As the world braced itself for potentially the worst conflict in Europe since World War 2, local markets were resilient as volatile global markets swung into positive territory, signalling confidence that a compromise will eventually be found.
In a volatile day that saw the oil price jump towards $100 a barrel as Russian President Vladimir Putin ordered troops into Ukraine, marking a major escalation in a conflict that’s been brewing for weeks, the rand traded in a 23c range and was 0.48% firmer by 7.45pm. The local currency, which fell 0.3% on Monday as the Russian rouble lost almost 3%, has gained 5.75% so far in 2022.
On Tuesday, it benefited as the dollar, which usually firms during a flight to safer assets, pared back some of its gains.
“Volatility is the only thing that appears to be certain in the markets right now,” Craig Erlam, Oanda senior analyst for the UK and the Middle East and Africa region, said.
“Investors continue to be tempted back in at the slightest hint of diplomacy winning the day. Even after the events of the past 24 hours and all of the rhetoric that’s accompanied it, there remains hope.” Markets were initially spooked as Putin ordered troops into eastern parts of Ukraine that are held by Moscow-aligned rebels, which raised concern of a full-scale invasion.
The UK said Russia was heading towards “pariah status” and imposed sanctions on five of its banks, as well as three oligarchs who are seen to be close to Putin.
Germany said it halted the certification of a gas pipeline meant to bring natural gas from Russia directly to Europe as its chancellor, Olaf Scholz, warned that Europe faced difficult hours ahead.
That saw a spike in energy prices, fuelling concern that the acceleration in inflation globally will pick up pace, heightening fears for a global economy that’s still recovering.
One of the major causes of volatility in 2022 is the possibility that global central banks will tighten monetary policy aggressively to limit the pace of increases in consumer prices.
Higher energy prices “are adding fuel to the fire of an already tense market environment, as growth and inflation fears are accelerated by the rise in the price of this liquid gold”, said Bianca Botes, director at Citadel Global.
But by the end of the day, investors were clinging to hope that, to avert full-blown war ,leaders would find a way back, with market talk still preoccupied with the possibility of a summit between US President Joe Biden and Putin.
The JSE all share ended the day 0.17% higher, taking its cue from a recovery in European stocks. Traders said the JSE’s resilience was partly explained by the proportion of resources, with the gold price near its highest levels in eight months.
A day before finance minister Enoch Godongwana is due to unveil his maiden budget, traders said global events were the dominant feature.
In the budget, Godongwana is expected to reveal an improved fiscal situation, though concern remains about long-term funding in the wake of political pressure to increase social welfare spending and support state-owned enterprises in the face of sub-par growth.
“The budget speech is likely to be shadowed by geopolitical tension,” said Andre Cilliers, currency strategist at TreasuryONE.
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