Stock markets in Europe are rebounding strongly on Friday, just one day after plunging on the back of Russia’s invasion of Ukraine.
It’s a remarkable turnaround when you consider that the invasion is still taking place and sanctions are being drawn up. There is still huge uncertainty around how bad the situation will get, given how quickly it has escalated over the last few days, which makes the shift in risk appetite all the more surprising.
With oil trading back below $100 a barrel and gas prices falling after yesterday’s surge, it would appear traders are anticipating minimal disruption to Russian exports either directly as a result of the invasion or from sanctions imposed. The latter is understandable as the proposed measures so far have underwhelmed, to say the least.
Considering how rapidly this has evolved and how volatile the markets have been for weeks, I wouldn’t be surprised to see sentiment continue to bounce back and forth. There’s nothing stable about this situation and that will likely continue to be reflected in the markets.
Oil slips back below $100
Oil prices are marginally up on the day but are back below $100 after giving up almost all of the gains since the invasion began. Don’t get me wrong, crude trading near $100 is still very high and there remains plenty of Ukraine risk premium priced in at these levels, but it’s given up those gains very quickly.
I expect we’ll continue to see plenty of volatility in oil markets for some time, with plenty of interest in the dips as geopolitical tensions remain so high. One thing that could take some heat out of the market will be a US-Iran nuclear deal, which has reportedly been very close for a while now. An agreement could quickly see around 1.3 million barrels re-enter the market, which is no doubt a big incentive for getting a deal over the line.
Gold gives back safe-haven gains
Improved risk appetite and lower oil and gas prices have seen gold reverse yesterday’s surge to trade back below $1,900. This still remains a hugely uncertain environment which I expect will ensure gold remains well supported, even if $2,000 now looks quite the distance away.
The response to the invasion has been incredibly short-lived but I don’t expect volatility in the markets to suddenly subside which could continue to favour gold. Even in the absence of major disruptions to Russian oil and gas, prices are still extremely high and will continue to contribute to sky-high inflation around the world which will also be supportive for the yellow metal.
Bitcoin rebounds 15% as risk appetite bounces back
Bitcoin has been crushed at times over the last week but the improvement we’ve seen in risk appetite has given it a big boost. It’s now recovered around 15% from yesterday’s lows and is up more than 2% today. Bitcoin is the ultimate risk asset and if sentiment remains positive – which is a big if – it may not be long until it recaptures $40,000 and we’re discussing $45,500 again.
For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/
Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
