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Daily Wrap Up 16 February 2022

16 Feb 2022 04:12 PM

Russia fears rumble on

Yesterday the markets cheered the news that Russia will be scaling back its military hardware on the border with Ukraine, but today there are reports that more Russian soldiers are being sent to the front line. When it comes to military personal, it appears that Russia took two steps backwards, and then one step forward. Overall, the atmosphere is not as tense as it was 48 hours ago, but it feels like we are not out of the wood yet. European stocks and US index futures were showing modest gains this morning, but the news that Russia isn’t making a full withdrawal from the region has sparked selling. The prospect of an invasion still seems quite low, but the fact it hasn’t been taken off the table has left a bit of nervous energy in the markets. Even though sentiment is a touch on the bearish side, indices like the DAX, the CAC, the FTSE 100 and the S&P 500 are above the lows of Monday – when Russia-Ukraine tensions were much higher.

The US retail sales report was mixed as the reading for January showed growth of 3.8%, easily exceeding the 2% consensus estimate, at the same time, the December report was revised to -2.5% from -1.9%. The omicron variant of the Covid-19 virus was blamed for the poor sales figure as some potential shoppers dodged the high street and shopping centres at Christmas due to the virus. Judging by the latest data, the US consumers are coming under pressure as CPI is 7.5%, but wages are only growing at 5.7%. At some point, that is likely to eat into spending appetite. This is something the Federal Reserve will be monitoring, especially seeing as they are talking about hiking interest rates this year. The dip in the US dollar is helping GBP/USD and EUR/USD. USD/CAD is down thanks to the broad slide in the US dollar and the rebound in oil. WTI and Brent crude have bounced back due to the lingering concerns about the stand off between Russia and Ukraine. Rising inflation is a concern for central bankers around the world, and today it was confirmed that UK and Canadian CPI increased to 5.5% and 5.1% respectively. This is fuelling the chatter about a cost-of-living crisis, and that is feeding into the narrative that central banks will tighten their policy’s.

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