Daily Market Commentary 1st March 2022

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The war in the Ukraine dominated markets, as the Russian invasion continues, despite ‘Peace Talks’ being held between both parties, over the border in Belarus.US and European countries have imposed heavy sanctions upon the Russian State, removing some financial institutions from the SWIFT money transfer system and attempting to freeze the Russian Central Bank assets. This was a heavy blow to markets and to Russia and the Central Bank acted accordingly, more than doubling key interest rates to 20%, to support the collapse in the currency. The impact will be severe across markets as trade is severely disrupted, although not halted. Europe is heavily dependent on Russian energy and therefore is forced to accept Russian energy exports. The price of energy has already skyrocketed and caused a major crises in Europe, and across the world, which will now only make things far worse.

Market reaction has been risk-off, with massive swings in equities and volatility. The US market recovery at the end of last week, was triggered by the notion that the Fed would use the war as an excuse to defer intended tightening of monetary policy, scheduled for this month. US Bond Yields fell sharply, as if to confirm this perception, while the US Dollar was strong, with the EUR trading 1.1200, while the GBP attempted to hold onto 1.3400.

The RBA meets today and is likely to leave rates unchanged, still in heavy recovery mode from the last round of the severe virus regulations. The rise in commodity prices has supported the currency, despite initial falls, from safely flows to the US Dollar. The AUD looks to regain 0.7250, ahead of he Central Bank monetary policy decision, while the NZD looks to regain 0.6750.

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