Markets kick off the week facing a geopolitical double whammy

Markets

The euro caught an early bid, but let’s not mistake this for a full-blown breakout—it’s a tricky tape, and traders are navigating it with one foot on the gas and the other on the brake. With European leaders scrambling to backstop Ukraine amid fears of waning U.S. support, there’s an element of geopolitical premium creeping in.

Trump’s tariff sledgehammer looms large, with Canada and Mexico bracing for impact tomorrow, and China now staring down an additional 10% levy. The market’s tug-of-war between slowing growth and potential inflationary blowback is hitting a fever pitch. If the rate-cut camp starts shouting louder, yields could sink further, offering some support to risk assets—but if tariff-driven price spikes keep central banks on edge, expect traders to fade any strength in markets.

For now, some intraday hands may hold onto EUR/USD into the London open, but calling this a tactical long is a stretch—this is more about reacting than positioning, and with wobbly geopolitical legs propping up the euro, the bid could vanish as quickly as it appeared. Stay nimble—this tape has more head fakes than a streetball game.

Markets are kicking off the week with a geopolitical double whammy, as European leaders ramp up defense spending and Britain rallies a “coalition of the willing” to secure Ukraine. This follows Trump’s fiery Oval Office showdown with Zelenskyy, where the two clashed over a ceasefire deal that lacks American security guarantees. Diplomatic fireworks aside, the real market-moving question is whether Europe’s new military commitments will drain fiscal resources elsewhere.

Traders are also on edge for last-minute negotiations to sidestep US tariffs on Mexican and Canadian imports, alongside the 10% tax on Chinese goods set to kick in this week. With headline risk running hot, markets are caught in a state of limbo, leaving investors reluctant to venture out on the risk curve. What’s more troubling is that early survey data suggests this uncertainty is seeping into the real economy—and not in a way that policymakers would like.

In the crypto sphere, Bitcoin staged a Sunday comeback after Trump floated the idea of a strategic crypto reserve—one that notably includes XRP and ADA tokens. While this helped claw back some of February’s brutal 18% drawdown—the worst since mid-2022—crypto remains a high-beta proxy for broader risk sentiment, and if trade war jitters escalate, expect turbulence.

On Wall Street, Friday’s rally saw the S&P 500 climb 1.6%, while Treasuries extended their February rally with two-year yields dipping below 4% after data showed US inflation isn’t overheating. The Fed’s preferred inflation gauge, the January core PCE index, came in at 2.6% YoY, reinforcing the narrative that price pressures are cooling—at least for now.

In Asia, all eyes are on China’s National People’s Congress, where traders are betting on a fiscal boost to counter the drag from US tariffs and keep China’s blistering 2024 equity rally alive. As usual, expect state-sponsored buying to prop up domestic sentiment pre and post-meeting. However, the real tell will be in yuan flows and AI-heavy Chinese tech stocks—if they keep catching a defensive bid, that could be the market’s way of hedging against external shocks.

For now, traders should stay nimble. With trade policy, geopolitics, and central bank expectations colliding, this week’s tape could be full of headfakes and violent reversals

The view

Zelenskyy had the geopolitical equivalent of an open-net tap-in, and somehow, he still managed to sky it into the stands. He had already torpedoed the mineral deal twice—first with Besent, then with Vance and Rubio—telling the latter he needed time to "build consensus" within his so-called government. Meanwhile, behind closed doors with EU leaders, he was apparently singing a different tune, acting like he told Vance and Rubio to go kick rocks.

Then, he waltzes into the White House, all smiles, seemingly ready to sign on the dotted line—only to yank the rug at the last second and throw the "security backstop" card onto the table, something that was explicitly non-negotiable from the start. It was like showing up to a poker game, agreeing on the rules, and then trying to swap out the chips for Monopoly money when it was time to cash out.

Instead of securing U.S. economic buy-in—essentially a golden ticket to keeping Washington’s skin in the game—he turned what should have been a diplomatic slam dunk into an awkward made-for-TV standoff. Meanwhile, European leaders are now left shifting uncomfortably in their seats, realizing that if they want any kind of enforceable ceasefire, they may have to be the ones enforcing it.

Thought for the day

Round-number bias is one of those quirks of human nature that we just can’t shake. It’s why people agonize over a 4:00:02 marathon finish but would strut around like a champion at 3:59:58—as if those four seconds somehow separate greatness from mediocrity. It’s why you’ll see grown adults at the gas pump fighting the urge to top off their tank to exactly $50.00, even though they’re paying with a credit card and that extra squeeze does nothing except risk an overflow and the faint smell of regret.

Markets? They’re no different. 151 USDJPY, 1.0400 EURUSD, 6000 on the S&P? These numbers might seem like arbitrary milestones, but they act like flashing neon signs for traders, algos, and every retail investor who suddenly gets a strong "gut feeling" that a big move is coming. If markets were a theme park, round numbers would be the roller coasters—you either strap in and enjoy the ride or risk getting thrown off when the inevitable volatility spike hits.

The funny thing? Even seasoned traders, who swear they trade based on logic and probability, still fall for it. It’s why you’ll see a flood of stop-losses and take-profits sitting just above or below these levels—because deep down, even the quants running high-frequency trading systems probably still love watching an odometer roll over to a clean 100,000.

So, the next time someone says "It’s just a number", remind them that in trading, it’s never just a number. Round figures can be support, resistance, magnets, landmines, or rocket launchpads—and whether you like it or not, they matter. Ignore them at your own peril, or worse—watch your stop get hunted at the exact round number you thought didn't matter while the market laughs and runs the other way.