The invasion trade

Last week ended—and this one seems to be beginning—with more words than action. By and large, investors are more interested in the possibility of war between Russia and Ukraine than in the mundanities of retail sales or monetary policy. In exchange rate terms, there was nothing to choose between the GBP, USD, EUR, CHF, JPY, AUD and NZD.

France’s President Macron appears to have negotiated a meeting between the US and Russian presidents, subject to no invasions having taken place in the meantime. That story has been positive for the RUB this morning, and perhaps counter-intuitively, the rouble is firmer against the safe-haven yen and franc than it was at the beginning of the month.

Almost every European leader has added something to the diplomatic pot. Germany’s Olaf Scholz dismissed Moscow’s accusation that Ukraine is carrying out genocide as “ridiculous”. The UK prime minister anticipated “the biggest war in Europe since 1945”. All the while, investors struggle to work out what an invasion, or the lack of one, would mean for financial markets and prices. On Friday, the likelihood of war meant downward pressure on equity prices and bond yields; this morning, the chance of a truce sent oil to its lowest in more than a week.

Going through the motions

Russia’s massed assault forces did not prevent the publication of economic data, but they did overshadow such as did appear. Strong retail sales in Britain and weak results from Canada made little difference, partly because the former related to January and the latter to December, when the UK had also seen poor sales.

The rest of Friday’s ecostats were lower-division stuff. Canadian new home prices rose 0.9% in December and were 11.8% higher on the year. US existing home sales, more a measure of consumer confidence than economic output, were little changed in January from the same month last year. Eurozone consumer confidence saw “another very slight decline”, with the indicator “converging towards its long-term average”.

In the background, the argument continued about the pace of monetary tightening by the US Federal Reserve. Although New York Fed President John Williams tried on Friday to squash the ideas of a 50-basis-point rate hike next month, JP Morgan joined Goldman Sachs and Bank of America in predicting seven increases this year.

America’s day off

National holidays in Canada (Family Day) and the United States (Presidents’ Day) will dampen activity today. The main focus will be on the provisional purchasing managers’ indices and, of course, the unfolding Russian invasion narrative.

Two major sets of provisional PMI data have already printed. In Australia, the manufacturing measure was two and a half points higher on the month at 57.6 with services up by nearly 10 points at a convincingly positive 56.4. The equivalent readings from Japan were both around five points lower on the month at 48.7 and 42.7. In Britain, Rightmove reported that asking prices for residential property jumped 2.3% in February and were 9.5% higher on the year.

Apart from the provisional PMIs from Europe, there is almost nothing on today’s ecostat agenda. Ahead of London’s opening on Tuesday, the ONS will reveal the scale of public sector borrowing in January.