European equities are under moderate pressure amid signals that the optimism about imminent end of hostilities in Ukraine was premature. There are reports that Russia concentrates main forces for the liberation of Donbass, in turn, the West regards this as a maneuver or a regrouping of troops. The dollar has rebounded from the bottom of the range, this highly likely scenario was discussed yesterday:

The US indices also opened lower, the demand for cash and the outflow of US investors from European assets offers additional support to the dollar.

Gold prices also benefit from rising uncertainty: having defended the support at $1900, the price is in the range and the medium-term trend has yet to be determined. Still, it’s hard to expect some higher levels of escalation that were experienced at the start of the conflict so it makes sense to bet on a downward rebound from $1950-1960 zone where, based on the last downside, selling pressure likely concentrates:

Inflation in the US (Core PCE report) was slightly below the forecast (5.4% vs. 5.5% forecast). Household spending increased by 0.2% against the forecast of 0.5%, reflecting the negative impact of rising prices on consumption. Initial and continuing jobless claims were broadly in line with expectations, at their lowest level since the start of the pandemic.

At the same time, inflation in Italy, one of the largest economies in the Eurozone, topped consensus estimate accelerating to 6.7%. It is clear that fallout from the sanctions war with Russia, manifested primarily in high commodity prices, generates persistent inflation pressures, which due to the lack of significant interventions from the ECB, erodes real yields of European debt, making them less attractive.

The data on unemployment in the EU was somewhat disappointing, contrary to the forecast of a decline to 6.7%, the share of unemployed rose to 6.8%, which could be one of the first signals that high inflation is starting to cause weakness in the current EU economic recovery.

Yesterday's ADP report on the US labor market came out in line with expectations, with job growth of about 450,000. Thus, hopes for a strong NFP report on Friday remain.