The war between Russia and Ukraine remains a key theme in the markets. While asset prices are no longer as reactive to war news as they were two weeks ago, uncertainty remains. The news sell-off about the attack on Europe’s largest nuclear power plant in Ukraine is a perfect example of how nervous the markets are. Next week the markets will focus on GOLD, EUR/USD and OIL.
GOLD
The beginning of the Russian invasion of Ukraine caused a flight to safety in the financial markets, benefiting assets such as gold or the Japanese yen. The price of gold reached $1,940 an ounce last week and further price increases cannot be ruled out. While the war in Ukraine is the main driver, Fed policy cannot be forgotten. The US is due to release February CPI data on Thursday at 1:30pm GMT and the market expects another acceleration. However, given that much of this inflation is supply-side inflation, the question remains what the Fed can do to stop it.
EURUSD
The return of the war to Europe had a significant impact on European assets. EURUSD dipped below 1.10 by the end of the week, the lowest level since May 2020. The free fall in the Euro market is starting to look worrying and some have started looking to the ECB for help. The European Central Bank will announce its next monetary policy decision on Thursday (12:45 GMT). Rates are unlikely to change, but investors will be looking for clues as to how the Bank plans to handle the current market shock.
PETROLEUM
Oil prices hit 11-year highs this week as supply concerns following the Russian invasion of Ukraine dominated trading. While the West stopped short of banning Russian natural gas and oil exports, some shipping companies refused to accept new bookings for Russian cargo, or to sail to and from Russian ports altogether. So far, OPEC+ does not see the need to increase production at a faster rate. While the headlines surrounding the Iran nuclear deal brought some relief to the market, the fundamental picture remains bullish
