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MNI US OPEN: Russia-Ukraine Fears Weigh Heavily On Stocks

EXECUTIVE SUMMARY:

  • G7 FINANCE MINISTERS THREATEN MAJOR SANCTIONS AGAINST RUSSIA
  • KREMLIN SAYS DOESN'T SEE UKRANIAN ENVOY'S COMMENTS RE NATO AS OFFICIAL CHANGE IN POSITION
  • EUROPEAN ENERGY PRICES JUMP ON MOUNTING TENSION OVER UKRAINE
  • KC FED PRES GEORGE: 50BP POSSIBLE BUT NO INTER-MEETING HIKE (WSJ)
  • STAIKOURAS SAYS GREECE WILL REPAY FINAL IMF LOANS BY END-MARCH (RTRS)

Fig. 1: Stocks Tumble On Geopolitical Concerns


Source: BBG, MNI


NEWS:

UKRAINE-RUSSIA-G7: G7 finance ministers have releaseda joint statement, declaring that, "The ongoing Russian military build-up at Ukraine’s borders is a cause for grave concern. We, the G7 Finance Ministers, underline our readiness to act swiftly and decisively to support the Ukrainian economy, while also supporting the ongoing efforts to urgently identify a diplomatic path towards de-escalation."

  • "Our immediate priority is to support efforts to de-escalate the situation. However, we reiterate that in particular any further military aggression by Russia against Ukraine will be met with a swift, coordinated and forceful response. We are prepared to collectively impose economic and financial sanctions which will have massive and immediate consequences on the Russian economy."
  • Statement comes as concerns over a Russian invasion of Ukraine reach fever-pitch. Massed Russian forces on Ukraine's borders viewed as being able to launch an incursion at any point given supply lines and stocks of fuel, medical equipment etc. established among deployed troops.
UKRAINE-RUSSIA-NATO (RTRS): The Kremlin on Monday said it did not view comments from Kyiv's envoy to London as signalling an official change in Ukraine's position on wanting to join NATO, but said it would significantly help address Russia's security concerns if Kyiv did renounce its intention to become an alliance member. Ukraine's ambassador to Britain on Monday clarified earlier remarks about possibly dropping a bid for NATO membership, saying that the former Soviet republic would not be reconsidering its attempt to join the military alliance.
UKRAINE-RUSSIA (BBG): State Duma, the lower house of the Russian parliament, like won’t send an appeal to President Vladimir Putin to immediately recognize separatists entities in eastern Ukraine, Vedomosti reports, citing two unidentified people familiar with discussions. Preferable option at the moment is to send the draft resolution to government agencies, including the Foreign Ministry, for feedback.
EUROPE ENERGY (BBG): European natural gas and electricity prices jumped more than 10% after the U.S. said Russia could soon invade Ukraine or try to spark conflict inside its borders. An escalation risks worsening Europe’s energy crunch, potentially hitting supplies of gas and oil -- and raising the specter of blackouts. Russia is Europe’s top source of natural gas, with about a third of its exports flowing through Ukrainian pipelines. And Europe’s storage facilities are already running low, with prices four times higher than normal for this time of year.
EUROPE STOCKS (BBG): Banking shares are among the worst performers in Europe Monday, as markets retreat broadly on Ukraine tensions.The Stoxx 600 Banks Index drops as much as 4.6%, the most since November, trimming this year’s gain to ~9%. All 39 members of the subindex are in the red.
FED (WSJ): KC Pres George, who's among the most hawkish FOMC members, tells the WSJ in an interview conducted Friday/published this morning that she's uncertain about the path ahead for rates. Given the hawkishness of the source, her comments appear to be a dovish rebuttal to currently hawkish market pricing. She tells the WSJ that she hasn't yet decided how much the Fed needs to raise rates this year, but says their policy is "out of sync" w economic conditions. And that it's too early to say whether the FOMC should hike 50bp in March though that market pricing, if still in place by the meeting, "paves the groundwork for discussion". She also tells the WSJ the Fed has to be "systematic" and "it is always preferable to go gradual", and "I'd be hard-pressed to say we have got to get to neutral really fast". She says that inter-meeting moves are reserved for emergencies, which doesn't apply to the current situation.
GREECE - IMF (RTRS): Greece will repay the final tranches of bailout loans owed to the International Monetary Fund by the end of March, two years ahead of schedule, Finance Minister Christos Staikouras told Reuters on Monday. "Greece has officially submitted a request for the full repayment of the outstanding balance of its IMF loans. The relevant procedure has been launched and is expected to be completed at the end of March," he said.
ECB: The effect of declining global value chain participation on overall potential euro area output would be of a limited magnitude, according a newly-released ECB Economic Bulletin box on the effects of persistent supply chain disruptions on output. Both potential output and trend total factor productivity suffering a loss ranging from -0.1 and -0.3 percentage points, but should be seen in the context of expected trend total factor productivity growth of 2.1% between 2021 and 2023, according to the European Commission’s Autumn 2021 Economic Forecast. However some EA countries may be more negatively impacted on total factor productivity and potential output if trade turns out to be lastingly affected by the Covid-19 pandemic.
ECB: Most of the difference between overall inflation rates in the US and EU in 2021 can be attributed to the far stronger increase in inflation excluding energy and food, a study published the latest ECB Economic Bulletin today concludes, with rents also playing a greater role in driving US inflation excluding energy and food. Greater upward pressure on US wages is consistent with a tighter labour market, with the ahead in the business cycle. Upside surprises to inflation data have been greater in the US than in Europe, leading to greater uncertainty around the outlook for inflation in the United States than in the euro area.

