Equities fall as bonds yields rise on inflation risk

Stocks fell, and Bonds yields rose as investors’ concerns grew over the inconclusive meetings of a possible ceasefire and FED’s intended hike in interest rates to curb inflation. The S&P 500 fell 1.3% while Nasdaq 100 dropped 2.1%. The yield on 10-year UST’s rose 4pbs to 2.04%. The Federal Reserve is expected to begin a cycle of rate increases this week, starting with a 25 basis-points move. Price pressures were already there before the crisis and the isolation of resource-rich Russia stifled commodity flows. Crude oil prices dropped while remaining above $105 a barrel. Demand for haven assets diminished with Gold falling 0.7% to $1,973.79 an ounce. Investors continue to monitor current events as the FED struggles to strike a balance between moderating the effect of inflationary pressures and stabilizing the economy. The FOMC rate decision is expected on Wednesday.

Bunds open weaker following Friday’s comparatively muted session volatility-wise; the 10Y touched an early low of 0.290% having closed at 0.249% on Friday. Peripherals also moving weaker with 10Y BTPs touching 1.814% in early trading having closed at 1.7677%. Equities open firmer after Friday’s recovery amid some signs of progress on talks on the Russia/Ukraine front; the Stoxx 600 was up 0.839% at 08.09GMT.

The Ministry of Finance of Russia approved a temporary procedure today for state debt payments in foreign currency. Western countries have frozen about $300 billion of Russia’s reserves. Moscow will pay unfriendly countries in rubles until the West unfreezes these reserves. Next coupon payment is expected on March 16, when Russia is due to pay a $3 billion on sovereign Eurobonds. The CBR will keep MICEX closed from 14 to 18 March. The Central bank has also decided to set the official USDRUB course based on MICEX data on the weighted average rate. The next round of talks between Ukraine and Moscow may take place today via a video conference and is due to start at 10:30 Moscow time. Ukrainian officials noted that there has been a significant progress and negotiations will focus on ceasefire and troop withdrawal. RUBUSD rose 3.5% from 118.5 to 114 level on this news. Separate talks between the US and China will also be held on Monday, as concerns grow over the possibility of Beijing sending aid to Russia.

A rather flat start to the SSA sovereign space this morning after being dragged down on Friday by the risk-off mood driven by a couple of factors which include expected rise in inflation and the continued crisis in Russia-Ukraine. Market moves this week (Wednesday) will likely be driven by the FED’s expected announcement to raise interest rates at its meeting to stamp out the highest inflation in years, while trying to avoid causing a recession by raising rates too high or too quickly. Oil’s recent rally seems to have cooled off after falling c.3% as participants trimmed their positions on low demand.