Markets Brush Off Inflation as Ukraine Optimism Persists But For How Long?

Macroeconomic Analysis

While inflation shows no sign of easing in the short-term, with the latest figures from the UK confirming annual inflation in January at 5.5%, concern over the impact of rising prices looks to already have been priced in with equities continuing to rise so far on Wednesday.

The bullish driver is the apparent stepping back by Russia from the brink of a military invasion into Ukraine with some of the troops posted to the region now returning.

However the situation remains tense and while the current trajectory points to a de-escalation in tensions, the threat of renewed military action by Russia roiling markets once again is ever-present. The latest stage in this saga comes from Brussels today where NATO defence ministers meet to discuss how genuine they believe Russia’s actions to be. 

Returning to inflation, the UK’s high print and limited market reaction so far, with the London-based FTSE-100 up 1% so far today, suggests these high prints are no longer shocking investors with central banks already primed to increase interest rates throughout the year to try and bring inflation back towards 2%.

How fast and how high central banks move will be the crucial next phase in this inflationary story with expectations on rate rises possibly now overly hawkish.

The latest indication of how hawkish central banks are feeling will come later today with the publication of the minutes from the Federal Open Market Committee. With a rate hike in March all but guaranteed, the focus will be on how many more the Fed feels will be needed this year.

Gold Price Analysis

The apparent de-escalation in military action by Russia over Ukraine has been positive for the macroeconomic outlook but has been detrimental to gold with its safe-haven appeal no longer quite so attractive.

However, while gold did lose some of its gains, it continues to trade above $1,850 an ounce, a sign that the threat of further military action in Ukraine remains live and reflective of the fragile state of investor sentiment so far this year. 

Inflation remains the other major driver with gold looking under threat in an environment in which multiple interest rate hikes are anticipated. As such, gold investors will closely pore the FOMC minutes later today to gain a better understanding of the rate trajectory the US central bank is anticipating.

Silver Price Analysis

Silver similarly lost some of its lustre recently to fall back to the lower reaches of its recent range between $23-$24 an ounce.

However, the metal is starting to track steadily upward once again pointing to some considerable support for silver as after each fall driven by a wider macroeconomic event, the price is quick to start retrieving those losses.

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Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience in writing about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News. 

As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewable energy and the challenges of avoiding greenwash while investing sustainably.