Chinese news drags markets lower

Morning Update

Risk-off sentiment has returned with a vengeance after in the early hours of Asia Monday the Financial Times reported that Russia was seeking military assistance from China. This has put a whole new spin on the Ukraine conflict.

Additionally, rising COVID-19 cases in many major Chinese cities and Hong Kong have put pressure riskier bets. As you can imagine, the Nikkei 225 and Chinese stocks have taken a big hit on the news.

Reports suggest that Beijing and Washington are set for a key meeting later today. The markets are likely to be closely following how those talks go as the United States and Chinese relations may breakdown if China enters the war.

In terms of the FX, air raid sirens in Ukraine heralding more incoming Russian missile attacks, lockdowns in China curtailing industrial production, Iranian missiles fired into northern Iraq are giving the USD renewed vigour at the expense of other currencies.

The USDJPY pair is at a five-year high today due to the risk-off moves. The yen is under pressure due to the notion that the FED are going to come out hawkish this coming Wednesday and raise rates.

The monetary policy divergence between the Federal Reserve and Bank of Japan is only likely to speed up the trend as the USD/JPY approaches the 118.00 resistance level. The trend strongly upwards for months now.

Gold and silver are having a muted day despite the news that China could be dragged into the conflict. News that he world’s largest maker of gold and silver mining material, sodium cyanide, has been forced to suspend production in Europe after Russia’s invasion of Ukraine sent energy prices soaring.

The Czech group Draslovka said production of the chemical, used in the extraction of precious metals from ore, had become uneconomic in Europe. Again, gold has not reacted.

Brent crude and WTI oil are back above the $100.00 level today after a major pullback towards the end of last week. Nickel futures are approaching $2,750 per kilo, massively down from last week’s high.

Cryptos have recovered today, following a quick Sunday plunge towards the $37,600 level. Elon Musk came out saying that he is holding Bitcoin, Ethereum, and Dogecoin due to rising inflation.