Russia’s air attacks on Ukraine cost Moscow an estimated £1.1 billion, while Ukraine remains vigilant amid troop buildup on its border with Belarus. Market reaction has seen the gold price (XAU/USD) trading 0.12% lower at $2,518. Learn more about risk sentiment in financial markets below.
Understanding Risk Sentiment in Financial Markets
Investors often refer to “risk-on” and “risk-off” market conditions to gauge their appetite for risk. In a “risk-on” market, investors are optimistic and willing to invest in riskier assets, while a “risk-off” market signals caution and a preference for safer investments. These market conditions can impact various asset classes differently:
- During a “risk-on” market, stock markets and most commodities (except Gold) typically rise, as investors anticipate positive growth. Currencies of commodity-exporting nations, like the Australian Dollar (AUD) and Canadian Dollar (CAD), also strengthen due to increased demand.
- In a “risk-off” market, assets like Bonds and Gold tend to perform well, along with safe-haven currencies such as the US Dollar (USD) and Japanese Yen (JPY). These currencies are favored for their stability during uncertain times.
Understanding risk sentiment can help investors navigate volatile market conditions and make informed decisions based on the prevailing market sentiment.