Notifications Bell

Risk aversion market sentiment prevails

Risk aversion market sentiment prevails

What is the reason for this sudden change? The market switched its focus back on geopolitical events

Russian Foreign Minister Lavrov has reawakened fears of a nuclear confrontation, warning that the risks are growing to the extent that Western countries are supplying heavy weapons to the Ukrainian army. All analysts agree that Putin should show the success of his military operation in early May. The chances of this happening are decreasing, given that the Ukrainian army is getting increasingly more equipped. Russia's reaction to this eventuality is unpredictable. The war in Ukraine, which had lost intensity in terms of its effect on the market, has returned to the stage again.

This circumstance adds to Russia’s announcement to cut off gas supplies to Poland because this country refuses to pay in rubles. Moreover, a German minister stated that a complete embargo on Russian oil would be "manageable.”

If we also consider the ongoing Covid-19-induced lockdowns in China (with the port of Shanghai blocked) and problems in the supply chain, we find all the ingredients for the market to react in fear mode.

Investors are beginning to be more concerned about the negative effects of the war and China's supply problems on the economy than about the interest rate hikes that the Fed might carry out next week.

The clearest sign of a risk-off market can be seen in the performance of US Treasury Bonds, which were strongly bought, reaching a yield of 2.73%.

Yesterday’s purchase of bonds was a positive signal that drove the stock markets higher in anticipation of a not-so-aggressive action by the Fed.

The good results that most North American companies are publishing, 80% of them topping analysts' forecasts, remain in the background given the worsening of the geopolitical scenario.

The Nasdaq index suffered the biggest daily loss of the year, over 5%, and closed below the major support level around the 12,950 area. From a technical point of view, if it continues to drop, it will enter a bear market.

GráficoDescripción generada automáticamente

Sources: Bloomberg.com, reuters.com

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.

The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.

The research analyst is not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation or particular financial needs before making a commitment to invest.

The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided.