EEuropean markets continued to capitalize on their gains from last week, with the DAX leading and the FTSE100 lagging, on optimism about the progress of ongoing ceasefire talks between Ukraine and Russia, and which are due to resume tomorrow.

Europe

While welcome, today’s optimism conveniently ignores Russia’s escalation of hostilities over the weekend as it struck new targets in Ukraine, near the border with Poland.

There is certainly an element of hope for the best in today’s tougher tone, which seems to run counter to the reality on the ground and that for a lasting end to hostilities to take place, a side or the other will have to back off quite significantly. For starters, Ukraine is likely to insist that Russia should withdraw a large part of its troops, while Russia’s continued actions inside Ukraine do not show a spirit of compromise. Therefore, the current rebound should remain quite fragile in nature.

We saw some decent gains for homebuilders today thanks to reports that the final bill to deal with the siding crisis may well be much lower than initial estimates. The Telegraph’s weekend report suggested the overall cost could well be a quarter of the cost of initial estimates of £4billion, with the likes of Persimmon, Taylor Wimpey, Berkeley Group and Barratt Developments all higher.

Financials is also outperforming on strong increases in bond yields, ahead of this week’s central bank meetings of the Federal Reserve, Bank of England and Bank of Japan, with decent gains for Lloyds Banking Group, Barclays and Nat West Group. .

In contrast, we are seeing weakness in the basic resources and energy sector following headlines from China which saw authorities announce a large-scale lockdown of Shenzhen, a region of nearly 20 million people. inhabitants, due to the resurgence of Omicron infections.

This lockdown will likely lead to massive disruptions to economic activity across the region and a sharp slowdown in demand. As China shows few signs of abandoning its current zero covid strategy, there is growing concern that the country may not be able to meet its target of 5.5% annual GDP. Because of this, and weak copper and other metal prices, we see Anglo American and Glencore sliding down the FTSE100, along with BP and Shell.

On the positive side, today’s sharp drop in oil prices should provide temporary respite for beleaguered consumers here in Europe, as well as in the United States, as they fret about the recent spike in oil prices. energy on their disposable income.

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US markets took inspiration from the positive session here in Europe, opening slightly higher, but the weakness seen in Chinese markets saw the tech sector lagging behind with companies like Alibaba, Tencent and JD.com falling sharply .

Apple shares have also come under pressure due to the foreclosure in Shenzhen and the suspension of all non-essential business activities as investors absorb the fact that Foxconn, which is one of Apple’s main suppliers, is located there and should remain closed until further notice.

Effects

The session was mixed for the US dollar, which rose against the Australian dollar on weak commodity prices, and the Japanese yen, as US 10-year yields hit record highs. levels since 2019. The rise in yields is particularly notable ahead of this week’s Fed meeting, given fears that even if rates will rise 0.25% this week, we could see some pretty hawkish indications of the pace future rate hikes given the U.S. central bank’s lag on the curve. Rising US yields across the board also helped push the US dollar to its highest levels against the Japanese yen since December 2016, when it traded as high as 118.65.

The euro is also outperforming after the ECB surprised markets last week with an unexpected hawkish pivot on its own cuts program.

The Swedish krona is also seeing a significant rebound after the headline CPI rose more than expected in February to 4.5%, and a new 28-year high, raising the prospect of much more aggressive action by the Riksbank on interest rate policy later this year. .

Merchandise

Brent crude oil price as well as US oil price continued to decline, with declines accelerated by events in China and the lockdown in Shenzhen. This has raised concerns that it will further aggravate various global supply chain disruptions, and this is a valid point, but these concerns are outweighed by the reluctance of EU countries to suspend crude oil imports. Russian.

The flip side of a slowdown in China has a positive side if you are an energy consumer in that global demand for oil and gas is likely to slow as economic activity in China declines, which means more supply for everyone else.

Gold prices also came under renewed pressure, sliding to a one-week low, on the back of the sharp rise seen in US yields, and ahead of the Federal Reserve rate meeting this week.

Palladium prices also plunged, slipping to their lowest levels this month, and down more than 25% from last week’s high of $3,420.

Volatility

Last week, volatility was more extreme, largely – but not exclusively – due to the escalation of the situation between Russia and Ukraine.

London-listed Russian stocks unsurprisingly continued to struggle, with many completely suspended from trading, although Polymetal attempted a recovery, adding more than 50% from weekly lows. The volatility, however, remains greatly exaggerated, with the daily drawdown last Monday exceeding 1,000%, while the monthly theft stood at 470%.

Beyond the dispute, earnings news also proved instrumental in boosting price action during the week, with Greggs taking center stage as the daily robbery surged 250% on Tuesday and Wednesday against a robbery. monthly by about 120%. Of course, one of the drivers here was concern over rising input costs, and with Russia and Ukraine being major wheat exporters, an impact on flour prices in the coming months seems inevitable.

Straddling equities and indices, speculation that US regulators could clamp down on some Sino-US double listings led to price action in a number of those stocks at the end of the week and also initiated price action. marked sales on the Chinese A50 index. where the daily theft reached 67% on Thursday, against a monthly print of 36%.

Action among fiat currencies remained dominated by the dollar-ruble pair where the daily flight hovered between 500% and 800% over the week, while other Eastern European currencies also saw increased activity levels, although at a much lower level. Signs of a recovery rally for stocks like the forint, koruna and zloty saw daily volatility high here again at around 30-40%.

In terms of commodities, Russia once again leads the agenda, although an increase in flows in both directions has brought welcome relief. In the latter part of the week, UK diesel was in the spotlight after the underlying price reversed by almost a third, taking daily volume to 186% on Thursday from a monthly print of 93 %. Soft commodities were also on the radar as wheat gave back some recent gains, pushing the daily flight on the US spot contract to 300% on Wednesday from 125% on the month.

To complement with cryptos, despite Bitcoin’s rally, volatility here has been relatively subdued, hovering around 70% on daily and monthly print all week, although activity has been rather more upbeat among alts. -corners.

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