U.S. stocks dropped over uncertainty regarding the ongoing war in Ukraine coupled with FED’s intention to fight rising inflation aggressively. The S&P 500 fell 1.2% to 4,456.24, Nasdaq 100 declined 1.4% to 13,922.60 while DOW dropped 1.29% to 34,358.50. Oil prices retracted based on news that the U.S. and EU are on the brink of closing a deal targeted at reducing Europe’s dependence on Russian crude. Consequently, WTI fell 0.9% to $113.84 per. The yield on 10-year UST’s rose 5pbs to 2.34% as investors continued to consider the risks of rising inflation and the effect of the war in Ukraine on the global economy. Markets are still concerned over federal reserve’s stance on tackling the fastest inflationary pressures in 40 years. Commodity price shocks due to the war in Ukraine, uncertainty over the resolution of the conflict and effect on the global economy has left investors grappling to pick out haven assets. Gold slid 0.3% to $1,938.20 an ounce. Investors are hopeful that the FED will be able to defend the economic and at the same time be able to reduce interest rates later if these rate hikes have a greater-than-predicted recessionary impact.
Bunds firmed on Wednesday as rates consolidated from Tuesday highs; the move was helped by lower gilt issuance which saw UKTs rally and spill over to the other core rates. 10Y DBRs shed 3.9bps to close 0.466% and open about flat. Peripherals also moved firmer with 10Y BTPs down 3.9bps to close at 1.892%; the same open steady as well. Equities also sold off after seeming to continue their ascent at the open with the Stoxx 600 shedding 1.01% on the day; the index opens not much moved, up 0.10% at 08.20GMT. On the data front we have Eurozone PMIs where market broadly expects readings to move lower, albeit in expansion territory (above 50).
MICEX has opened its stock market section today for the first time since February 28. In a volatile trading session IMOEX gained around 8 % and is trading now at around 2650.Following Putin’s statement that Russia would sell gas to unfriendly countries in roubles, RUBUSD rose from 103.5 to 96.5. EURRUB has also strengthened by more than 10 roubles, from 117 to 106.5. RUSSIA 28 is currently trading at around 35 down from Wednesday’s 40, while RUSSIA 47 is down to 18 from 23. Corporate bonds have also lost value with GAZPRU 8 ⅝ 2034 at 39 versus 44 yesterday and LUKOIL 3 ⅞ 2030 at 55 down from 50. Meanwhile, Russian issuers have major issues making payments in a foreign currency. Severstal PJSC has confirmed that the coupon payment for CHMFRU 3.15 2024 was frozen by their correspondent bank due to regulatory investigations. Russian companies are now looking to initiate applications for licenses from the relevant competent authorities for an uninterrupted processing of payment instructions. This Thursday Joe Biden is scheduled to meet with NATO’s allies and will discuss blocking Russia’s gold reserves and exclusion Russia from the G20.
A somewhat flat to sluggish session we experienced in SSA yesterday with GHANA & ZAMBIA seemingly taking the headlines in the space. It has been reported that Zambian government had some progress talks with the IMF on plans to secure an economic program sometime in the middle of the year (c. June/July). It is worth noting that the Zambian government needs to agree with creditors to restructure as much as $17.3 billion in external debt to get IMF’s board approval for the program. Yields on their longest maturity (ZAMBIN 8.97 07/30/2027 REGS Corp) have dropped at least c.2bps since market opening today on the back of this new development. As for the GHANA space, following the fallout from the party meeting held last weekend, the finance minister announced spending cuts to meet the country’s deficit target alongside other measures to meet a unified deficit target of 7.4% of gross domestic product this year from an estimated 12.1% of GDP in 2021 which we must say was taken positively as the space got flooded with loads of street buyers emerging post the headline. Yields on the GHANA curve dropped as much as c.120bps after this announcement was made and this has continued well into today’s trading as the space is up at least c.+50pts.