Overnight Headlines

*Chinese stocks tumble on Norway fund’s snub as oil advances

*China factory prices ease, spotlight now on global commodities

*Coca-Cola, Pepsico and Starbucks join fresh exodus of brands from Russia

*Unloved euro catches breath ahead of ECB meeting

US equities whipsawed before settling lower. The Dow, S&P500 and Nasdaq closed down by 0.56%, 0.72% and 0.28%. The benchmark S&P500 fell for a fourth straight session. Defensives led the declines with staples falling the most. Energy again led the gains after oil closed in New York at its highest level since 2008. Asian markets are generally higher while futures are in the green.

USD took a breather overnight as buyers try to consolidate their recent gains around 99. Trading in EUR/USD is similarly consolidating around 1.09. GBP is attempting to rally from below 1.31. Previous support, now resistance is at 1.3160. USD/JPY could be breaking out to the upside above 115.52. AUD and NZD are trading higher this morning with risk sentiment slightly more positive.

Market Thoughts – Glimmers of hope

Hope of some moderation in the Ukraine fighting has helped markets stem recent losses. This was boosted by suggestions that Ukraine is no longer insisting on NATO membership. But the banning of Russian oil imports by the US and UK may see some retaliation and escalation by the Kremlin. Natural gas prices have dropped back after their spike yesterday.

In times of extreme crisis, liquidity concerns are front and centre. A widely watched interbank measure (3-month FRA-OIS spreads) has continued to widen which signals a further deterioration in funding conditions in the dollar. But it is still way off levels seen at the height of the pandemic crisis in 2020. That said, financial conditions are vastly more accommodative today so certainly, a dent has been left in market confidence. This is something we will be watching going forward if the conflict escalates both economically and militarily.

Chart of the Day – Cable sinks below support

The broad risk tone has definitely caught up with sterling over the last few sessions. The narrow trading range from last week was broken on Friday and prices have plunged below recent support. Markets are still pricing in around a 20% chance of a 50bp rate hike at next week’s BoE meeting. This seems unlikely given geopolitical risks.

Cable is oversold on several measures and buyers are trying to push prices above 1.31. Yesterday’s low at 1.3082 is near-term support. The 200-week SMA sits at 1.3117. The December low at 1.3160 should be key resistance and then the 1.32 zone.