Closer to the start of the year, markets had been far more concerned by the adjustment in global monetary policy than national or geo-politics. Rising tensions at Ukrainian borders had therefore taken second place in asset valuations to the words of central bankers. Over the last handful of trading sessions that seems to have changed. Arguably the biggest factor contributing to intraday price fluctuations has been the news flow concerning the fate of Russia and Ukraine.
As tensions continued to rise following the weekend’s news flow, European equities were dragged lower by the failure of diplomacy to deliver progress towards the goal of preventing Russian invasion. On Tuesday, news from a Russian Minister that some troops had been pulled back from the Ukrainian border following the completion of military training exercises in the region saw a considerable lift in those same assets that had suffered at the beginning of the week. However, doubt was shed upon these claims with press conferences held by Joe Biden and Boris Johnson that same day suggesting that these commitments from Russia had not been matched by intelligence on the ground. European equities fell with the US Dollar attracting a safehaven bid as the momentum turned in markets.
Despite less intense media scrutiny over the past 24 hours, the market has not yet moved to discount the probability of the invasion of Ukraine. The credit default swap on Ukrainian benchmark debt still remains near post-pandemic highs. Should the tensions continue to rise the impact on major indices is likely to increase in significance.
Discussion and Analysis by Charles Porter