Thursday, 24 February 2022
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•          The cautious détente during the European session yesterday was short-lived. Sentiment soured as the US joined with president Biden announcing additional sanctions on Russia. Ukraine government and bank websites were targeted in cyberattacks and added to lingering fears of an impending all-out war. European stocks erased >1% gains to finish in the negative. Wall Street tanked 1.4-2.6%. Core bonds traded atypical with German yields still rising 4 bps at the front (2y). US yields even added 3.2-6.4 bps across the curve. The Swiss franc did well, closing below EUR/CHF 1.04 again. The euro but also the dollar and even the yen all traded mixed. But while yesterday may not have been a classic risk-off session, today absolutely is. Before dawn, president Putin of Russia ordered a special military operation to target military facilities across Ukraine. Putin said it wishes not to occupy Ukraine but to demilitarize it. Ukraine’s president Zelenskiy called it a “full-scale invasion” and imposed martial law. The US already responded that it will impose severe sanctions on Russia. Other countries including Australia unveiled new sanctions as well. The Moscow Exchange halted trading in the ruble, stocks and futures but damage on other financial markets is material.

  • Equities: Asian-Pacific stock exchanges plummet with losses mounting to more than 3%. Stock futures point to heavy losses of >4% for Europe and more than 2% in the US. The EuroStoxx50 will probably lose support from the pre-pandemic high at 3867. 
  • Bonds: US Treasuries and German Bunds skyrocket amid safe haven flows. US bond yields currently nosedive 9 to 13 bps with the belly of the curve outperforming. The 10y yield (-12 bps) is looking at support around 1.84%. Germany’s 10y will most likely gap below 0.15% support.
  • Currencies: a stellar performance by the Japanese yen. EUR/JPY slides from 130 to 128.7 with support at 128 kicking in. USD/JPY gives up the fight with 115 and eases to 114.5 currently. The Swiss franc takes second place. EUR/CHF intraday set a new 7 year low sub 1.03. The dollar finishes the top three. EUR/USD hit the lowest level since the ECB pivot in early February at 1.1236. Every single currency with the slightest whiff of risk, gets sold. The NOK and SEK lose 0.6-1.5% depending the major plotted against. Central-European currencies shed 1-1.4% against the euro and up to 2% against the dollar. The Czech koruna (EUR/ZK 24.91) underperforms regional peers. Turkey’s lira goes 2-2.5% down. The Russian ruble in interbank trading neared USD/RUB 90, printing losses of more than 5%.
  • Commodities: Brent oil (>5%) surges above $100/barrel for the first time since 2014. Natural gas prices surged more than 10% and go berserk with a 25% rise at the open. With Ukraine as key exporter of corn and wheat, prices of both soft commodities jump 4-5%. The price of safe haven asset gold jumps 1.8% to $1943. Other metals rose up to 3% 

Uncertainty and risk-off is the name of the game for today. Although the market impact of geopolitical events tends to fade after a relatively short period of time, we’d advise not to row against the current tide.

News Headlines

•          The Bank of Korea kept its policy rate unchanged at 1.25% as expected following back-to-back 25 bps rate hikes in November and January. Upward revisions to inflation forecasts suggests that more tightening is under way. The BoK increased its 2022 prognosis from 2% in November to 3.1% while lifting the 2023 number from 1.7% to 2%. Growth forecasts remain unchanged at 3% and 2.5% respectively. Price pressure both comes internally from services costs as externally via commodity prices. The Ukrainian conflict in this respect poses both upside inflation risks and downside growth risks. Governor Lee at his final meeting said that one more rate hike would still not be considered as tightening. Market expectations of a policy rate <=2% by the end of the year are in line with the BoK’s views. The Korean won loses out in this morning’s risk-off move with USD/KRW rising from 1190 to 1202.


Long term EU bond yields surged after the ECB hinted it may stop net bond buying sooner than previously expected amid high and even accelerating inflation. The move was driven by higher real rates. The break into positive territory has been confirmed. The German 10-y yield also cleared 0.15% resistance (61.8% 2018-2020 retracement), with 0.40% being the next reference. For the time being, though, the geopolitical trumps the monetary policy storyline.

The Fed’s hawkish policy turn caused a surge in real yields. The US 10-yr yield took out the October top at 1.7%. The January CPI release triggered a first brief return above 2%. Markets remains split between a 25 and 50 bps March rate hike. The geopolitical narrative hijacks the normalization story.

The ECB changed its tone dramatically. Views on temporary inflation have changed. Net bond buying is poised to end sooner (in Q3?), allowing for a first rate hike later this year (Q4). EUR/USD left the lows behind. Short-term momentum favors the dollar again, especially in current uncertain circumstances.

The BoE hiked its policy rate to 0.5% in February with the biggest possible minority even voting for a 50 bps increase. Further tightening is in the pipeline. The pair tested 0.8282 support but rebounded quickly.

Calendar & Table

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This document has been prepared by the KBC Economics Markets desk and has not been produced by the Research department. The desk consists of Mathias Van der Jeugt, Peter Wuyts and Mathias Janssens, analists at KBC Bank N.V., which is regulated by the Financial Services and Markets Authority (FSMA).
These market recommendations are the result of qualitative analysis, incorporating room for past experiences and personal assessments. The views are based on current market circumstances and can change any moment. The most prominent input comes from publicly available data, financial news, economic and monetary policies and commonly used technical analysis.
The KBC Economics – Markets desk has used reasonable efforts to obtain this information from sources which it believes to be reliable but the contents of this document have been prepared without any substantive analysis being undertaken into these sources.
It has not been assessed as to whether or not these insights would be suitable for any particular investor.
Opinions expressed are our current opinions as of the date appearing on this material only and can be opposite to previous recommendations due to changed market conditions.
The authors of this recommendation do not warrant the accuracy, completeness or value (commercial or otherwise) of any recommendation. Neither are the authors liable to those who receive these recommendations for the content of it or for any loss or damage arising (whether in tort (including negligence), breach of contract, breach of statutory duty or otherwise) from any actions or omissions of the authors in reliance on any recommendation, or for any claim whatsoever in respect of the content of, or information contained in, any recommendation. Any opinions expressed herein reflect the judgement at the time the investment recommendation was prepared and are subject to change without notice.
Given the nature of this advice (linked to currencies and interest rates) , the advice is overall not specific in nature.   As such there is no reference to any corporate finance contract and as such there is no 12 month overview based on the different advices.
This document is only valid during a very  limited period of time, due to rapidly changing market conditions.

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