Market movers today
The key driver for markets is still the ongoing Russian invasion of Ukraine and tough Western sanctions. New talks between Russia and Ukraine today. Markets are likely to stay volatile, as long as no peace is in sight.
Besides that it is a quiet day. We receive final PMI service indices from across the world today. Danish and euro area unemployment data are also due out.
Today we also get the ECB minutes at 13:30 CET from the February meeting. While parts of it is outdated given the war, the discussion around the hawkish pivot, in particular in light of the high January inflation print, will be interesting.
Fed Chair Powell’s testimony continues today but we do not expect any significant new information.
The 60 second overview
Powell signals 25bp hike in March: Fed chairman Jerome Powell yesterday said “I am inclined to propose and support a 25bp rate hike” in March but adding that “to the extent inflation comes in higher or is more persistently high than that, the we would be prepared to move more aggressively by raising the federal funds rate by more than 25bp at a meeting or meetings”. US 2-year yields rose around 20bp on the back of the comments and equities saw a move higher.
Oil shock continues: Oil prices continues to surge and hit USD118 per barrel Brent for a short while overnight. It currently trades at USD117 per barrel. It is a rise of USD50 compared to six months ago adding to the global supply shock from the war in Ukraine. Natural gas prices also jumped higher and is up more than 50% compared to a month ago. OPEC+ yesterday agreed to a rise in output of 400,000 barrels that was scheduled for April. With Russian oil exports of 5 million barrels per day severely curtailed, the increase is hardly enough to cool oil prices and there’s a risk the current oil shortage pushes up prices even further. The rise in energy cost is having spill-over to both metals and food prices contributing to the inflationary shock that is set to erode purchasing power and provide a headwind to consumer demand globally.
Russia/Ukraine war: The second-largest Ukranian city Kharkiv is suffering heavy bombardment while Russian troops were supposedly close to seizing the port city of Kherson in the South (see Reuters). The UN General Assembly denounced Russia over Ukraine invasion in a historic vote. 141 of 193 members voted for the resolution. China abstained saying the resolution did not undergo “full consultations with the whole membership” of the assembly and did not take “full consideration of the history and complexity” of the crisis. India also abstained and has chosen a path much similar to China in the crisis.
China “deplores outbreak of conflict”: China is trying to strike a middle ground and is probably the most likely candidate for a mediator in the crisis. It is not clear, though, that they have enough influence over Putin to stop the war. China’s foreign minister Wang Yi told his Ukranian counterpart Dmytro Kuleba, China is “extremely concerned” about the harm to civilians in Ukraine, in an indication China is leaning further against Putin’s war actions in Ukraine. He also said China “deplores the outbreak of a conflict between Ukraine and Russia”. Kuleba also said Ukraine was willing to strengthen communication with China and that it looked forward to China’s “mediation for the realization of the ceasefire”, according to the statement.
Equities: Equities rose yesterday as sentiment improved during the European and US cash trading session. Gains were broad based with the energy sector once again sticking out as oil price took another big step higher (and continuing this morning). Bond markets saw a huge turnaround from Tuesday with yields sharply higher not least at the short end of the curve. This mix of higher yields and rising optimism benefitting cyclicals and partly the banks. In US, Dow +1.8%, S&P500 +1.9%, Nasdaq +1.6% and Russell 2000 +2.5%. Looking at Asians markets this morning, it could look like any given day outside war with some small gains in Asian while futures in Europe and Russia are basically flat.
FI: European rates had a tough day yesterday as core rates sold off 10bp. The BTPs-Bund spread reversed a large chunk of the tightening from Tuesday, illustrating the very volatile market. Amid the record-high inflation print, we saw inflation linked products perform. We also saw the 10y German real rate touching record low of -2.5% during the day (yet it ended at -2.42%). In particular the 2022 fixings are now well above 6% for the coming half year. The high inflation pressure puts ECB in a tough position during next week’s meeting amid the uncertain outlook.
FX: EUR/USD moved sideways around 1.11 yesterday. EUR/CHF dipped temporarily below 1.02 yesterday, as CHF benefits in an environment with elevated geopolitical risk. EUR/GBP is now trading marginally below 0.83. Brent oil is now trading above USD117/barrel. Overall, markets seem to wait for news on where the war is heading and whether the West imposes more sanctions on Russia. Without major news over the past couple of days, things seem quieter right now, but this may change out of a sudden if the war eases/worsens.
Credit: The risk sentiment in synthetic credit indices improved slightly yesterday with iTraxx main some 0.9bp tighter and Xover 14.9bp tighter ending the day at 74.7bp and 362bp, respectively. The signals from actual cash bonds are less benign though with IG slightly wider and HY slightly tighter but both still under extreme illiquidity.
Nordic macro
We get service PMI in Sweden and unemployment figures in Denmark.
