Financial Markets Daily Report

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In the last session of the week, investors' sentiment improved and their preference for riskier assets rose after the sharp sell-off sessions that preceded Friday.

The military operations of Russia in Ukraine centered the stage in yesterday’s session and investors traded on a risk-off mood. Stock indices declined in the euro area, Asia and Latin America, while US equities rose, as they already declined in the previous session. Russian equities fell by almost 50%.

In yesterday’s session, the spotlight remained at the Russia-Ukraine conflict after Ukraine declared the state of emergency. Early this morning, Russia attacked some targets across Ukraine after Vladimir Putin ordered strikes.

Investors remained worried about the escalation on the Russia-Ukraine crisis and volatility in financial markets continued to increase. Yesterday, the US announced sanctions against Russia while the EU and UK signaled they would take similar actions if there are no changes on the Russia stance on Ukraine.

In yesterday’s session, investors traded with a risk-off mood looking for safe-haven assets after Vladímir Putin signed cooperation pacts with pro-Russian leaders in the Donetsk and Luhansk regions, rising tensions between Russia and Ukraine. US financial markets were closed due to the President’s day holyday.

In the last session of the week investors traded with a risk-off mood amid escalating tensions around Russia and Ukraine. During the weekend, the White House accepted a summit between Biden and Putin as long as Russia does not invade Ukraine, a move that could help deescalating tensions.

Financial markets recorded yesterday another session dominated by risk-off sentiment, fueled by uncertainty around geopolitical tensions involving Ukraine, hawkish comments by central bank officials and disappointing labour market data in the US (new jobless claims rose to 248.000 for the week ending Feb 12).

A cautious approach was retaken by investors on Wednesday, driven by uncertainty on the geopolitical risk involving Ukraine and the exit strategy of major central banks in advanced economies. These headwinds more than offset better-than-expected data for January in the US (+3.8% m/m for retail sales and 1.4% for industrial production).

Investors traded with an optimistic mood on Tuesday, following news that the Russian government has started to remove some of its military troops near Ukraine after the completion of drills.

Financial markets started the week with a risk-off session, fueled by the escalation in tensions involving Ukraine. The rising geopolitical risk is adding to investors’ concerns about the persistence of inflationary pressures and the prospect of a more aggressive withdrawal of monetary policy stimuli by major central banks.

Investors closed last week trading cautiously, increasing their bets that the jump in inflation is likely to force central banks across advanced economies to deliver a more aggressive withdrawal of monetary stimuli. Financial markets are pricing in by yearend more than 150 bp hikes in the US and more than 50 bp hikes in the eurozone.

In yesterday’s session investors consolidated their bets on a tighter monetary policy in the US following January’s CPI data. Headline and core inflation rose by 0.5pp to 7.5% and 6.0%, respectively, while consensus was expecting an increase of 0.3 and 0.4pp.