Friday, 25 February 2022
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•          European stocks suffered losses of almost 4% after Putin shocked by attacking Ukraine in places beyond the Luhansk and Donetsk regions. The EuroStoxx50 closed below the pre-pandemic high of 3867. The US opened with similar losses but then staged a huge intraday turnaround. Dip-buyers hurled the Nasdaq from -3.5% losses into a 3.4% gain. Other indices finished in the green too (DJI +0.6%, S&P500 +1.5%). They might assume we’ve seen the worst after the recently upgraded batch of sanctions and provided the conflict remains contained to Ukraine. Brent oil pared a 9% gain to 2.3% and closed below $100/b. Gas priced proved way more sensitive and stuck to a more than 50% price increase. US yields erased a significant part of their almost 15 bps declines in European trading. The curve bull steepened with the belly (up to -4.1 bps) outperforming the wings (-1.6 to -2.7 bps). Several Fed governors including, Daly, Barkin, Bostic and Mester all continued to back policy normalization starting in March despite recent events. Waller this morning even tabled a 50 bps liftoff if the data comes in “hot”. About the balance sheet he said shrinking it back to 8% of GDP would be a good target. That amounts to some $1600bn compared to a $8900bn big BS. German yields were much less eager for a comeback and still closed 2.4 bps (30y) to 8 bps (5y) lower. The 10y European swap yield however only eased 3 bps and closed above 0.80% still. EUR/USD hit key support at 1.1121 (2022 low) before rebounding to 1.1192. Safe haven currencies including JPY and CHF finished well below their intraday highs. Even the Russian ruble, although at a new record low, managed to cut losses in half. As in EUR/USD, EUR/GBP sought out the recent lows around 0.83 but managed a close at 0.837.

•          Equities in Asia recoup between 1 and 3%, drawing comfort from WS yesterday. The Russia-Ukraine conflict leaves some marks still though, which news agencies reporting missile strikes at the capital Kyiv in the early hours of the morning. Brent oil again tries to capture the symbolic $100 barrier (+2%). Core bonds are more or less unchanged. The dollar trades on the backfoot. EUR/USD cautiously moves north of 1.12. Central-European currencies except the forint feel a little selling pressure this morning. They lost out yesterday amid risk-off though closed above intraday bottom levels, the Czech koruna in particular. Geopolitics will continue to dominate trading for the time being. We would be cautious in going full risk-on ahead of the weekend in which a lot can happen. But this doesn’t mean today’s economic calendar is completely redundant. US PCE inflation (January) is due in the US and we will have a first European print of inflation for February in France ahead of the EMU-wide reading next week. It is one of the final important input to the ECB meeting on March 10. Next week in the US centers around ISM business confidence and the payrolls report.

News Headlines

•          The Central Bank of Russia announced that it will start interventions in the FX market and provide the banking sector with extra liquidity. The CBR will use all necessary instruments to maintain the financial stability and business continuity of financial institutions. The Russian ruble crashed yesterday together with all other assets. USD/RUB reached a new all-time high just shy of 90. It currently fell back to the 85-area, which served as the lowest ruble level on record before the current Ukrainian invasion.

•          The GfK UK consumer confidence suffered a steep drop in February, unexpectedly plunging from -19 to -26 (vs -18 expected), the lowest level since January 2021. Details showed declining confidence in all categories, both actual and forward looking ones. The steepest drops came in personal finances the next 12 months and in economic situation the next 12 months. GfK reported clear anxiety in these findings as many consumers worry about balancing the household books at the end of the month without going further into debt. “Slowing consumer spend slows the wheels of the UK economy so this is unwelcome news. And the good news on the easing or lifting of Covid restrictions around the UK seems to be doing little to lift the public’s mood.”


Long term (real) EU bond yields surged after the ECB hinted it may stop net bond buying sooner than previously expected. The break into positive territory has been confirmed. The German 10-y yield also cleared 0.15% resistance (61.8% 2018-2020 retracement), with 0.40% being the next reference. Geopolitics currently trump the monetary policy storyline but the upward trend remains intact.

The Fed’s hawkish policy turn caused a surge in real yields. The US 10-yr yield took out the October top at 1.7%. The January CPI release triggered a first brief return above 2%. Markets remains split between a 25 and 50 bps March rate hike. Fed talk since the escalation in the

The ECB changed its tone dramatically. Views on temporary inflation have changed. Net bond buying is poised to end sooner (in Q3?), allowing for a first rate hike later this year (Q4). EUR/USD left the lows behind. Short-term momentum favors the dollar again, especially in current uncertain circumstances. The pair tested the 2022 low but avoided a break.

The BoE hiked its policy rate to 0.5% in February with the biggest possible minority even voting for a 50 bps increase. Further tightening is in the pipeline. The pair tested 0.8282 support but rebounded quickly.

Calendar & Table

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This document has been prepared by the KBC Economics Markets desk and has not been produced by the Research department. The desk consists of Mathias Van der Jeugt, Peter Wuyts and Mathias Janssens, analists at KBC Bank N.V., which is regulated by the Financial Services and Markets Authority (FSMA).
These market recommendations are the result of qualitative analysis, incorporating room for past experiences and personal assessments. The views are based on current market circumstances and can change any moment. The most prominent input comes from publicly available data, financial news, economic and monetary policies and commonly used technical analysis.
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