Bear market territory

European markets are closing in on bear market territory in heavy selling at the end of the week as investors grow increasingly fearful of recessionary and escalation risks.

The sell-off has gathered pace as the morning has progressed and I can’t expect the mood will improve as we head into another highly uncertain weekend. The fact that Vladimir Putin is showing no desire to de-escalate despite crippling economic sanctions says everything about his mentality and that is bad news for everyone.

Europe is coming under considerable pressure as investors fret about the bloc’s exposure to the conflict and the risk that it may be dragged into recession. Sanctions were never going to come without an element of self-harm and we’re seeing evidence of that this week. With Putin clearly undeterred, further measures will be demanded which will come at a further cost.

The day started on the backfoot following reports of a fire breaking out at the Zaporizhzhia nuclear plant in southeastern Ukraine, Europe’s largest, following Russian shelling. Reports that followed confirmed that it was now under control and radiation levels hadn’t increased which should have calmed nerves but it’s done nothing of the sort.

It obviously doesn’t help that we’re heading into the weekend, during which a lot can happen before the open next week. But such reckless attacks on a nuclear plant compounds fears about just how far Putin is prepared to go in Ukraine. There is a real fear that the worst is yet to come which is obviously deeply worrying.

A Fed-friendly jobs report

The Federal Reserve will be quite happy with the latest jobs report as they prepare to start aggressively raising interest rates. The US created 678,000 jobs last month which far exceeded expectations, not to mention Wednesday’s ADP number which has never been reliable. What’s more, the unemployment rate fell to 3.8% while participation rose to 62.3%, beating expectations of a drop to 62% and the highest since the pandemic began. Wages were strong again but shy of expectations at 5.1% annually and 0% compared with January. The Fed couldn’t have realistically asked for more.

The dollar softened a little after the report but remained much higher on the day, while US futures pared losses. It’s a strong report but does little to shift interest rate expectations ahead of the meeting in a couple of weeks. The next three meetings will probably deliver 75 basis points of hikes, after which the picture should be much clearer.

Bitcoin less aligned with risk-assets

Bitcoin has continued to pare gains at the end of the week but it looks in a very healthy position. We saw strong moves earlier in the week on the belief that the crisis in Ukraine and Russian sanctions will lead to increased use of cryptos. While it once again saw resistance at USD 45,500, that narrative should continue to support bitcoin and see it become less tied to other high-risk assets, alone. It will be interesting to see how it trades around USD 40,000 as a rotation off here could see it propel higher.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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