The failure of peace negotiations and Moscow's return to a strategy of direct escalation is a clear signal that previous diplomacy has hit a dead end. Reports of mass ballistic missile attacks on Kyiv being prepared by Russia, including on the city center and critical infrastructure, show that the Kremlin is using leaks as an element of negotiation pressure following the CIA chief's visit. Sanction pressure or Ukrainian strikes on Russian refineries are unlikely to force Putin to make concessions: for the regime, a lack of military success makes compromise an existential threat.
The reaction of financial markets after 6:00 PM, when information emerged regarding Putin's lack of willingness to negotiate, was quite clear among indices and on the currency market. It is worth noting, however, that when various types of information appeared earlier, mainly regarding the CIA chief's visit to Moscow, some markets reacted calmly to it.
How are markets reacting? Indices, commodities, and currencies
The spike in oil prices due to the lack of prospects for the opening of the Strait of Hormuz somewhat confuses the market picture related to what is happening in the East. Concerns about higher inflation have triggered a sell-off in US Treasury bonds (a rise in their yields), which has increased the cost of money and hit the valuations of risky assets and gold. Today we learned about PCE inflation, which remained at a high level, and additionally, the publication of "trimmed" inflation from Dallas shows a return above 2%, which renews concerns about potential rate hikes. However, how does the market reaction relate to the situation related to Russia?
Indices
Polish assets can serve as an effective barometer for the geopolitical situation in the East related to Putin's actions.
- Delayed WIG20 reaction: The WIG20's +0.78% increase is solely due to the fact that the cash session in Warsaw closed at 5:05 PM, i.e., before the publication of key Bloomberg reports around 6:00 PM. The opening of the next session carries the direct risk of a downward adjustment gap. A better barometer may be the USDPLN pair, although the reaction there is also related to the strengthening of the dollar itself.
- Pullback on Wall Street and in Europe: Contracts on DE40 and US500 noted a clear decline in the late afternoon and early evening hours. The main sentiment on stock exchanges deteriorated (S&P 500 -0.17%, DAX -0.09%, Dow Jones -0.32%), reflecting the growing geopolitical risk premium.
Indices in Europe retreated after news about Putin. Source: XTB
USDPLN increased after the release of the inflation data in the US and after Bloomberg highlights about Putin. Source: xStation5
Gold
- Pressure from higher yields: Although gold serves as a safe haven, the sell-off of US bonds and a stronger dollar raise the opportunity cost of holding the bullion. This effectively prevents an immediate price rally in response to war headlines.
After breaking the long-term downward channel and moving out of the 4000 USD area, the metal encountered resistance in the 4600 USD region. The current correction is the result of profit-taking and the direct impact of rising debt yields and oil prices.
Gold retreats mainly due to increasing chances of the interest rate hike in the US after recent economic data from the US that left some inflationary picture. Source: xStation5
Geopolitical Noise vs. Hard Data: What is Really Happening in the Oil Market?
BREAKING: US Q2 GDP Deflator Revised Up to 6.4% as July Real Consumer Spending Stagnates
Crude Oil Dips Below 90 USD 🛢️ 📉
US-Canada trade conflict escalates
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.
