Geopolitics weigh on mood as focus shifts to PMI surveys

Following Monday’s subdued action, markets seem to have turned cautious early Tuesday amid escalating geopolitical tensions. S&P Global will release the preliminary February PMI surveys for Germany, the Eurozone, the UK and the US. ZEW Survey from Germany will also be looked upon for fresh impetus. Later in the day, Existing Home Sales will be looked upon for fresh impetus and Bank of Canada will release inflation figures.

Secretary of State Antony Blinken told China’s top diplomat, Wang Yi, at the Munich Security Conference that they had information suggesting that China was planning to provide lethal support to Russia. On the same matter, Russian news outlets reported that Wang Yi was expected to visit Moscow on Tuesday and possibly meet with Russian President Vladimir Putin.

Meanwhile, US President Joe Biden unexpectedly travelled to Kyiv and met with Ukrainian President Volodymyr Zelensky. In a joint press conference afterward, Biden reiterated that the US will continue to support Ukraine in its fight against Russia for as long as it takes and said Russia’s war of conquest is failing.

Putin will deliver his state of the nation address to Russia’s Federal Assembly at 0900 GMT and address both houses of parliament, during which he will analyze the international situation following the West’s sweeping sanctions against Moscow.

Reflecting the risk-averse market atmosphere, US stock index futures are down between 0.3% and 0.4% early Tuesday. The US Dollar Index, which edged slightly lower on Monday, clings to modest gains at around 104.00 in the European morning.

EUR/USD continues to trade in a narrow channel below 1.0700 on Tuesday. European Central Bank (ECB) Governing Council member Olli Rehn said on Tuesday that it would be appropriate for the ECB to continue to raise rates beyond March. Later in the day, ECB President Christine Lagarde will respond to questions from the Finnish public TV.

GBP/USD stays relatively quiet early Tuesday and continues to fluctuate in a narrow channel above 1.2000. British Foreign Secretary James Cleverly said on Monday that they will have more talks with the EU in the coming days on the Northern Ireland Protocol. Cleverly is expected to address Tory MPs on negotiations on Wednesday.

Bank of Japan Governor Haruhiko Kuroda said early Tuesday that wage growth in Japan will likely accelerate as companies increase pay to compensate households for the higher cost of living, and cope with an intensifying labour shortage. These comments failed to trigger a noticeable market reaction and USD/JPY was last seen trading modestly higher on the day at around 134.50.

Gold price registered small daily gains on Monday but retreated below $1,840 early Tuesday. Following the three-day weekend, the 10-year US Treasury bond yield holds in positive territory at 3.86%, weighing on XAU/USD.

Bitcoin regained its traction on Monday and rose more than 2%. At the time of press, BTC/USD was trading within a touching distance of the key $25,000 level. Ethereum trades at around $1,700 in the European morning after having snapped a two-day losing streak on Monday.

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