Equities Feel The Heat Due To The Ongoing Tensions In Eastern Ukraine
Once of the main events yesterday, that was the announcement by the Russian President, Vladimir Putin, was that Russia is recognizing Donetsk and Lugansk regions, as independent states. The Asian markets were also seen trading lower today. Certainly, due to the current tensions in Eastern Europe, global indices will remain vulnerable, until some sort of a resolution could be achieved.
EQUITIES SLIDE ON TENSIONS IN EASTERN UKRAINE
Once of the main events yesterday, that was the announcement by the Russian President, Vladimir Putin, was that Russia is recognizing Donetsk and Lugansk regions, as independent states. On that news, the Russian rubble took a beating against its major counterparts, moving back to the area, where it was at the end of January. The Russian MOEX index lost just over 10% and the RTS index closed roughly with a 13% loss. But the Russian indices started declining already after the opening bell, rather than after Putin’s announcement. The U.S. stock exchange was closed yesterday, however the European bourses were operating. Those have also closed in the red due to the geopolitical tensions.
The Asian markets were also seen trading lower today. Certainly, due to the current tensions in Eastern Europe, global indices will remain vulnerable, until some sort of a resolution could be achieved. This morning, futures of the European indices were seen mostly trading lower, as tensions between the EU and Russia mean that there could be disruptions on the supply of natural gas from Russia. That said, the timing of these geopolitical tensions is perfect, as we are now getting into a less-cold period of the year, meaning that the EU’s natural gas reserves might not suffer that much.
EURO STOXX 50 — TECHNICAL OUTLOOK
The Euro Stoxx 50 index had also taken a dive recently and it is now trading below a short-term downside resistance line drawn from the high of February 10th. Given the steep downmove, which we saw recently, a small correction higher could be possible. However, if the price remains below that downside line, we will stay bearish.
If the index moves back up a bit, we may class this move as a temporary correction before another possible leg of selling. That is, of course, if the price continues to trade somewhere below the aforementioned downside line. Euro Stoxx 50 might drift lower again, potentially aiming for the 3903 hurdle, marked by the lowest point of July 2021. If that area fails to provide support and breaks, this may open the door for some further declines, possibly clearing the path towards the 3855 level, marked by the lowest point of May 2021.
In order to shift our attention to the upside, we would prefer to wait for a break of the previously discussed downside line first and then for a move above the 4124 barrier, marked by the high of February 21st. This way, more buyers could join in and drive the index towards the 4180 obstacle, or even to the 4239 zone, marked by the high of February 10th.
DEVELOPING COUNTRIES ARE GAINING TRACTION
While all eyes are glued to the events surrounding Eastern Ukraine, China and some other developing countries are slowly growing their economies. Countries like Mexico are seeing growth levels returning to pre-pandemic ones, according to a report published on Monday by the Organisation for Economic Cooperation and Development (OECD). According to OECD, the country’s GDP is expected to grow by 2.3% in 2022, and by 2.6% in 2023. One of the main contributors to this success is the U.S., as it is one of the main importers of Mexican goods. And with the expected interest rate hikes by the Fed throughout the course of this year, USD is expected to strengthen, especially against some of the Emerging Market currencies, such as the Mexican peso. Weaker MXN against USD could boost the Mexican exports to the U.S., as they would become cheaper for the U.S. consumer.
The tensions in Eastern Ukraine are playing out well for the oil-producing countries. Yesterday, WTI crude moved back closer to the high of last week, which is near the 95.80 mark. If the situation continues to escalate, we may see the “black gold” surpassing that mark and potentially heading towards the psychological 100-dollar area. Interestingly enough, Western countries might forget their disagreements with Iran for a while and take in the Iranian oil, at least for the time being, until the tensions in Ukraine settle down. If so, this shows that all disagreements can be forgotten, only if you are willing to take that step yourself.
WTI OIL — TECHNICAL OUTLOOK
Today, WTI oil was able to jump above the high of February 14th, which is at 95.85, this way creating a new high for February. The commodity continues to trade above a short-term upside support line drawn from the low of January 10th. As long as the price trades somewhere above that upside line, we will stay positive.
A further push north, away from the 95.85 barrier, may attract more buyers into the game. WTI oil could then drift to the 98.64 hurdle, marked by the highest point of August 2014. The upmove might get halted there temporarily, however, if the buyers are still feeling strong, they may overcome that obstacle and aim for the 101.00 level, which is the inside swing low of July 25th, 2014.
In terms of the downside, a break of the aforementioned upside line could spook the buyers from the arena for a while. The commodity may drift to the 90.65 zone, marked by yesterday’s low. If that hurdle is not able to stop the fall, WTI oil might slide to the low of last week, at 89.24, or even to the 88.56 area, marked by the low of February 9th.
ECONOMIC DATA FOR TODAY
This morning we have received the BoJ’s core CPI figure from Japan. There was no initial forecast available, however, the actual number declined slightly, going from the previous +0.9% to +0.8%.
Hong Kong’s CPI figure for January on a YoY basis was also released today. Initially, the expectation was to see quite a decent decline, going from +2.4% to +1.7%. The actual reading came out at +1.2%.
During the European trading session, Germany delivered its Ifo business climate index, which was initially forecasted to have ticked down a bit. The reading was expected to go from 95.7 to 96.5. The actual number come out, at 98.9, which is higher than the forecast, or the previous reading. we saw the euro rising against some of its major counterparts, such as USD. However, this might be a temporary occurrence, as the main focus would lie on the CPI figures, delivered on Wednesday.
In terms of other economic events on Tuesday, the U.S. will deliver its preliminary manufacturing PMI number, together with the preliminary services PMI figure. Both numbers are expected to grow slightly.
AS FOR THE REST OF TODAY’S EVENTS
Also, the U.S. will release the CB consumer confidence index for the month of February. The current expectation is for the number to drop from 113.8 to 110.0. If the actual figure shows up even lower than the forecast, this could affect USD in a negative way against its major counterparts. That said, we believe that any affect may be a temporary occurrence, as USD could stay vulnerable to the broader market sentiment.
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