One of the surprising things about geopolitical risk is that it has far less impact on stocks than you might otherwise think. This week saw Russia making an invasion into Ukraine and the West hitting back with sanctions. However, the dip in equities may be quickly bought as historically wars have limited impact longer-term impact on stocks. However, Russia’s main stock market fell over 30% on the invasion news! In monetary news, the RBNZ took a more hawkish tilt recognising that they may need to hike rates in larger increments over the coming days and weeks. This should keep the NZD supported now on any dips lower for the medium term.
Other key events from the past week
- NZD: Interest rate statement, Feb 23: With NZD inflation at a 30+ year high and a red hot housing market the RBNZ took a more hawkish tilt this week as they hiked by 25 bps, but some committee members saw a case for 50bps! This vali-dated the NZDJPY long bias prior to the meeting.
- EUR: German Services PMI’s, Feb 21: The service sector has seen the fastest rise since last August. Signs of a recovery in the service sector present an encouraging sign for the eurozone’s economy. Markets still retain hopes of at least one rate hike this year, but that is largely due to rising inflationary pressures.
- AUD: Wage Price Index, Feb 23: The wage price index was below the 2.4% y/y expected at 2.3%. However, it still shows wage growth is elevated and that in itself can give the RBA reason to take a hawkish stance over the coming days and weeks as inflationary pressures should remain supported by wage growth.
Key events for the coming week
- AUD: Interest rate statement, Mar 01: With the latest wage price index coming in at 2.3% does the RBA now have enough of a reason to take a hawkish stance. Is this time to see AUDJPY register even further gains?
- Seasonal trades: UK FTSE 100: We are now heading into a strong period of seasonal strength for the UK FTSE 100. Does the FTSE offer good value to buy now on the dip?
- CAD: Interest rate statement, Mar 01: Will the Bank of Canada deliver on a 25bps rate hike next week? At the last BoC meeting, the bank downgraded growth forecasts but revised inflation expectations up. So, watch out for this week’s meeting for fresh CAD direction clues.