Equities rise, US futures decline as oil prices climb

Russian stocks markets and rouble rebounded as the sanctions from UK, Europe and US turned out to be less severe. The benchmark MOEX index surged 22% after losing 46% the day before, while rouble strengthened by 5% to 82.86. Russia’s 5-year CDS still quite high at 917. The US sanctions were the toughest yet on Russia and included top Russian banks and influential individuals, as well as technology imports. However, US held off from switching Russia from the Swift and did touch Russia’s energy trade. Two Russia’ biggest lenders: Sberbank and VTB PJSC were hit with full blocking sanctions. In response, Russian Central Bank said it is ready to support targeted banks and will help with liquidity in both roubles and foreign currencies. Russian Central Bank will also raise the limit on its repo auction to 3 trillion roubles. Yields on Russia’s 10year rouble bonds climbed to 12.53%, a 265-bps rise in the week. Russian bonds continue free fall with benchmark Russia 47s trading around 56% of its value.

The Russia/ Ukraine crisis and sanctions imposed on Russia by the west created more uncertainty in the markets and outlook for global economic recovery.  The S&P 500 rose 1.5% to close at 4,288.70 while Nasdaq 100 climbed 3.4% to close at 13,473.59 as wall street traders bounced back from the previous day’s bearish market. Crude oil prices rose as WTI oil price increased by 2.1% to close at $94.76 per barrel. The demand for haven assets persisted as Gold was at $1,918.22 an ounce, up 0.8% while the yield on 10-year USTs dropped 2bps to 1.94%.  This morning US futures declined as investors remained cautious over the consequences of Russia’s invasion of Ukraine. S&P 500 futures fell 0.7% while Nasdaq 100 futures dropped 0.9%. President Joe Biden imposed stringent sanctions on Russia and promised to inflict a “severe cost on the Russian economy” which will stifle its ability to do business in foreign currencies”. Meanwhile, the Fed officials are still persistent on raising interest rates next month in spite of the uncertainty surrounding the conflict.

Bunds opened weaker as the Ukraine situation continues to evolve with 10Y yields about 2bps higher having closed 0.172% on Thursday. The benchmark bonds had pared some 5bps off session lows as market sentiment improved slightly on reports that SWIFT disconnection for Russian banks was not going to be on the cards for sanctions which were announced later. Peripherals about flat after a late rebound on Thursday; 10Y BTP yields at 1.744% at 8.45GMT having traded as high as 1.869% on Thursday. Equities, which closed in the red yesterday, opened firmer with the DAX up 0.50% at 08.10GMT.