Lack of progress on ceasefire talks dents stocks
By David Madden (Market Analyst at Equiti Capital)
Representatives from the Ukrainian and Russian governments met in Turkey today to discuss the conflict, but no progress was made, and in turn stock markets are lower. There was a certain level of optimism in advance of the talks seeing as high level officials from both sides were meeting, but the lack of progress has weighed on sentiment. The DAX has lost over 2.5% today, but keep in mind it rallied 7% yesterday, so the market is still off the lows of the week. In London, banks and oil stocks are some of the biggest fallers, and the FTSE 100 is down 1.3%. Sentiment in the US is negative too due to the war in Ukraine.
As expected, the European Central Bank kept interest rates on hold on 0.00%. Later this month, the ECB’s pandemic emergency purchase programme (PEPP) will come to an end, and the asset purchase programme will be wound down next month. Christine Lagarde, the President of the ECB, cautioned that inflation could be considerably higher in the near term. The central bank aggressively revised up its inflation forecast for 2022 to 5.1% from 3.2%. In addition to that, next year’s forecast is now 2.1%, up from 1.8%. To make matters worse, the currency bloc is now tipped to expand by 3.7% this year, and the previous guidance was 4.2%. It is not a good place to be in where growth is expected to cool while at the same time, prices are on predicted to increase. EUR/USD is down 0.6% as selling pressure has resumed on the single currency. It is worth noting the US dollar index is only up 0.2%, so this is a story about euro weakness.
The economic war between the West and Russia is likely to ramp up prices as embargos on commodities – energies and agricultural products – will lead to squeezed supply levels. Higher prices are already a factor around the world. US CPI jumped to 7.9% from 7.5% and the core reading came in at 6.4%, up from 6%. Th fact the core report increased underlines the high levels of demand. Next week, the Federal Reserve are widely expected to lift interest rates by 0.25%. Traders will be listening out for hawkish language as there is speculation the bank might hike rates several times this year. Considering the Russian invasion of Ukraine, the Fed might row back on its previously upbeat language.