Stocks Drop, Gold and Oil Rally as Risk Appetite Sours amid Ukraine Crisis

Volatility continues! Here’s what’s happening in the markets today:

Stock market

• Equity markets have gone in reverse, after Russia said that reports of major progress in peace talks are wrong. Ukrainian Defence Minister has said that so far there is nothing to satisfy his government in negotiations with Russia. Russia has said that their delegation is putting colossal energy into Ukraine peace talks, but Ukraine is simply wasting time.
• So, sentiment continues to be driven almost entirely by geopolitics, with the market quick to forget or ignore everything else. As we saw yesterday, the markets have been eager to rally on any positive news… but then sells off as investors realise that the two sides remain far apart in terms of a ceasefire and end of the war.

• The pound lost a big chunk of its earlier gains after the Bank of England raised interest rates by 25 basis points to 0.75%, in an 8-1 vote. Cunliffe surprised, backing no change, and this caused the pound to dip. This was a surprise given that the BoE has also warned that inflation will be around 8% in the second quarter and may even climb higher. Thus, I don’t think the weakness will last long, as investors prepare for some further modest tightening, which “may be appropriate.”
• The US dollar has weakened so far in today’s session, although it made a good come back against the pound on the back of the BoE decision. The dollar’s weakness against other currencies suggests the market had already priced in the rate hike and the Fed’s projection of 6 more hikes for this year.

• Oil prices have surged around 6% higher today, with Brent rising above $104 and WTI climbing back above $100. Crude was always going to rebound after it’s big slump last week, given that market is still very tight. It appears that the trigger behind today’s gains is related to the ongoing Russia-Ukraine situation. We have also seen stocks come sharply off their earlier highs, while safe-haven gold and government bonds have rallied. Fears over potential supply disruptions have thus been rekindled, as the longer the war continues, the more likely it is we will see further sanctions on Russia’s energy sector.
• Gold’s status as a haven asset is plain to see. The precious metal has once again responded positively to negative headlines regarding Ukraine situation, with prices also helped by a weaker US dollar and a drop in bond yields.