It promises to be a fascinating end to the week as European equity markets steady and US futures pare losses amid planned talks between the US and Russia next week.
Risk aversion swept through the markets on Thursday as the perceived risk of a Russian invasion of Ukraine rose. Much like the weather here in London, Friday was shaping up to be rather treacherous in the markets, that is until US Secretary of State Antony Blinken accepted an invitation to meet Russian Foreign Minister Sergei Lavrov in Europe next week.
While we’re still being warned that a Russian invasion is highly likely, the meeting does offer hope that nothing will happen before then which is bringing some stability in the markets. In the absence of the meeting, it could have been another turbulent day in the markets and we could still see some risk aversion creeping in as we near the close, given how quickly these situations can change.
Rebound in UK retail sales nothing to get excited about
UK retail sales bounced back strongly in January from the slump in December which turned out to be worse than first thought after revisions. It was always likely that we were going to see a strong rebound as December’s figures were heavily impacted by early Christmas shopping and the onset of omicron, so I don’t think anyone is getting too excited by the data.
Not least because the cost-of-living crisis is upon us and it’s not going to get any easier as real incomes are squeezed thanks to a broad array of price increases. The energy price cap increase and higher national insurance contributions will hit household finances again in April. This doesn’t bode well when consumer confidence is already slumping.
Oil slides as the US nears nuclear accord with Iran
Reports of the US and Iran nearing a new nuclear deal couldn’t have come at a better time and oil prices are slipping at the prospect of more than a million barrels of crude re-entering the market. In the absence of a deal, we could already be talking about triple-figure oil prices.
Of course, the risk of a Russian invasion remains heightened so there’s plenty of potential for oil prices to head higher once more if troops do cross the border but the combination of next week’s Blinkin-Lavrov meeting and a nuclear deal are providing relief for crude markets.
Gold shines as panic sets in
Gold surged once again on Thursday in risk-averse trade and topped $1,900 for the first time in eight months. The yellow metal is paring gains today, off around four-tenths of one percent, but remains well supported given the level of uncertainty and anxiety that exists.
It has really benefited from its role as a safe haven and inflation hedge, blowing away any suggestion that gold no longer serves such a purpose or that it’s been in any way replaced. If troops cross the border, we could see it surge once more and potentially eye levels not seen since late 2020.
Bitcoin battered but holds at key support
Bitcoin got hammered on Thursday alongside other risk assets but importantly saw strong support around $40,000 where it continues to trade above. It had held up well in recent weeks, even during periods of risk-aversion, but it was well and truly swept up in it yesterday. A break below here could see it come under some pressure in the near term, especially if combined with broad risk-aversion in the markets.
