The situation in Ukraine continues to be the main focus of the markets

Market movers today

• The situation in Ukraine continues to be the main focus of the markets. The key question in the short term is still whether the conflict will escalate to the point where Russian troops go into Ukraine.

• US CPI is the main release on the macro front. US core CPI is expected to rise 0.2% m/m, taking the annual rate up to 2.0% from 1.9%.

• Housing starts and permits for US are expected to show a rebound after a fairly weak development in the past months. Permits and housing starts have been the weak piece in the housing puzzle, while data on sales and housing confidence have picked up recently.

• UK inflation data is expected to show a small decline in core inflation to 1.9% y/y in July from 2.0% y/y in June. Core inflation has been fairly stable between 1.6% and 2% over the past 3-4 quarters.

Selected market news

Market’s risk appetite improved yesterday, as concerns about Ukraine tensions eased on the news that Ukraine and Russian foreign ministers met in Berlin over the weekend seeking to find a solution to the crisis. However, while we might have moved slightly in a more positive direction from a risk-on/risk-off perspective, we stress that the situation remains extremely tense and that the risk of an re-escalation should not be ignored.

US equities traded higher yesterday, supported by the improved risk sentiment and some better-than-expected data from the US housing market, where the NAHB sentiment index rose to 55 in August from 53 in July, supporting the case for a recovery in the US housing market in H2. The positive sentiment has also carried over to the Asian session, where most regional indices trade higher this morning.

Yields on 10-year US treasuries rose more than 5bp to 2.39% after yields on 10-year German government bonds in the European session bounced back above 1% to 1.014% from their all-time low at 0.951% on Friday.

In the minutes from its August 5 meeting, released this morning, Reserve Bank of Australia, RBA, reiterated that interest rates are set to remain on hold at a record low level of 2.5%. Although the RBA acknowledged a significant uncertainty around its growth forecast, the minutes were a bit hawkish relative to market’s expectations, which was pricing in some chance of a rate cut within the coming 12 months and the Australian dollar has strengthened against all G10 currencies overnight.