The rollercoaster ride that is 2022 is continuing at the start of the week as European equities relinquish early gains to make heavy losses.
The week got off to a decent start, following reports of France brokering a meeting between Joe Biden and Vladimir Putin. While the West has continued to warn of an imminent invasion, with Russia apparently following the playbook for such a move, a meeting between the two leaders increases the potential for a diplomatic resolution.
But as we’ve seen so often over the last couple of weeks, the headlines are coming thick and fast and markets are responding accordingly. We’ve gone from optimism around a Biden-Putin meeting, on the back of Blinkin and Lavrov on Thursday, to the Kremlin denying concrete plans have been made and more reports of fighting in Eastern Ukraine.
It feels like the situation can dramatically escalate at any moment and that’s going to keep investors on edge for now. The fact that diplomacy is still being pursued is encouraging but the risk of this boiling over has not been higher. We may well be on the brink of something terrible happening and that’s continuing to feed into the negativity in the markets.
PMIs across Europe a cause for optimism
The PMI data from across Europe this morning has been a source of positivity at the start of the week, with countries appearing to bounce back quickly and strongly from the recent omicron wave. Signs of supply issues easing are also a big positive as that should contribute to price pressures abating over the coming months.
Ultimately, it’s encouraging that economies remain in such a strong position despite coming under enormous strain again in recent months. Restrictions and worker shortages have taken their toll once more but firms are bouncing back and extremely confident about the period ahead. Of course, it brings its own challenges but the prospect of uninterrupted, restriction-free trade will be music to the ears of many.
Oil marches higher as optimism fades around Ukraine
It’s been another volatile session in the oil market, with doubts over US-Russian diplomatic efforts lifting prices. Oil prices were declining early in the day at the prospect of a Biden-Putin meeting but as hopes around that have unravelled, the price of oil has climbed.
This is despite a nuclear deal between the US and Iran seemingly being close which could bring 1.3 million barrels per day back into the markets, alleviating some of those pressures we’re currently seeing. OPEC+ is continuing to struggle to hit its quotas which has largely created the imbalance we’re seeing, with the group’s compliance hitting 129% last month, up from 122% in November.
Gold choppy around psychological resistance barrier
It’s been a choppy start to the week in the gold market, with the yellow metal initially seeing some profit-taking but it quickly found itself back in demand as the headlines turned ugly once more. Gold continues to see resistance around $1,900 though, which is proving to be a major psychological barrier.
While there is still hope for diplomacy, which would reduce gold’s safe-haven appeal, there’s certainly reason to believe an invasion could happen at any moment. That will continue to see gold well supported and, in the absence of serious progress on Thursday when Blinkin meets Lavrov, a break may not be far away.
Bitcoin response key after the first setback in a month
Bitcoin has suffered in recent days as the mood in the markets has turned sourer. It’s recovered quite well over the course of the day, having been down a lot more at one stage. But the break of $41,500 on Thursday and then $40,000 over the weekend is a blow that will test its resilience. It’s performed very well recently under the circumstances and this is the first real setback in a month. How it responds will be key.