Asset havens such as gold and fixed income dropped while U.S. stock futures rose as planned meeting between the US & Russian governments toned down some investor concerns over geopolitical risks. The likelihood of a meeting shifted the focus of investors away from safer investments, sending 10-year Treasury yields up by 2 basis points to close at 1.98% and bringing Gold down an ounce to $1,892.11, below $1,900 (a level it only crossed in the last 8 months). As traders analysed the potential return of supply from Iran, crude oil prices declined as WTI closed at $91.28 down 0.5%. Bets on a sharper Fed interest-rate hike next month have eased a bit considering geopolitical tension. However, investors continued to be upset by how markets cope as stimulus abates. Fed Bank of Cleveland President Loretta Mester said she supports raising interest rates next month and tightening policy at a faster speed to curb inflationary pressures if there is a need to. S&P 500 futures rose 0.5% and Nasdaq 100 futures rose 0.6%.
Bunds open mostly steady following yesterday’s rally; 10Y DBRs firmed 4.5bps to close 0.231% as geopolitics maintained centre-stage. ECB chief economist Philip Lane continued to push the gradualism rhetoric in respect of normalising policy but acknowledged that the era of ultra-low inflation may be past even post-pandemic. Peripherals open weaker having rallied yesterday as well – 10Y BTPs shed 7bps to close about 1.753%. The euro closed weaker at $1.1361.
A bit of a muted opening in and around the SSA sovereign curve this morning after yesterday’s sell-off midway into the U.S opening. Prior to the U.S opening, NGERIA seemed to be looking like major gainers, until a flurry of sell-offs saw the average yields on the curve up c.6bps into closing, compared to GHANA which had opened relatively flat and stayed that way all day before closing down c.25pts. So far, rising rates in U.S seem to be the main contributor to the volatility witnessed so far amongst the SSA sovereign curve despite the gains (c.9.75% + in BRENT) seen in oil prices so in 2022 and this seems yet to continue as go into the last bit of Q3 with another expected hike. We seem to be heading into the close of the week, same way we kicked off with a muted session in SSA. The likes of NIGERIA, GHANA & ANGOL have all opened at least -.125pts down so far heading into trading and that seems unlikely to change.
LATAM market’s positivity the day before did not hold up yesterday as the global risk off sentiment as well as the expectations of some primary supply continued to hit the market. The bonds were overall relatively flat to lower on the day despite a prominent UST move with a clear winner being the new DOMREP bonds issued earlier on Wednesday. Both DOMREP 29s and DOMREP 33 were seen trading at more than 1pt above reoffer, however still ended the day slightly lower at around +50c. CHILE and PERU were also in the green with the long end up 10-20c on the day with most of the demand reported from Asian accounts. MEX and BRAZIL were flat to -15c lower on the day, while COLOM was the underperformer, with the long end down 50c on the day, despite the reported record growth numbers for 2021 of 10.6% earlier in the week. PEMEX and PETBRA also traded lower together following the sliding oil, with bonds down -50c and -20c respectively in the long end.
Thursday trading was dominated by the news of military incidents in Donbass region of Ukraine. The market reacted with a significant decline in all key indicators. MICEX lost more than 3.5%, returning to level seen beginning of the week of 3500 points, RTS fell by almost 5% to the level of 1450. CDS 5Y rose sharply from 220 points to above 250 points (back to 5-year highs). The apogee of yesterday’s claims between West and Russia was the news about the expulsion of the US Deputy Ambassador Bartle Gorman from Russia. RUBUSD fell to 76.30 level from 75.25 the day before, RUSSIA 47 showed a noticeable decrease more than 3 figures to 104.5 lvl from 107.5. This morning optimism has returned to the market with MICEX up 0.9%, RUSSIA 47 at 106 mids and RUB/USD at 76 down 30 kopeks.