US and European futures are trading flat while investors are keeping a close on the ongoing geopolitical tensions among Russia and Ukraine. Sanctions announced by the US and the EU have sparked a rally in cryptocurrencies as Bitcoin surged over 5% yesterday.
The EU and the US have cut Russia from the SWIFT banking system, but the fact that cryptocurrencies aren’t centralised could potentially fill some gap caused by the sanctions. In addition to this, Russia has announced its own set of sanctions, and President Putin has warned the EU and the US that he will respond harshly to the sanctions which have been imposed on his country.
For traders, they have seen the results of sanctions before, but this particular set of sanctions under which Russia has been cut out of the global banking system, is unique. Traders do fear that these strict sanctions could potentially backfire as they could hurt the global economy.
Another important factor that traders are also closely looking at today is how companies and sovereign funds are distancing themselves from Russia by either dis-investing in Russian companies or cutting their ties with Russia. For instance, yesterday, Shell took a similar step to BP’s by announcing its intentions to cut its business ties with Russia. Shell will dump its JVs with Gazprom and end-all of its involvement in the Nord Stream 2 pipeline project.
Now, traders will be looking at other oil and energy companies, and they will be anticipating a similar move by them. Exxon is one company that could potentially announce a similar action today or in the coming days. TotalEnergies is also most likely to make a similar announcement. The shares of these companies are likely to be highly volatile, and their price action could easily follow the footsteps of BP’s price action that we saw earlier this week.
When we speak of stock volatility and companies that are distancing themselves from Russia due to its attack on Ukraine, it is not only energy companies in the headline or on the traders’ radar. In fact, companies like Uber are also in focus. That is because Uber is also looking to sell its stake in the Russian taxi firm JV. Disney, Sony, and Warner Bros also announced they would suspend the release of their new films in Russia. Boeing said it had paused its operation in Moscow. The fact is that this week we will continue to hear from a large number of other companies announcing similar actions. Of course, their intentions are to stop Russia from its further advancement in Ukraine and avoid World War III.
The fact that President Putin has started to use the threat of nuclear arsenal is immensely worrying. In this arena, traders are watching the involvement of NATO in Ukraine closely. Putin has made it clear that if NATO steps into Ukraine, he will leave no option unturned and has referred to nuclear weapons. Traders know that it is highly unlikely that NATO will enter Ukraine as the US and its allies are more focused on sanctions in order to use this particular method to hurt the Russian economy.
On the economic docket front, inflation and the central bank’s policies remain the central focus among investors and traders. This month is going to be really important for traders as it is widely expected that the Fed will increase the interest rate this month. In the most recent commentary from the Fed, there hasn’t been any sign which indicates that the ongoing geopolitical tensions have changed the Fed’s mind frame. They still want to increase the interest rate this month, and they are looking closely at the economic data.
Focusing specifically on today, sights are set mainly on the PMI data out of the Eurozone. We have final manufacturing PMI data out of Spain, Germany, Italy, and the Eurozone data. Later in the day, we have the Canadian GDP reading but the economic data which matters the most today is the US ISM Manufacturing PMI reading, which is due at 15:00 GMT. It is widely anticipated that the number will soar once again.
In terms of gold and oil prices, the focus is mainly on oil prices which are trading higher this week. We do have an OPEC meeting taking place this week, and the hope is that OPEC+ will increase its production and use more of its spare capacity to bring more oil on the market. The Iranian nuclear deal is also very in focus among traders. It is of significant importance for traders that they see Iranian oil hitting the market, so that supply concerns are eased off.
As for the gold price, it is mainly about the risk-off trade. The fact that equities are moving higher, traders are booking profits on their gold trades, which have done very well for them especially given that the Fed wants to increase the interest rate.
Cryptos are fully in focus now, and the massive spike in Bitcoin that happened yesterday is associated with sanctions on Russia. The Crypto community believes that Bitcoin is the alternative and is the ultimate global currency. Bitcoin price has crossed an important price level of 40K, and now all eyes are on the next important resistance level of 64K.