BANK INDONESIA (MNI INSIGHT): Indonesia’s central bank is forecasting higher growth and inflation as conditions combine with the likely impact of tightening policies from developed world central banks to drive a likely rate rise later this year, MNI understands. For full article contact sales@marketnews.com

HONG KONG / COVID (BBG) :Hong Kong’s daily virus cases topped 2,000 for the first time, with the worsening outbreak throwing the city’s Covid Zero push into disarray. Health authorities announced 2,071 cases on Monday, as well as 4,500 preliminary infections. Cases have exceeded capacity at Hong Kong’s public hospitals, health officials have said, adding they will now shift to prioritizing care for the elderly and children who get Covid. Authorities said thousands of people are waiting to be hospitalized and a backlog at its testing facilities means there is a delay in confirming positive cases.


DATA:

No key data releases in the European morning.

FIXED INCOME: Core bond futures higher across the board

Core bond futures are higher across the board this morning as markets react to continue political uncertainty in Ukraine.

  • Bunds are outperforming, as there have also been some comments from ECB policymakers over the weekend leaning against rate hikes.
  • Fed's George seems opposed to an inter-meeting hike and despite saying a 50bp hike is possible in March, that she's uncertain about the path ahead for rates - comments that are relatively dovish for one of the FOMC members who is considered to be on the hawkish end of the spectrum.
  • ECB's Lagarde is due to address the European Parliament later this afternoon in comments that will be closely watched.
  • TY1 futures are up 0-7+ today at 126-20 with 10y UST yields down -2.0bp at 1.921% and 2y yields up 2.2bp at 1.527%.
  • Bund futures are up 0.91 today at 165.86 with 10y Bund yields down -7.4bp at 0.220% and Schatz yields down -5.7bp at -0.391%.
  • Gilt futures are up 0.36 today at 120.31 with 10y yields down -4.5bp at 1.498% and 2y yields up 1.4bp at 1.421%.

