Stocks fall, oil jumps amid Ukraine tensions

The Russia/Ukraine crises continue to create uncertainties in markets as oil prices trended upwards. This borders around sanctions that may be imposed on Russia by US and its allies if all diplomatic avenues to address the issue fails. Prices of US Equities and stocks in other parts of the world continued southward, however there was some retracement In fixed income Market as yields trended downwards from 1.96% to 1.93%. The US Fixed income Market may eventually see yields rise even after the Russia/Ukraine crisis subsides as traders go back to analyse the impact of economic growth and inflation in the markets. S&P 500 dropped from previous level of 4,553.24 to close at 4,418.64. NASDAQ dropped from 14,228.68 to 13,791 while the 10-year US Treasury rates rose from 1.93% to close at 1.96%.  TOPIX also fell from 1,962.61 to 1,938.03. Gold prices dropped from a previous level of $1,864 to close at $1, 859 per ounce as WTI went up to close at $94.35 a barrel.

Rates rallying at the open as investors flock safe havens in the face of the tense situation between Russia and Ukraine; 10Y DBRs some 10bps down from Friday’s close. The pushback against the market on rate hikes also intensified over the weekend with Irish central bank chief Gabriel Makhlouf saying that a rate hike in June by the ECB is unrealistic. Peripherals continue to hold firm as well despite the negative sentiment with European equities in the red; 10Y BTP yield some 5bps lower than Friday’s close.

After some CPI numbers induced selloff in the LATAM space on Thursday (that with the numbers coming at a whopping 7.5%, the bonds turned quickly sour reprising a more hawkish expectations about the path of US interest rate hikes), the bonds were further beaten down on the risk-off sentiment spurring from the Russia-Ukraine tensions, both leading to quite a disappointing performance of the LATAM sector on the week. BRAZIL and COLOM were the outperformers of the week, down only around -1.5 and -0.5 points respectively in the long end, while MEX, CHILE, PERU and URUGUA were all -2-3.5pts lower on the week. Even stronger oil at 96$/barrel did not hold up the market as both PETBRA and PEMEX traded down, both -70-80c in the long end. To watch out for this week will be the meeting of Brazil’s president Bolsonaro with Putin this week, that’s happening on Wednesday despite the growing tensions between Russia and the West, that officially will focus on trade relations as well as Russian investments in hydrocarbons and infrastructure in Brazil.

On Friday’s meeting CBR hiked the key rate another 100bp to 9.50%, as most experts expected. The hike came amid a persistently high inflation for the last 3 months with the last print at 8.7% in January, to rise the key rate at 100 bp from 8.5% and guidance for 2022 to a wide range of 9.00-11.00% on average. Given the measures, CBR expects inflation to moderate around 5.0-6.0% y/y by end of 2022. The expected growth of GDP remained unchanged for 2022 (at 2-3% y/y), however the GDP outlook for 2023 decreased to 1.5-2% y/y with back to growth at 2-3% y/y for 2024. CBR does not rule out further significant tightening of monetary policy including at the upcoming meeting but would also look at more moderate policy options. Russian money market reaction was neutral, USDRUB had been trading at 75 lvls for the first half of the day, MICEX was trading at level 3550, Russia 47 at 109.5, but the situation quickly turned in the second half of the day on the back of geopolitical headlines. White House press-conference that stated that the invasion of Russian troops into Ukraine was supposedly allegedly scheduled for February 16th sent USDRUB north to 77 levels, Russia 47 fell from 109 to 107 lvls to end the day and even lower with trades at 104 level today, it’s the lowest price since March 2020.
Throughout the day, European officials announced the recall of their employees from diplomatic missions and recommended their citizens to leave Ukraine. The threat of a full-scale war in Ukraine and possible sanctions against Russian banks and oligarchs remain the main reason for pressure on the Russian public debt and currency, despite the highest oil Brent price of 95$, since 2014. The past telephone conversations on Saturday, between the presidents of Russia vs USA and Russia vs France, also the arrival of German Chancellor Olaf Scholz to both sides – UA (today) and Russia (tomorrow) could leave some hope for a de-escalation of the crisis.