Risk sentiment rebounds amid tepid Russian sanctions

European bourses are pointing to a mildly stronger start, as investors mull over recent Russia, Ukraine developments, central bank action and earnings.

• Russia headlines pause, Western sanctions underwhelm
• RBNZ hike rates by 25 basis points & are more hawkish than expected
• Oil steadies after a volatile session, Russia supply fears Iranian nuclear talks in focus

Wall Street ended in the red on Tuesday, as investors continued digesting the latest Russia, Ukraine headlines. The S&P is now in correction territory, having fallen over 10% from its January 4 high. The index spiked briefly towards its 2022 low before buyers came back into pushing the price back over 4300 at the close.

After Russia sent troops into the breakaway regions of Ukraine, it is starting to look as if Russia could dismantle Ukraine, piece by piece. However, with no further advances overnight there is some optimism that Russian troops will hold the breakaway regions and push no further – time will tell. The West responded with sanctions, which overall were tepid and underwhelming, with Germany announcing the biggest hit by slamming the brakes on Nord Stream 2.

As we enter a new day and traders take stock of recent events, risk sentiment has steadied, allowing Asian markets to push higher overnight and a cautiously positive start to trade is on tap in Europe. Whilst Russia headlines will continue to be monitored closely earnings, data and central bank action is providing a welcomed distraction today.

Barclays

Barclays is the latest of the UK banks to release Q4 earnings. The UK bank posted pre-tax profits of £8.4 billion in 2021, ahead of the £8.1 billion forecast and more than double the £3.1 billion recorded in 2020. The upbeat profits came thanks to record earnings in its investment banking arm and the release of £700m in bad debt provisions. 

Whilst the results are encouraging, technically the picture for Barclays remains depressed whilst it trades below its 200-day moving average.

German consumer sentiment falters

German consumer sentiment has taken an unexpected turn for the worse. The GFK consumer confidence index declined to -8.1 in March, down from -6.7. Analysts had been expecting an improvement in morale to -6.1. 

30-year high inflation is starting to hurt the outlook for households in the eurozone’s largest economy. The data has been brushed off by the euro which is flat against the USD, and the DAX which, in line with its European peers is heading for a mildly stronger start.

RBNZ

In the FX market the New Zealand dollar is outperforming, rising to a 5-week high after the RBNZ, as expected, raised interest rates by 25 basis points, although it was a close call between a 25 and 50 basis point hike. The central bank gave an upbeat assessment of the economy and surprised the market with its hawkish tone, indicating that it would hike rates several more times across the year. NZDUSD trades 0.6% higher following the announcement.

Oil 

Oil prices are calmer today after a decent bout of volatility in the previous session. Oil jumped to a 7 year high on supply fears, as Russian troops entered the breakaway regions of Ukraine. However, the price fell from the high and actually ended the session lower as US – Iran nuclear talks moved towards their conclusion. Optimism that the talks will result in Iranian oil sanctions being lifted, is offsetting Russia supply fears, pulling crude oil back to $92.