Markets
Commodity prices continued to push higher during the Asia session, driving broad-based risk aversion. Brent front-month crude briefly traded above $139/bbl, and both copper and palladium prices were up around 5% to new all-time highs, turning the markets awash with investors scrambling to snap up hard assets early Monday (Asia) as global reserve managers could start to hedge future sanctions and seizure risk.I expect cross-asset volatility will remain high as markets quantify the inflationary impact of higher commodity prices versus demand-destruction impact. But at the heart of the matter, for most investors, any kind of 'worst case scenario' is much easier to digest than a 'best case scenario.'Bond markets were mostly bid, led by USTs (10y: -17bp) (time of writing), suggesting that safe-haven flows were overwhelming inflationary concerns.Equity markets were also wearing the potential hit to corporate margins from higher commodity prices, but with Europe being at the epicenter of the sum of all fears, continental indexes were wearing the brunt.
Gold
There was no change in strategy; gold is a viable hedge for war and should continue to trend higher through both the inflation and geopolitical risk premium channel. However, positioning may start to be a factor here. Market participants may be looking to previous geopolitical events to model how gold might react, and there could be some understandable hesitation to take the metal above $2000.
But with investors' pricing in the worst-case scenario, gold could start to shine as a currency of last resort against growing tail risk where a full-blown Russian trade embargo could bring the world closer to war.
To this point, precious metals, except for palladium, have lagged the commodity rally, likely due to concerns over Russian Central Bank (CB) sales. In theory, if Russia had to, they could dump part of their 2000 tons in gold reserves, which would have a sizeable negative impact on gold markets.
Oil
Oil was driving risk aversion after front-month Brent crude rallied to an intraday high of $139/bbl; it has since fallen back to $129 (at time of writing). The rally was triggered by reports that the US Congress was pushing for an embargo of oil imports from Russia.I've traded oil for decades, but I'm throwing darts today.The market was pricing out Russian oil supply (US and EU embargo) while pricing in Iran supply. But the loss of Russian oil exceeds the upside from Iran.It's difficult to calculate a top because Russian oil will find its way to the Chinese market lessening demand from the Middle East while simultaneously factoring in demand destruction is a wild card at best. Still, you don't cut off the world's second-largest oil supplier and expect speculators and buyers to sit idle.
Forex
In FX, there was an apparent dichotomy between the outperformance of geographically distant (from Ukraine) commodity currencies (i.e., AUD, CAD, NZD) vs European FX (i.e., EUR, PLN, SEK, while EUR/CHF has fallen through parity.