Ukraine-Russia crisis, Swiss secrets and the Fed

The week starts with some comfort regarding the Ukrainian crisis on news that Biden and Putin agreed to meet. US futures are in the positive after having closed the week on a bearish tone.  

Gold traded a touch below the $1910 this morning but eased below the $1900 mark on encouraging Ukraine-Russai news. The yellow metal could give back the Ukraine-related gains rapidly if there is a sustainable resolution at the border. Yet, if the things get worse, gold won’t hesitate to advance as high as needed, and that includes the possibility of an advance to $2000. But that’s not the base case scenario.  

Oil slipped below the $90 per barrel on Friday and is now steady a touch above that level. Normally, the Ukraine tensions are expected to be a positive catalyzer for oil prices, but the positive correlation between the geopolitical tensions and oil prices were interrupted last week. Investors price in the possibility of an Iran deal which would unlock the Iranian oil exports, as well as the negative implications of a potential war in Ukraine, which would hit the global recovery. Therefore, the bull sentiment is no longer as strong as at the beginning of last week. Moreover, any relief in the Ukrainian situation should pull the prices lower toward the $86/87 region, the October peak.  

In Switzerland, the sentiment is soft due to the Swiss Secrets that broke in over the weekend. The latest news will likely batter Credit Suisse and send a broader shockwave to the Swiss bank, but the medium term implications for the other Swiss banks should remain limited.  

Death cross formation? 

US indices closed last week on a negative note. The S&P500 slid 0.72% and Nasdaq lost 1.23%. Nasdaq is now walking with big steps toward a death cross formation on its daily chart, which could further increase the bearish pressure on the stock price. The next important levels to watch this week are 13725, the January dip, then 12990, the major 38.2% Fibonacci retracement on post-pandemic recovery which should distinguish between the post-pandemic positive trend and a medium term bearish reversal.  

The macro environment isn’t necessarily supportive of the equity markets this year. The hawkish Fed expectations, an imminent rate hike, combined with the prospects of an early and maybe an aggressive shrinking of the Fed’s balance sheet are not appetizing for risk investors. This being said, we begin the week having mostly ruled out the possibility of seeing a 50bp hike in March meeting. The US yields have been easing since last week. Although that’s mostly due to increased safe haven flows towards the US sovereign bonds, some key Fed officials also came with remarks that gets the market refocus on an eventual 25bp in March. Activity in the fed funds shows that the consensus is again a 25bp hike in March. Happy Monday.