US yet to verify pull back of Russian troops, yet risk-on ahead of European open

The Asian session has been risk-on, equating to a recovery in stocks and a weak yen, falling vs the dollar at the time of writing to fresh lows in the 115.70's. 

• USD/JPY Price Analysis: Bids building above 115.50's puts 116.00 and then 117.00 on the radar

(USD/JPY M15 chart)

The Russian defence ministry on Tuesday published footage to demonstrate it was returning some troops to base after exercises, however, US President Joe Biden said the United States had not verified the move. Russia’s claim that it pulled back troops “would be good, but we have not yet verified that,” Biden said. “Indeed, our analysts indicate that they remain very much in a threatening position.”

Biden also said the United States is "not seeking direct confrontation with Russia" but that if Russia were to attack Americans in Ukraine, "We will respond forcefully." Nevertheless, risk appetite had already improved in New York trade and Biden's hawkish rhetoric did little to sway the consensus in markets that diplomacy can prevail. 

Shares around the world rebounded following the reports, MSCI's gauge of global equities ended higher by 1.34%.  US stocks snapped a three-day losing streak and the S&P 500 gained 1.6% to 4,471.07, the Nasdaq Composite added 2.5% to 14,139.76 and the Dow Jones Industrial Average leapt 1.2% to 34,988.84. Asian shares rallied also with Japan's benchmark Nikkei share average was up 2.0% midday Wednesday while the broader Topix climbed 1.43% to 1,942.16. 

Looking ahead, markets can take comfort that Putin said he does not want war and would rely on negotiations in his efforts to eliminate any chance that Ukraine could one day join NATO. However, at the same time, he has not committed to a full pullback of troops. Putin warns that Russia’s next moves in the standoff will depend on how the situation evolves.

Ukraine has also expressed scepticism about Russia’s statements of a pullback. “We won’t believe when we hear, we’ll believe when we see. When we see troops pulling out, we’ll believe in de-escalation,” Ukrainian Foreign Minister Dmytro Kuleba said.

NATO Secretary-General Jens Stoltenberg said that “so far, we have not seen ... any signs of reduced Russian military presence on the borders of Ukraine,” adding that the alliance wants to see a “significant and enduring withdrawal” of forces, troops and heavy equipment.

US president Biden said, “let there be no doubt: If Russia commits this breach by invading Ukraine, responsible nations around the world will not hesitate to respond.''

European markets will be acting on headlines related intelligence that may or may not show any actual evidence of a reduction of Russian military presence on the borders of Ukraine, the latter a catalyst for yet further risk-off.