Safe-Havens Find Support Ahead Of FOMC

Russian President Vladimir Putin announced on state media that the West is collectively trying to dismantle Russian sovereignty and Russia is not afraid to utilize its military power to combat these forces. In addition, President Putin has stated that the Russian forces in Ukraine will be replenished with 2 million more soldiers prompted by recent Ukrainian victories in certain regions.

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What does this mean for financial markets? Safe-haven demand has already spiked if via spot gold (+0.3%), JPY (+0.07%) despite a stronger U.S. dollar and U.S. Treasury yields. If we expand the potential repercussions of an augmented invasion we may see further price appreciation through key Russian and Ukrainian export commodities, principally wheat, corn, seed oils, natural gas, iron ore, crude oil and coal (by extension). Looking at the current price action of the aforementioned assets, all of the above are tracking higher (at the time of writing).

The EU Volatility Index is unsurprisingly finding some bids this morning and looks to be testing the 200-day SMA (grey). A break above this key area of resistance could be catalyzed by further deterioration within Ukraine or further threats to the West by President Putin.

Daily EU Volatility Index Chart

Chart prepared by Warren Venketas, IG

All this comes during a key central bank themed week with the Federal Reserve (see economic calendar below) scheduled to announce its interest rate decision later this evening. Global central banks are looking to tackle inflationary pressures which have been surging mostly due to the energy crisis caused by the Russian invasion of Ukraine. The tightening of monetary policies have hurt consumers and with the threat of sustained strain on the energy and food market, this may continue for longer than expected and ultimately exacerbate recessionary fears.

Economic Calendar

Source: DailyFX Economic Calendar

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