Hopes for dialogue improve market sentiment

After a devastating week, Russian-Ukrainian military clashes showed no signs of de-escalation on Friday, making an invasion of Kyiv inevitable in the coming days. Even though nothing is certain at this point, the fact that Ukraine’s Western allies prefer to play the sanction game with Moscow instead of sending NATO forces, is feeding some hopes that the worst-case scenario of a broader full-scale war could be prevented, especially if Ukraine president’s requests for dialogue with the Russian government are finally accepted. 

Encouragingly, there are some headlines stating that Moscow is ready to send a delegation of defense and foreign ministers to Minsk after a call with the Chinese leader, while Russia's foreign minister Sergey Lavrov is said to travel to Geneva on Monday. Hence, the weekend may bring some calm before tensions come back into play next week, adding some support under riskier assets.

All sectors in the pan-European STOXX 600 community returned to the green territory, boosting the index up by around 2.0% at the time of writing, though a stronger rebound is needed to recover the weekly freefall which reached a 21-month low yesterday. Likewise, the British FTSE 100 is trading higher by an equivalent percentage, while US indices opened moderately up as the world awaits Russia to unveil a list of retaliatory sanctions and Europe threatens a new round of penalties in the energy sector.

Antipodeans outperform; euro, pound show soft recovery 

In other news, a Reuters report citing sources with knowledge revealed fears of heating inflationary pressures and a growth slowdown among ECB officials after the Austrian and Greek ECB policymakers proposed additional bond buying to cushion the Ukrainian fallout on Thursday. Following its plunge to 1.1100, euro/dollar managed to attract some buying traction and climb slowly back into the 1.1200 territory, though whether the pair will sustain its strength remains to be seen as its short-term outlook is still gloomy and fragile.

For now, the slight positive surprise in the US core PCE inflation measure, which inched above the forecast of 5.1% to 5.2% y/y in January, as well as the upbeat consumption expenditure and durable goods orders figures proved unable to boost the dollar despite Fed officials eyeing higher interest rates in the year ahead. Yet, the pullback in the yen is helping the dollar stay close to yesterday’s high of 115.68.

Pound/dollar is also some distance above its two-month low of 1.3271, testing an entry to the 1.3400 region. Euro/pound is marking its fourth day of subdued gains, while against the safe-haven yen, both the pound and the euro are currently facing soft upside pressures.

On the other hand, the risk-sensitive antipodean currencies are outperforming across the board, having one of their best daily sessions so far this year, especially against the yen. Aussie/dollar and kiwi/dollar have almost recouped Thursday’s decline ahead of next week’s RBA policy meeting.

Oil, gold decelerate

Turning to commodities, after yesterday’s rollercoaster, the precious gold metal is lacking directional news to fly back above $1,900, currently hovering around the nearby key support of $1,885. WTI crude futures are also lower at $92.00/barrel but it would be interesting to see whether the market can revive its uptrend after next week’s OPEC meeting, which is expected to deliver another 400k supply boost, and more importantly what Russia's contribution will be.