No deal on Ukraine, but markets keep the faith

Kathleen Brooks XTB UK

Donald Trump continues to be the dominant force for financial markets. First there was the Trump trade, then the tariff trade, the delayed tariff trade, and now the peace in Ukraine trade. Trump is central to all of this, which means that traders and investors need to watch his every move.

Talks are first step in path to end to the conflict

The first round of talks between the US and Russia have ended. So far, the talks are between foreign ministers and there is no date set for President Trump to meet Putin face to face. It is clear that Europe and Ukraine remain out in the cold and are likely to be the price takers for any deal, if and when something is agreed. The lack of a resolution is no surprise, this is the first set of talks, and it is a complex situation that could require weeks and months to get a concrete plan in place for peace between Ukraine and Russia. The good news is that in a statement released after the meetings between the US and Russian teams, the two sides have agreed to further talks to work on a ‘path to ending the conflict in Ukraine as soon as possible.’ In a possible overture to Ukraine, the statement also added that it wanted to find a solution that was ‘sustainable and acceptable to all sides.’

Markets stick with Trump’s plan for now

Trump has ripped up the playbook when it comes to dealing with Russia, and the markets are keeping the faith with the US President for now. Stocks are higher across the board in Europe, and defense names like BAE Systems and Rolls Royce continue to be among the top performers in the FTSE 100, as the market continues to expect a resolution to this conflict.

The potential for peace in Ukraine is also playing out in the commodity and bond markets. Since President Trump’s inauguration, German sovereign bonds have underperformed US Treasuries and UK Gilts, as the prospect of peace boosts hopes for a prolonged recovery in the European economy, and in Germany’s embattled manufacturing sector. If peace talks end, then we could see haven demand put downwards pressure on German yields. For now, the prospect of a resolution remains intact, and this could see German yields rise in advance of an uptick in European economic growth.

Lack of concrete progress on talks highlighted in commodity market

The reaction in the commodity market is worth noting. The gold price is surging on Tuesday and gold is higher by $20 and is assessing the air above $2,920. This could be a sign of nervousness about the future and any potential Ukraine/ Russia peace deal falling apart. Energy prices including the oil price and the Nat gas price, are mildly lower, suggesting that investors are not willing to put big bets on lower energy prices at this early stage of talks. The generic European natural gas price has fallen sharply in the last week, but it spiked higher by 3% on Wednesday on the back of an end to talks, without firm details about when the next round of US/ Russia talks would start. This is a reminder that commodity prices could be volatile going forward, as they react to news flow about a potential peace deal.

Elsewhere, US index futures are pointing to a stronger open and the dollar is still king of the FX space for now.

Author

Kathleen Brooks

XTB UK

Kathleen has nearly 15 years’ experience working with some of the leading retail trading and investment companies in the City of London.

EUR/USD accelerates losses, focus is on 1.1800

EUR/USD’s selling pressure is gathering pace now, opening the door to a potential test of the key 1.1800 region sooner rather than later. The pair’s pullback comes on the back of marked gains in the US Dollar following US data releases and the publication of the FOMC Minutes later in the day.

GBP/USD turns negative near 1.3540

GBP/USD reverses its initial upside momentum and is now adding to previous declines, revisiting at the same time the 1.3540 region on Wednesday. Cable’s downtick comes on the back of decent gains in the Greenback and easing UK inflation figures, which seem to have reinforced the case for a BoE rate cut in March.

Gold picks pace, flirts with $5,000

Gold is back on the front foot on Wednesday, shaking off part of the early week softness and pushing higher towards the key $5,000 mark per troy ounce. The move comes ahead of the FOMC Minutes and is unfolding despite an intense rebound in the US Dollar.

Fed Minutes to shed light on January hold decision amid hawkish rate outlook

The Minutes of the Fed’s January 27-28 monetary policy meeting will be published today. Details of discussions on the decision to leave the policy rate unchanged will be scrutinized by investors.

Mixed UK inflation data no gamechanger for the Bank of England

Food inflation plunged in January, but service sector price pressure is proving stickier. We continue to expect Bank of England rate cuts in March and June. The latest UK inflation read is a mixed bag for the Bank of England, but we doubt it drastically changes the odds of a March rate cut.

Sui extends sideways action ahead of Grayscale’s GSUI ETF launch

Sui is extending its downtrend for the second consecutive day, trading at 0.95 at the time of writing on Wednesday. The Layer-1 token is down over 16% in February and approximately 34% from the start of the year, aligning with the overall bearish sentiment across the crypto market.