Stocks dumped as Russia-Ukraine tensions build

After a sea of red in the Asian session, European markets are also pointing to a weaker start, with Russia – Ukraine tensions set to dominate. 

• Fears Russia could invade Ukraine this week are sending riskier assets, like stocks, lower
• Safe havens, such as Gold and the Japanese yen are well supported
• Oil rises to a 7 year high on supply disruption & Russia sanction fears

Russia has amassed 130,000 troops at the Ukraine border, although Vladimir Putin says that he is not looking to invade. US intelligence begs to differ, indicating that Russia could invade Ukraine this week, with US Secretary of State Anthony Blinken saying that an invasion was imminent. Meanwhile Russia has repeatedly denied it plans to invade its neighbour and diplomatic routes to address the situation remain open.

It's impossible to know what Putin might do next; we know that the markets hate uncertainty. The uncertainty has prompted a reaction in the markets, with a further flight to safety on the cards should the situation deteriorate. Riskier assets such as stocks are coming under pressure, particularly in Europe, whilst demand for safe havens such as bonds and the Japanese yen are on the rise.

Gold’s best week in 9 months

Gold rallied 1.8% on Friday, seeing the precious metal book its biggest weekly gain in nine months. Last week gold bugs digested 40-year high inflation, the prospect of a more hawkish Fed in addition to the growing likelihood of an eastern European war. On comments from the White House on Friday, that a Russian invasion could be imminent, Gold rallied $40 to $1866, a three-month high, in the space of a few short hours. Today the Gold price has come off the peak, although it remains well supported by haven flows. Technically the picture remains bullish with both a recent golden cross with the 50 sma crossing above the 200 sma, and a bullish RSI supporting further upside.

Oil fresh 7-year high

Oil prices have risen over 1% to fresh 7-year highs on the growing worries of war. Ukraine is a key transportation hub for Russian oil and gas destined for Europe, prompting supply disruption fears. Furthermore, these concerns come in addition to anxieties of US/ EU sanctions on Russian oil, in an already tight market. In the case that sanctions are imposed on Russian oil, other OPEC members would struggle to increase production to meet the higher supply requirements. We already know that OPEC failed to reach its upwardly revised supply quota in both December and January, which doesn’t bode well for the supply outlook should sanctions be imposed. In this scenario, it likely wouldn’t take long for oil to scale to $100.

FX

In the FX markets the safe haven Japanese yen is strengthening, as is the Canadian dollar, boosted by rising oil prices. Meanwhile the riskier Australian dollar and New Zealand dollar trade lower. The euro is also trading on the back foot. Russia is Europe’s fifth largest trading partner, any sanctions on Russia could hurt trade with Europe, which would be bad news for the common currency. 

Today the economic calendar is light. ECB President Christine Lagarde is due to speak. Any dovish comments could highlight ECB / Fed divergence and pull EUR/USD lower.