Market Drivers – US Session – 14 February

Russia-Ukraine tensions dominated financial markets on Monday, leading to some solid safe-haven demand. The catalyst was a statement from US President Joe Biden, who told his Ukrainian counterpart Volodymyr Zelensky on Sunday that the US would respond “swiftly and decisively” if Russia takes further steps toward invasion.

Early on Monday, Russian Foreign Minister Sergey Lavrov told President Putin that the US had put forward concrete proposals on reducing military risks and that he could see a way to move forward with talks, although he added that EU and NATO responses have not been satisfactory. Fears partially eased, although risk-off continues.

As the day comes to an end, there are no signs of progress in diplomatic talks, but on the contrary, the Ukrainian President Zelensky reported that he has suspects Russia will likely attack the country on Wednesday, February 16, declaring it a national holiday, the Day of Unity.

Economic Data
Next Wednesday, the January retail sales report will be released is due in the US. According to analysts at Wells Fargo, sales likely rebounded rising 2.1%, a number above the 1.6% increase of market consensus.


Retail sales declined sharply to end 2021. During December, total sales fell 1.9%, a drop that was more severe than consensus expectations. The decline was broad-based across most store types. Excluding spending on autos and gas, sales fell 2.5%. While it is tempting to blame December’s drop on intensifying inflation and the Omicron surge, the weakness during the month was more a reflection of early holiday shopping and pulled-forward demand.

Other Developments
US crude oil barely advances, following Friday’s jump of 3.78%. At the time of writing, WTI is trading at $94.00, almost flat.

Geopolitical events dampened the market mood in the financial markets. Russia’s intentions of a possible invasion of Ukraine keep crude oil prices upward pressured, based on the fact that a war may trigger Russia’s sanctions to western countries, including cutting supplies of natural gas and oil. It is worth noting that Russia is the third-largest producer of natural gas and crude.

European Central Bank President Christine Lagarde repeated that policymakers will not rush to remove stimulus in the Eurozone as she sought to highlight the limits of their powers at a time of volatile prices.

ECB President Christine Lagarde delivered, Monday, an introductory statement at European Parliament within the framework of her participation in a debate about the ECB’s annual report.

In her latest comments, Lagarde dialed down expectations for ‘measurable tightening’ and said: “There are no signals that inflation will be persistently and significantly above our target over the medium term, which would require measurable tightening.”

The US dollar and gold were the most benefited in a risk-averse environment, with the first further boosted by comments from US St Louis Fed President James Bullard, who reiterated his call for 100bps in interest rate hikes by July 1, citing the last four inflation reports which show broadening inflationary pressures.

A scarce macroeconomic calendar exacerbated risk-related trading, with not much in the docket until next Wednesday, when the US will publish Retail Sales and the FOMC Meeting Minutes.

The EUR/USD pair trades sub-1.1300, while GBP/USD hovers around 1.3520. Commodity-linked currencies are little changed vs the greenback amid soaring gold and oil prices.

Gold surged to a fresh 2022 high of $1,872.85 per ounce, holding nearby at the time being. Crude oil prices also soared, with WTI trading at $95.25 a barrel.

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