The third round of negotiations between Russia and Ukraine has failed!
When the risk is increasing you cannot wait to see the green numbers on the price board.
In the last hours of the US season, the first day of the week saw the USVIX above 33 put more pressure on the market. The Dow Jones Industrial Average closed down 797 points, or 2.37%, at 32,817 points. The S&P 500 was down 2.95% and the Nasdaq Composite is losing more than others by 3.62%. In Europe, Germany’s GER40 fell nearly 30% from its high point in January this year. All three had posted losses last week.
With the current situation, even with the strong earnings and outlooks that we had in the Us and EU for the past season and 2022, investing in the stock markets may not be the best asset to hold during this geopolitical crisis, and that was the reason to lift the gold price higher above 2,000 US dollar for the first time after testing such a risky period back in 2020 with COVID-19 effects. The US dollar index also extended gains and stood above the 99 mark for the first time since May 2020.
Since Russia attacked Ukrain on Feb. 24, the yield on US 10-year Treasury has fallen about 45 basis points. Today 10-years Treasury bond increased a bit towards 1.795% from the multi-month low. However, it is still much lower than 2% two weeks ago, before these geopolitical tensions.
On the other hand, these tensions increase the risk and decrease the pressure on FED for faster rate hikes with larger scales. Now US stocks can benefit from the view that this war means the Federal Reserve can take a gradual approach to tighten monetary policy. This dovish expected tone, can slow down the bear or even help the stocks to increase.
Fed Chair Jerome Powell said last week in his testimony in the banking committee of House that the Fed`s benchmark rate at the March 15-16 meeting, most probably will not increase more than 25bp. This uncertainty around the globe will make Fed move more slowly, towards more tighten policies.
On the geopolitical side, Russia and Ukraine could not achieve substantial results in the third round of negotiations but to say that it will introduce a "humanitarian corridor" for the Ukrainian people from 10:00 local time on the 8th March. Russia has shown a tough stance on the ceasefire issue. The country said Ukraine needed to meet conditions, including cessation of military operations, constitutional neutrality, recognition of Crimea as Russian territory, and independence of two separatist regions in eastern Ukraine.
On the other hand, Germany, Australia, and South Korea opposed the suspension of sanctions on Russian energy imports. Yesterday, the United States may also ease oil sanctions on Venezuela, and progress in Iran nuclear negotiations has buffered the recent surge in oil prices. After this news, WTI increased to its highest level since 2014 and then fell more than 5.7% from its highs on the day to settle at $120 a barrel. Nevertheless, the European Union also revealed plans to reduce its dependence on Russian natural gas by nearly 80% this year, which must reduce the risk of a new round of oil price rises due to all these factors.
From the technical point of view, as you can see in the below figure, oil is in a clear uptrend. For now, we do not have any reason to say it must decrease. However, based on fundamental data and news, we can say that the recently seen peak of oil price is where we have to see some correction. Therefore 38.2% of its Fibonacci level, sitting on $103 is the next target on its way for correction before the next movement. 23.6% of its Fibonacci level at $113 is the first support.
