BCS Global Markets

The dynamic has elevated inflation risk, which appears to be galvanizing the US Fed’s resolve to hike rates later this month, notwithstanding the potential hit to the global economic recovery due to geopolitical risks. #BCSGM #EmergingMarkets #investing

iMOEX will not resume trading today, Press Service of the Bank of Russia, while global bourses are volatile amid the ongoing conflict in Ukraine. Brent has broken above $117/bbl amid supply disruption concerns and OPEC+’s decision to boost output by just 400,000 bpd for April.

In the current environment, speculation about near-term events seems largely irrelevant. Signs suggest a deterioration, though hopes remain in negotiations between Ukraine and Russia today. Expect extreme volatility if and when trading is open. #BCSGM #EmergingMarkets #investing

And, on the macroeconomic front, the long-brewing stew of inflation and central bank tightening continues to weigh. Adding some volatility, US markets are closed today in recognition of President’s Day. #BCSGM #EmergingMarkets #investing

The meeting, slated to occur after 24 February (date when US Secretary of State Blinken and Russia Foreign Minister Lavrov meet), as per Washington, presupposes Russia does not invade Ukraine. All said, hope dies hard, but the risk of conflict lingers.

The week again opens to a wind of fragile hope on the geopolitical front. Indeed, Presidents Putin and Biden are reported to have agreed in principle to a Summit to discuss the situation regarding Ukraine.

At second glance, various observers doubt that a step back from the brink has been made – several camps (including the US) claim Russia’s partial drawdown of military forces is a mere reshuffling to other areas along the Ukrainian border.

Hence, the jury is out as to whether the threat of invasion has de-escalated, unsettling risk appetite.

Meanwhile, still surging inflation and strong numbers out of the US (Retail and Industrial beat), thus far, support the US Fed’s increasingly hawkish bent –

Minutes from the last FOMC meeting revealed policymakers considered it appropriate to hike the key rate commencing with the next meet in March and, if inflation remained elevated, appropriate to tighten policy more rapidly than earlier geared.

The Fed will also continue to reduce the monthly pace of net asset purchases, bringing them to an end in early March. #BCSGM #EmergingMarkets #investing

At first glance, a step back from the brink appears to have been made – Russia has begun a partial withdrawal of military forces from the Ukrainian border.

Whether the move presages a larger full scale drawdown and the legitimate security concerns of the various camps can be satisfactorily addressed remain open questions, but, for a period uncertain, the specter of war appears to have receded.

The diplomatic ball continues to roll – a wait and see game. Not to be ignored, the US PPI came in hot raising the ante that the US Fed will adopt a more hawkish bent – sentiment may be tempered ahead of the US FOMC minutes later today. #BCSGM #EmergingMarkets #investing

Not a certainty, yet a path toward de-escalation on the NATO/Ukraine-Russia front appears plausible, as talks more visibly feature the exercise of real politic and an acknowledgement by French President Macron

that Russia has legitimate national security concerns that the West can't ignore, but rather must address.

Putin signaled that Russia "will do everything to find compromises that suits everyone."

More high-level ‘shuttle diplomacy’ is ahead this and next week, suggesting the swords of each camp will remain sheathed for now, at least, which should further ease market jitters. For now, the surge in Omicron plays second fiddle. #BCSGM #EmergingMarkets #investing

Eyes remain on geopolitics – the last few days have seen little in the way of market moving headlines, but the embers continue to burn and the temporary pause in tension is fragile.

Russia’s fundamental case screams buy, but investors will likely be waiting for the geopolitical clouds to clear.