2022/02/21 (006) Column


The war tweets are getting louder and louder
– at least on the western Anglo-Saxon TV stations
I can’t believe that! Why would the Russians attack Ukraine?
However, the price action is getting more volatile – no good prospects…


Germany Stock Market Index

All main European bourses lost further ground Monday, extending last week’s meltdown as worries increased that Russia is staging a false pretext to invade Ukraine. President Putin said he is considering requests by self-proclaimed Donetsk and Luhansk People’s Republics s to be recognized as independent states. Earlier, Russian media said Ukrainian soldiers were killed after crossing the border into Russia, which has been disclaimed by Ukrainian officials as fake news. All sectors slid in negative territory, with losses most pronounced in the auto industry. On the economic front, flash PMIs pointed to a strong recovery in private sector activity across the Euro Area this month, although inflationary pressures continue to weigh. Frankfurt’s DAX 30 closed 2.1% lower at a level not seen since March 2021 – only Qiagen N.V. lost only -0,07% (43,14 Closed). While the second best performer Beiersdorf AG lost -1,96% yet (89,00 Closed). The pan-European Stoxx 600 ended 1.4% down around four-month lows.

Germany Government Bond 10Y

The yield on the Germany’s benchmark 10-year Bund fell to 0.18% in the last week of February, staying below 3-year highs of 0.33% hit last week, as traders continue to follow the back-and-forth on the Ukrainian crisis while hoping a diplomatic solution could be reached. Meanwhile, inflationary pressuresin the Eurozone economy persist, according to fresh Markit PMIs and German producer prices data, strengthening the case for the ECB to tight monetary policy. Several ECB officials have been calling for an end to the ECB’s bond-buying programme, which is a precondition set by the ECB for raising rates. Still, ECB Chief Christine Lagarde reiterated last week that any change in the bank’s policy will be gradual.

Italy Government Bond 10Y

The yield on the Italian 10-year BTP retreated to 1.9% from the 21-month high of 2% hit on February 15th, amid higher demand for safer assets due to heightened geopolitical tensions. US and NATO authorities said that there are signs of additional troops amassing at the Ukrainian border, despite Russian authorities having announced the withdrawal of forces in the area. However, a significant risk premium remains prevalent on Italian debt instruments due to political uncertainty and large debt. While Sergio Mattarella’s re-election as head of state guaranteed political stability in the short-term, the lack of consensus displayed by the Italian lawmakers raised concerns over the government’s ability to efficiently implement reforms with EU funds amid higher costs.

Euro Dollar Exchange Rate

The Euro edged higher to $1.13 in the last week of February as traders continue to follow the Ukrainian crisis andhope a diplomatic solution can be reached to solve the conflict and avoid the invasion of Ukraine. Meanwhile, investors seek for further clues on the ECB monetary policy, as price pressures continue to intensify in the Euro Area. ECB President Christine Lagarde reinforced last week that any change in the bank’s policy will be gradual, after setting a more hawkish tone and refusing to rule out an interest-rate hike in 2022. Money markets see a 10bps rate hike at the June meeting and anticipate about 50bps in increases by year-end.United States DollarThe dollar index edged up to above the 96 level on Monday, after Federal Reserve Governor Michelle Bowman suggested that a 50bps rate hike at the March meeting could happen if PCE inflation to be released later in the week comes in above expectations. Forecasts point to a 5.2% annual rise in the core PCE Index, accelerating from a 4.9% increase in December. Last week, Governor Lael Brainard and New York Fed President John Williams also showed support for raising the federal funds rate at the next meeting. Also, geopolitical concerns continue to support safe-haven demand for the currency. Markets believe the Kremlin is seeking a pretext for a Ukraine invasion and President Biden is assessing requests from leaders of the Donetsk and Luhansk People’s Republics to be recognized independent from Ukraine. Hopes for a summit between US President Biden and Russian President Putin faded after the Kremlin stated there were no specific plans.

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