US open: Futures rise off lows on hopes of Russia diplomacy

US futures

Dow futures -0.09% at 34670

S&P futures -0.1% at 4411

Nasdaq futures -0.2% at 14748

In Europe

FTSE -1.5% at 7550

Dax -2% at 15095

Euro Stoxx -2.5% at 4057

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Stocks tumble as more hawkish Fed expected

US futures are pointing to a lower start on Monday although futures have recovered from their lows after Putin indicates that talks with NATO & the US will continue.

Concerns have been growing that Russia could invade Ukraine any day. Russia has 130,000 troops along the Ukraine border, but still insists that it is not planning to invade. Meanwhile US intelligence points to an invasion as soon as this week. Many countries have told their nationals to leave. However, optimism that Putin could still be willing to take a diplomatic route is helping risk sentiment recover heading towards the open.

Traders will continue to monitor the situation closely. Wars are bad news for financial markets and risk assets. The markets hate uncertainty, so the stabilizing of the situation is bringing some relief. However given that Russia is a major oil & grain supplier and is a key producer of palladium, used in catalytic converters fears of price rises are very real.

Global finance ministers have warned Russia that there will be severe sections should they invade. However, its worth keeping in mind that Europe is heavily dependent on Russia for energy supply, so sanctions could be met with Russia restricting energy supply to Europe which could not only slow growth but also send energy prices surging higher.

Looking ahead Fed speaker James Bullard is due to speak. The last time the markets heard from the St Louis Federal Reserve President, just after the inflation data, he sounded very hawkish. Further hawkish commentary could unnerve investors.

Where next for the Dow Jones?

The Dow Jones failed rebounded lower from resistance at 35850, falling below its 100 and 50 sma, which combined with the receding bullish bias on the RSI and the break below support at 34800 are keeping sellers hope full of further downside. Seller would need to take out 34345 today’s low in order to open the door to 33750 the January 28 low. However the hammer candlestick that appears to be forming suggests that there were plenty of buyers willing to drive the price higher from today’s lows. If confirmed, the price could look towards 2540 the 100 sma to negate the downward trend. Buyers will look for a move over 35850 for buyers to gain momentum.

FX markets USD rallies, EUR/JPY drops

The USD is rising adding to gains from last week. The buck rallied hard last week after inflation rose to 7.5% and as expectations grew of a more hawkish bet. The market expects a 0.5% rate hike in March and up to 6 hikes across the year. Safe haven flows are also lifting the USD amid rising Russia – Ukraine tensions

EUR/JPY is falling sharply as the Japanese yen is being supported by safe haven flows and the euro is falling on fears that Russia could restrict energy supply to Europe.

GBP/USD  -0.45% at 1.3509

EUR/USD  -0.35% at 1.1416

Oil eases but remains around 7 year high

Oil prices are on the rise after paring yesterday’s losses but are still on track for the first weekly loss after 7 weeks of gains.

Oil prices are edging lower after booking strong gains on Friday. Oil jumped 3.5% on reports from the US that Russia could invade Ukraine imminently. Not only is Ukraine a key transit hub, but there are also growing concerns that US/EU will put sanctions on Russian oil, when supply in the market is already tight.

Oil prices rose to a new 7 year high but have since eased back on news that Ukraine has requested to speak with Russia. Diplomatic routes are still open. That said, any invasion could quickly see oil rise to $100 per barrel.

WTI crude trades -0.3% at $92.81

Brent trades -0.5% at $93.07

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Looking ahead

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