European Open: Risk-on, risk-off or risk-aversion?

Asian Indices:

• Australia's ASX 200 index fell by -74.5 points (-1.02%) and currently trades at 7,221.70
• Japan's Nikkei 225 index has fallen by -622.27 points (-1.78%) and currently trades at 34,312.03
• Hong Kong's Hang Seng index has fallen by -112.98 points (-0.46%) and currently trades at 24,679.79
• China's A50 Index has risen by 26.08 points (0.17%) and currently trades at 15,123.37

UK and Europe:

• UK's FTSE 100 futures are currently up 29 points (0.39%), the cash market is currently estimated to open at 7,566.37
• Euro STOXX 50 futures are currently up 16 points (0.39%), the cash market is currently estimated to open at 4,129.19
• Germany's DAX futures are currently up 64 points (0.42%), the cash market is currently estimated to open at 15,331.63

US Futures:

• DJI futures are currently up 210 points (0.61%)
• S&P 500 futures are currently up 112.25 points (0.79%)
• Nasdaq 100 futures are currently up 29.75 points (0.68%)

Once again, we saw a stream of conflicting headlines overnight. The Whitehouse confirmed that Joe Biden will host call among NATO members later today. The US Senate approved a unanimous vote to show support for independence in the Ukraine, and US officials have agreed to meet “late next week” – on the premise that Russia does not invade the Ukraine over the interim.

Initial impressions suggest we have turned a corner and things could get better from here. But it likely too soon to pop open the champagne as we have more questions than answers.

More pictures have emerged of the damage caused by yesterday’s shelling. And fresh allegations have also arisen by Russian-backed rebels that a village has just been attacked, once again by Ukrainian forces.  Whilst such news doesn’t have much substance outside of Russia, it is exactly the sort of provocation which can lead to retaliation or mistakes and unhinge any peace talks as the situation escalates its way to war.

Ultimately, we think we may be headed for a period of risk-aversion as investors will surely be asking themselves if they want to hold any sort of risk at all. Especially with the weekend looming with the potential for conflict. Yesterday we saw equity and bond prices fall in tandem to suggest stock market portfolios were reverting to cash. But the real sign of risk aversion is if we also see gold fall alongside these assets. However this plays out, it is difficult to see how today’s economic calendar will count for much today, given the growing attention the Russia-Ukraine crisis is attracting.

FTSE 100: Potential bearish wedge within a rising channel

Whichever way sentiment goes today, equity markets are likely to follow. Keeping in mind that stock tend to get the escalator up and the elevator down, these support levels are likely of more use during good times and unreliable during a rush for the exit. Should sentiment sour then we’ll take notice of the bearish wedge and ignore the rising channel.

FTSE 350: Market Internals

FTSE 350: 4240.22 (-0.87%) 17 February 2022

• 61 (17.43%) stocks advanced and 276 (78.86%) declined
• 2 stocks rose to a new 52-week high, 12 fell to new lows
• 33.43% of stocks closed above their 200-day average
• 31.43% of stocks closed above their 50-day average
• 18.57% of stocks closed above their 20-day average

Outperformers:

• + 5.94% - Reckitt Benckiser Group PLC (RKT.L)
• + 4.68% - Ultra Electronics Holdings PLC (ULE.L)
• + 4.29% - Fresnillo PLC (FRES.L)

Underperformers:

• -7.49% - EVRAZ plc (EVRE.L)
• -7.40% - Wizz Air Holdings PLC (WIZZ.L)
• -6.93% - Darktrace PLC (DARK.L)

Currency markets point to mild risk-on ahead of the open

When you see the likely of NZD/JPY, AUD/CHF and AUD/JPY at the top of the leader board it is a sure indication of improved appetite for risk. Yet it is of the cautious variety because volatility remains below their ATR’s. On one hand this leaves ‘more meat on the bone’ for potential bullish setups, and on the other it means traders not yet convinced sentiment has truly turned a corner.

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