Oh, nothing more?

That was a strange day. Russia’s parliament authorised troops to move into Ukraine. The US president categorised the act as an invasion. Britain and others announced financial sanctions on some Russian entities. And financial markets behaved almost as if nothing was wrong.

It would be normal to have seen at least a modicum of panic, with increased demand for safety and a scaling back of riskier asset holdings. But it did not really happen like that. Yes, there was selective selling of equities, but many of the moves were corrected later. The Northern Scandinavian crowns, which have recently proved vulnerable to increased tensions with Russia, put in by far the strongest performances of the day with average gains of 0.9%. The Swiss franc, after two days in the lead, dropped to the back of the field with a half-cent loss to the pound. Sterling was flat against the USD and CAD, all three losing an average of 0.3%.

Reading between the lines, it looked as though investors had steeled themselves for more aggressive sanctions. There was dismay in some quarters that the (presumably concerted) measures were aimed at relatively small targets and left the truly big hitters untouched. But that suited investors, who were relieved that the sanctions were not more economically disruptive. Perhaps they are missing, though, the strategy of Joe Biden and his threat to crank up sanctions in proportion to the scale of Russia’s interference.

Ramsden’s takeaway

From sterling’s point of view, Tuesday’s main event was a speech by Bank of England Deputy Governor Dave Ramsden. In it, one of the most obviously hawkish members of the Monetary Policy Committee downplayed the prospect of rapid interest rate hikes.

Specifically, Sir David said there was no chance of rates rising to their level prior to the 2008 global financial crisis when the Bank Rate peaked at 5.75%. He does, however, see a need for “further modest tightening” in the coming months and “the word ‘modest’ is significant”. There will be more on monetary policy from the Old Lady today when Governor Andrew Bailey and three of his team talk to Parliament’s Treasury Committee about the February Monetary Policy Report.

Tuesday’s economic data were, once again, generally positive about the global economy. IFO’s barometer of German business confidence revealed that “sentiment has improved appreciably”. In two measures of the US residential property market, the FHFA said house prices were up by 17.5% on the year while S&P put the increase at 18.8%. The Conference Board’s measure of US consumer confidence fell for a second consecutive month but still painted a more positive picture than recent results from Michigan University.

Hawkish hike

The Reserve Bank of New Zealand announced its third increase to the Official Cash Rate since October. The OCR now stands at 1%, exactly as analysts had forecast. The crucial point in the statement was that further rate increases are likely.

While the RBNZ was an early adopter of monetary tightening, making its first move in October, there had been at least a suspicion that it might postpone today’s hike because of geopolitical tensions. Since it failed to do so, the inference is that central banks remain focused on their inflation mandate and do not—not yet, at any rate—worry overmuch about Russian irredentism.

Just ahead of the RBNZ announcement, Australia reported that wages rose 2.3% in 2021. As elsewhere, pay rises are being eroded by even faster-rising prices. In what remains of a fairly empty agenda, there will be French and Swiss business confidence, German consumer confidence and Eurozone inflation, expected to come in at 5.1%. No significant data or events are expected overnight, invasions permitting.