quity markets sold-off aggressively across the board – the S&P 500 index extended its losses to almost 6% since the start of play on Friday, with the FTSE 100 down around 4% during the same time period. Commodities have also retraced some of their recent gains so far this week, including Brent crude oil, which fell to a 10-day low below $86 a barrel. In the foreign exchange market, the traditional safe-havens have outperformed at the expense of the higher risk G10 ones. The US dollar touched a two-week high during London trading on Monday, while the likes of the Norwegian krone and Australian dollar sold-off in excess of 1%. Among the G3 currencies, the euro has managed to hold its own, although the pound tanked to around its lowest level against the US dollar so far this year.

But what has triggered the worsening in risk sentiment in the past few trading sessions?

1. • Investors fret over Russia-Ukraine tensions. Financial markets had, for the most part, largely ignored headlines out of Russia and Ukraine in the past few weeks, although that is now no longer the case. Russia has continued to build up military on Ukraine’s border, with Nato allies putting forces on standby and scrambling ships and fighter jets to Eastern Europe in anticipation of conflict.Whether an invasion is actually on the cards or this is merely an elaborate tactic for Russia to get its way remains to be seen, but markets are not best pleased with the uncertainty that the ongoing tensions have created.
   • Macroeconomic data takes a turn for the worse. While we are generally pretty positive about the economic impact from the omicron strain of COVID-19, we are beginning to see signs that the disturbance caused by the variant is clearly a non-negligible one.PMI data out of the G3 nations surprised to the downside on Monday. In the Eurozone, the composite index fell to an 11-month low 52.4 from 53.3, with the same index in the UK edging down to 53.4 from 53.6. Even more concerning was the collapse in the US composite PMI from Markit, which tanked to 50.8 from 57, barely above the level of 50 that denotes expansion (Figure 1).

Figure 1: G3 PMIs (2019 – 2022)