The renewed geopolitical tensions around Ukraine are weighing on the nerves of investors, already destabilized by fears of an imminent tightening of monetary policy by the US Federal Reserve. The markets thus relegate to the background the quarterly publications of companies in Europe and the United States. Around 8:30 a.m., futures contracts on the Cac 40 index suggest a decline of around 2% at the opening.
White House National Security Adviser Jake Sullivan said over the weekend that a Russian invasion of Ukraine was imminent and called on US nationals to leave the country immediately. He also said that the United States will protect every square inch of NATO countries. However, US officials were unable to confirm reports that an intervention could take place on Wednesday. Diplomacy has not said its last word. After Emmanuel Macron last week, German Chancellor Olaf Scholz is going to Ukraine on Monday, then to Russia tomorrow.
In this context, yields on bond issues are falling again in a “flight to quality” movement at the expense of equities. The yield on the 10-year US bond is back around 1.96% after crossing the 2% mark at the end of last week.
Bullard and a surprise Fed meeting on the agenda
Markets also fear that the US Federal Reserve will raise interest rates outside of a scheduled meeting of its monetary policy committee (FOMC). Rumors circulated on Friday, fueled by the announcement of a meeting of the board of governors on Monday, but it seems that it would be a routine meeting, especially since the Fed has repeatedly indicated that would not raise rates until it ended its asset purchase program. However, a press release must be published at the end of this meeting.
Nevertheless, monetary policy will remain at the center of the news with the intervention of several officials this week, including that of James Bullard, the president of the St. Louis Fed, this Monday as part of the program Squawk Box on CNBC at 2:30 p.m. Reputed to be “hawkish”, James Bullard had destabilized the markets by declaring that he expected a rate hike of 100 points by July 1. Frightened, by his own admission, by the surge in inflation to a 40-year high, he also did not rule out tightening outside the scheduled FOMC meetings.
Other Fed officials, such as Mary Daly of the San Francisco branch, were less alarmist, saying a 50 basis point tightening in March could destabilize markets. But a more aggressive Fed stance is already priced in.
The American central bank must also publish Wednesday the “minutes” of the meeting of January 25 and 26 and could give on this occasion indications on the internal debate within the monetary policy committee. But before that, Christine Lagarde will be heard by the European Parliament as part of a debate on the annual report of the European Central Bank. His appearance is scheduled for 5:15 p.m.