asset purchases step by step over the coming quarters, and will end net purchases under the pandemic emergency purchase programme (PEPP) at the end of March.”
CHF Pairs
The Swiss Producer and Import Price Index rose 0.6% m/m in January 2022
Switzerland trade balance CHF 3.18B in January 2022
CAD Pairs
Canada’s Trudeau invokes emergency powers in bid to end protests
Canadian housing starts trend lower in January to 254K from 261K in Dec.
Canada wholesale sales in December: +0.6% as expected
Canadian Real Estate Association: national average selling price up by 4.9% and hit new record highs despite drop in listings
Canadian headline CPI up 0.9% vs. 0.6% forecast, -0.1% previous; core CPI at 0.8% vs. 0.0% previous
Canada Retail Sales: -1.8% to C$57B in December
NZD Pairs
New Zealand’s services index plummets from 49.8 to 45.9 in Jan, the lowest since Oct 2021
New Zealand Food prices rose +2.7% m/m in January 2022
New Zealand visitor arrivals up 16% in Dec. 2021 vs. previous 44% jump in Nov.
NZ Global Dairy Trade price index rose to 1,516, close to all-time record of 1,573 set in April 2013
New Zealand New Zealand PPI Outputs +1.4% q/q in Q4
AUD Pairs
RBA minutes: Progress being made on targets but need to see wage acceleration
CBA forecasts RBA rate hike as early as June 2022; Westpac reiterated August rate hike
AU Westpac-MI Leading Index improved from -0.1 to +0.4 in Jan, says above-trend growth over the next 3-9 months likely
Australian economy added 12.9K jobs in January vs. projected flat reading
Australia’s unemployment rate unchanged at 4.2% as expected
JPY Pairs
Overlay of Inverted JPY Pairs: 1-Hour Forex Chart
Japanese preliminary GDP at 1.3% vs. 1.5% forecast
Bank of Japan Governor Kuroda says there is no reason to change loose monetary policy; BOJ won’t deploy operation to defend yield target frequently
Japanese core machinery orders jumped 3.6% vs. projected 2.0% slump
Japanese imports soared 39.6% in January to 8.52T yen, bringing the trade balance deficit to 2.19T yen
Japan’s consumer prices rise by 0.2% in January, slower than 0.5% in December
