Russia’s Ukraine war upends market bets By Reuters

© Reuters. FILE PHOTO: Euro, Hong Kong greenback, U.S. greenback, Japanese yen, pound and Chinese language 100 yuan banknotes are seen on this image illustration, January 21, 2016. REUTERS/Jason Lee/Illustration/File Photograph

By Saikat Chatterjee and Dhara Ranasinghe

LONDON (Reuters) -Russia’s invasion of Ukraine has upended a number of in style trades, inflicting heavy losses on buyers bullish on European shares and the euro and in addition these bearish on the Japanese yen and authorities debt.

The view earlier than the aggression was that international financial restoration was chugging alongside, firm earnings had been strong and central banks, going through rising inflation, had been on track to boost rates of interest a number of occasions this yr.

However whereas the spiking geopolitical tensions proceed to fan inflationary pressures by way of the oil channel, they’re undermining a number of the largest consensus trades in markets.

“We simply skilled a serious ache level: the Russian invasion. That was sufficient to flush out the extra aggressive brief time period positions” ” mentioned Aaron Hurd, senior portfolio supervisor, forex, at State Road (NYSE:) International Advisors in Boston.

A number of the extra entrenched bets will come below additional stress if the battle threatens the broader progress outlook, Hurd predicted.

Under are 5 charts displaying the principle consensus positions in international markets:


The premise that the Financial institution of Japan would lag international counterparts in tightening coverage had made the Japanese yen each forex dealer’s most well-liked brief — hedge funds’ web brief bets on the yen had been just under three-year highs, in keeping with knowledge from Commodity Futures Buying and selling Fee.

The yen’s rise to a three-week excessive on Thursday would have dealt a blow to these positions.

One other giant consensus commerce has been lengthy euros the place web longs are at six-month highs and rose by $1.2 billion within the newest week, in keeping with CFTC.

Spinoff markets present merchants had been frantically shopping for places this week, an possibility to guard towards losses, as the only forex fell beneath $1.11, its lowest ranges since July 2020.

In the meantime the rising development to wager towards the greenback — lengthy greenback positions slipped to the bottom since August – additionally backfired, because the jumped to a mid-2020 excessive.


In keeping with a BofA month-to-month survey, European shares had been buyers’ most most well-liked area with buyers a web 30% obese.

However it is usually probably the most susceptible to fallout from the Russia battle, and accordingly it European shares slipped on Thursday to the bottom since Might 2021, whereas European financial institution shares, a preferred commerce because of ECB fee hike bets, have shed 6.5% this week.

Goldman Sachs (NYSE:) slashed its European shares forecast by 8% by end-2022 whereas the European Central Financial institution’s chief economist mentioned the battle may shave as a lot as 0.4% of euro zone GDP.

As threat aversion takes maintain, the value of put choices on European inventory indexes at 10% beneath present ranges for contracts expiring in March has jumped sharply. Open curiosity – the variety of contracts excellent, is on the highest stage ever.


Satisfied that the U.S. Federal Reserve would go massive and quick with rate of interest hikes in coming months, merchants had piled on bets towards Treasuries and most main bond markets.

Treasury shorts on the rate-sensitive front-end of the bond curve, jumped, with bearish bets on 2-year observe futures on the highest since October.

These bets are being quickly unwound amid the sprint for secure trades. Bets of a 50 bps fee hike by the Fed subsequent month have melted by half from per week earlier, in keeping with the CME’s Fedwatch software, whereas expectations of ECB fee hikes have additionally dropped.

“Central banks’ stagflation trade-off has solely turn out to be tougher amid the Russian invasion,” mentioned Kristoffer Kjær Lomholt, chief analyst at Danske Financial institution.

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