CBR introduced today a 30% brokerage commission for buying foreign currency to hold back a further collapse of the rouble. Despite of these measures, RUBUSD has fallen from 109 to 117. MICEX remains closed in the last three days. Global ratings agencies Fitch and Moody’s downgraded the Russia’s sovereign credit rating to “junk”, citing the severity of international sanctions in response to Russia’s invasion of Ukraine. Fitch has downgraded Russia’s credit rating by six notches to “B” from “BBB”, while Moody’s has downgraded Russia’s credit rating to “B3” from “Baa3” amid growing macro-financial stability risks due to international sanctions. The focus today is on the second round of talks between Russian and Ukrainian officials, which are expected to begin this afternoon. Russian news agencies reported earlier that Russia’s negotiators expect Ukrainian officials to arrive at Belarus to kick off the next round of peace negotiations.
FED Chair Jerome Powell’s statement on monetary policy tightening sent stock prices northward yesterday. S&P 500 rose 1.9% to 4,386.54, while Nasdaq 100 rose 1.7% to 13,752.02. At the same time crude oil prices continued to rise due to Russia’s ongoing assault on Ukraine with WTI hitting $114.56 per barrel. Powell reiterated to U.S. lawmakers his support for a calculated Fed interest-rate hike and inflation monitoring while stating that the US economy can cope with a higher cost of borrowing. Impending short falls in resources such as energy, grains, and metals due to sanctions imposed on Russia for the invasion continue to be a cause for concern for traders. Haven demand activated by the war has slightly eased. The 10-year UST yield was at 1.85% while Gold was stable at $1,928.18 per ounce. Powell expressed support for a quarter-point Fed rate increase later this month and stated that the FED may have to take drastic measures if price pressures persist. US Dollar remains strong with DXY at 97.55. Russia/Ukraine headlines will continue to be in focus today, while data wise, US will publish initial jobless claims, ISM services, Factory Orders and Durable goods. Powell will have a Q&A testimony before the Senate.
A rather flattish start in the SSA sovereign space except for the GHANA curve which is down c.30pts as it continues to be the weakest link in the space. As markets continue to take in the continued tensions between Russia and Ukraine, oil prices have continued surging as the tensions drive supply fears despite the last release of 60 million barrels from the emergency oil reserves of member countries of the International Energy Agency. This has been viewed by many as a mere drop in the ocean of what would be needed to deal with potential war-linked disruptions. OPEC+, made up of the Organization of the Petroleum Exporting Countries and its allies, including Russia, offered no surprises at its monthly meeting. They agreed to boost production in April by another 400,000 barrels a day, but oil prices have remained above $110/bbl. and could possibly head for $120/bbl. before close of trading today (already up 2.47%-Opening = $115.05/bbl.; Current = $117.85/bbl.; Highest level touched so far = $119.84/bbl.). The surge in oil prices usually come as positive news to most of the oilers in and around SSA but with flight of investment into safe havens from EM, this continued rise in yields we have witnessed in the past week, could linger on, bearing in mind expected hike in rates by the FED this March may bring about another round of volatility in the SSA sovereign space.
After a slight improvement yesterday, European markets have opened in a negative territory with Euro Stoxx 50 down 0.3%, FTSE 100 falling 0.13% and DAX dropping 0.6%. European gas jumped to a fresh record as the market continues to focus on sanctions on Russia in response to Ukraine invasion. Dutch front-month futures rose 20% to 198 euros, while UK equivalent gained 17%. Bunds prices are off today again with 10-year yield up at 0.04%. ECB speakers turned dovish with Lane suggesting that ECB would be more open to look at the upwards impact on inflation from Russia/Ukraine crisis. Currently, the market is still pricing 21 bp of hikes from the ECB by year-end. We get PMI data today and ECB minutes of the February meeting, but the focus remains on geopolitical developments. EURUSD is down at 1.1076.