FOREX: Havens Favoured as Markets Watch Russia/Ukraine Clock Ticking

  • Haven currencies are outperforming early Monday, with markets starting the week on an acutely risk-off footing. The blunt and direct warnings from US leaders late last week that we're approaching a crunchpoint in Russia/Ukraine talks (US intelligence suggested a full invasion could occur as soon as Wednesday) continues to roil markets, putting JPY and CHF at the top of the G10 pile.
  • Resultingly, growth proxies are on the backfoot, with AUD, NZD, SEK and NOK slipping lower and reversing recent recoveries. German Chancellor Scholz is the next world leader headed to meet Putin, in the latest part of the Western attempt to de-escalate tensions - despite insistence among both Kiev and Moscow representatives that the situation on the ground is somewhat more placid.
  • The data docket is typically quiet for a Monday, with no major releases due. This should keep focus on the speaker slate, with Fed's Bullard appearing on CNBC at 1330GMT/0830ET. His comments will be watched particularly closely given his outright hawkishness last week, in which he brought up the prospect of both a 50bps rate hike, as well as the possibility of an inter-meeting hike. ECB's Lagarde follows later in the day, speaking at 1615GMT/1115ET.

EQUITIES: Russia-Ukraine Fears Fuel Equity Drop

  • Asian equities closed lower: Japan's NIKKEI closed down 616.49 pts or -2.23% at 27079.59 and the TOPIX ended 31.96 pts lower or -1.63% at 1930.65. China's SHANGHAI closed down 34.066 pts or -0.98% at 3428.882 and the HANG SENG ended 350.09 pts lower or -1.41% at 24556.57
  • European equities are falling sharply, with the German Dax down 551.92 pts or -3.58% at 14885.38, FTSE 100 down 159.85 pts or -2.09% at 7525.46, CAC 40 down 231.71 pts or -3.3% at 6818.03 and Euro Stoxx 50 down 150.5 pts or -3.62% at 4011.94.
  • U.S. futures are weaker as well, with the Dow Jones mini down 359 pts or -1.04% at 34268, S&P 500 mini down 52.5 pts or -1.19% at 4357.25, NASDAQ mini down 197.75 pts or -1.39% at 14043.75.

COMMODITIES: Gas Prices Defy Broader Risk-Off Move

  • WTI Crude down $0.27 or -0.29% at $93.3
  • Natural Gas up $0.22 or +5.51% at $4.157
  • Gold spot down $1.1 or -0.06% at $1856.31
  • Copper down $4 or -0.89% at $447.25
  • Silver up $0.16 or +0.7% at $23.7501
  • Platinum down $6.46 or -0.63% at $1029.2


LOOK AHEAD:

DateGMT/LocalImpactFlagCountryEvent
14/02/20221600/1100**US NY Fed survey of consumer expectations
14/02/20221615/1715EUECB Lagarde Speech on anniversary of Euro at EU Parliament
14/02/20221630/1130*US US Treasury Auction Result for 26 Week Bill
14/02/20221630/1130*US US Treasury Auction Result for 13 Week Bill
14/02/20221630/1730EU ECB Lagarde Intro at ECB Annual Report 2020 Plenum
15/02/20222350/0850***JP GDP (p)
15/02/20220700/0700***UK Labour Market Survey
15/02/20220800/0900***ES HICP (f)
15/02/20221000/1000**UK Gilt Outright Auction Result
15/02/20221000/1100***DE ZEW Current Expectations Index
15/02/20221000/1100*EU employment
15/02/20221000/1100***EU GDP (p)
15/02/20221000/1100*EU trade balance
15/02/20221000/1100***DE ZEW Current Conditions Index
15/02/20221315/0815**CA CMHC Housing Starts
15/02/20221330/0830***US PPI
15/02/20221330/0830**US Empire State Manufacturing Survey
15/02/20221355/0855**US Redbook Retail Sales Index
15/02/20221400/0900*CA Home Sales – CREA (Canadian real estate association)
15/02/20221630/1130**US NY Fed Weekly Economic Index
15/02/20221915/1415USSenate Banking Committee votes on Federal Reserve nominees
15/02/20222100/1600**US TICS

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