Market movers today
Everything is still about the Russian invasion of Ukraine and we continue to expect volatile markets near-term. Today, the peace negotiations between Russia and Ukraine continue but with the war continuing we are not sure they will be successful. Markets are seemingly stabilising but risk sentiment remains fragile to any negative news.
Besides that Fed Chair Jerome Powell testifies before lawmakers today. We expect him to signal that tightening is still needed despite elevated uncertainty. Rising commodity prices do not make things easier for the Fed.
Preliminary euro area HICP inflation in February is due out today. We expect inflation accelerated to 5.9% y/y but focus right now is on possible negative consequences on the euro area economy from the Russian invasion and Western sanctions.
Today ECB’s chief economist Lane will speak at 17:00 CET on the outlook for the economy, inflation and monetary policy. This is the last chance ahead of next week’s ECB meeting to guide markets, as the silent period starts tomorrow.
OPEC+ meets today and looks set to raise output by another 400kb/d.
Danish FX reserves data for February are due out at 17:00 CET.
We expect Bank of Canada to hike the policy rate to 0.50% today, which is also the consensus view.
The 60 second overview
Markets stable overnight: Financial markets have not moved much overnight after risk appetite took a hit again yesterday with especially European equities down and German 10-year yields falling more than 10bp. EUR/USD is broadly flat after dipping below 1.11 yesterday. Oil prices have continued higher reaching USD110 per barrel Brent oil in Asian trading.
Russia/Ukraine war: Russian forces are stepping up their attack on Ukraine and according to Pentagon 80% of troops amassed at the border before the attack has entered Ukraine. A military convoy stretching dozens of miles was heading towards Kyiv yesterday. British military officials said a column of heavy armour had moved to within 30 km of Kyiv. It carried rockets that can reach urban areas of the city.
More sanctions/boycotts: EU last night voted to exclude some Russian banks from Swift but spared the biggest bank Sberbank to ensure energy payments can be made, see Bloomberg. More companies have joined a boycott: Apple, ExxonMobil and Boeing are suspending sales and operations in Russia.
IEA members release oil reserves: The International Energy Agency (IEA) yesterday announced that its’ members will release 60 million barrels of oil to stem the rise in oil prices. They also said they will consider “possible additional emergency oil stock draws, as needed”. However, oil prices moved higher after the announcement as traders had expected a bigger release. As many banks and ship owners refuse to handle Russian oil at the moment an oil trader estimated around 70% of Russia’s oil exports are finding no buyers, see FT.
Biden State of the Union: Three themes dominated Biden’s State of the Union speech last night: Russia’s aggression against Ukraine, fighting inflation and the corona pandemic. He announced the US would be “closing off American airspace to all Russian flights” and warned of further sanctions saying about Putin “he has no idea what’s coming”.
Equities: Equities were lower yesterday with a more or less 100% war driven performance. Energy the only sector higher yesterday as the oil price exploded upwards. Europe have the closest ties to Russia and hence no surprise to see European equities underperforming as the war in Ukraine intensifies and uncertainty increases. Defensives continue their massive outperformance of cyclicals. Despite lot of action in equities, the main focus should actually be on bond markets yesterday as the flight to safety made high rated government bond yields plunge across the curve. Banks took another heavy beating with the massive drop in bond yields. VIX ticked higher, closing the day just north of 33.
In US yesterday Dow 1.8%, S&P 500 -1.6%, Nasdaq -1.6% and Russell 2000 -1.9%. The negative sentiment continuing in Asia this morning with most markets being lower. US futures are a little higher this morning just as US bond yields. The picture in Europe is a little more mixed.
FI: It was another dramatic day in the global bond markets as yields “collapsed” with the 10Y German government bond yield declining some 21bp and the German ASW-spreads continued to widen. Hence, it looks as the traditional safe-haven flows whether Bunds and Treasuries outperform other government bonds. However, 10Y BTPS rallied some 30bp and the spread has tightened some 20bp since last week. We expect that the spread tightening is partly due to the expectations that ECB will postpone the rate hike as well as continuing the QE (we still believe in the rate hike in late Q4). This was also seen by the comments from ECB’s Rehn, that ECB should not exit stimulus before assessing the impact of the war.
FX: EUR/USD continued lower yesterday and is trading close to 1.11 this morning. Oil prices have hit USD110/barrel, which is a headwind for EUR. CHF is benefitting amid elevated uncertainty and tough sanctions and EUR/CHF is now below 1.0220.
Credit: The Russian invasion of Ukraine and yesterday’s added rhetoric on escalations of both sanctions and threats caused the risk appetite in the credit market to remain very low. Itraxx main widened 4.6bp to 75.6bp while xover widened a full 33.4bp to 278.5bp. Cash remains illiquid and bonds from companies with Russian exposure struggles to find any bids.
