Ceasefire hopes short-lived

Stock markets are giving back some of their gains on Wednesday, as scepticism 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’re seeing here is cautious optimism with a healthy sprinkling of scepticism. We’ve all watched how the last couple of months have unfolded so no one is going to 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 now at play 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. The Kremlin has this morning stated that rouble payments for gas will 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.

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. High inflation and higher interest rates pose an immediate threat and if the bond market warnings are to be believed, recessions may await us.

Now for the caveat of course. There’s no guarantee with these indicators and the 2’s and 10’s remain uninverted in any case. There are parts of the US yield curve that are 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 longer 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 USD 50,000 and USD 52,000, while key support below falls around USD 45,500, having been such strong resistance this year.

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

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