Stock markets are giving back some of their gains on Wednesday as skepticism grows around Russia’s intentions following yesterday’s announcements.
Reports on Tuesday suggested we’re finally seeing a de-escalation in Ukraine, as Russia indicated its intentions to scale back certain military operations. While that was initially viewed as a first step towards a ceasefire, it wasn’t long before doubts started to creep in, which weighed on sentiment once more.
All we see here is cautious optimism with a healthy sprinkling of skepticism. We’ve all watched how the last couple of months have unfolded, so no one will get too excited until we see troops leaving Ukraine and a full ceasefire agreed upon. Until then, anything is possible.
Furthermore, the Kremlin’s decision to demand gas payments in roubles and threaten similar actions on other commodities that “unfriendly nations” rely upon risks stoking shortages and recessions whether they are true to their word in Ukraine or not. The economic war between Russia and the West will continue to play a key role in the markets.
As long as troops remain in Ukraine, it’s hard to see how a compromise is found. Russia has long sought to position itself as a reliable supplier of natural resources, but there’s little difference between changing the terms of the contracts and banning exports. In the absence of a ceasefire, at least one side must blink, or all will suffer
Of course, this all depends on when those demands are implemented. This morning, the Kremlin stated that rouble payments for gas would take time to take effect, which could buy Europe time to search for alternatives and top up reserves. If that’s the case, the timeline ultimately becomes key.
High inflation and higher interest rates pose an immediate threat, and if the bond market warnings are to be believed, recessions may await us. In the meantime, there’s no shortage of other things for the rest of us to fret about. There is a cost of living crisis upon us after all.
Now for the caveat, of course. There’s no guarantee with these indicators, and the 2’s and 10’s remain uninverted. There are parts of the US yield curve, but that’s not a clear signal in itself. Then there’s the question of reliability, especially against the backdrop of a decade of the yield curve being manipulated by quantitative easing, pushing down the long end of the curve. With central banks poised to start aggressively reducing their balance sheets, what impact will that have?
I’m sure none of that will put people’s minds at rest if inversions take hold and deepen, especially against the backdrop of an economic war with Russia and much higher prices.
But as it stands, the economic indicators still look healthy and point to more of a slowdown than a recession. If that changes, it’s still worth remembering that not all recessions are equal, as Russia is about to discover.
Bitcoin To Continue Higher after Breakout?
We’re seeing further profit-taking in bitcoin on Wednesday following the surge and breakout earlier in the week. The near term continues to look positive after a prolonged period of consolidation, with Monday’s breakout no doubt grabbing widespread interest. Plenty of barriers to the upside remain, including $50,000 and $52,000, while key support below falls around $45,500, having been such strong resistance this year.