US stocks weakened, and Bonds yield went northwards on the likelihood of a rapid lowering of the Feds debt holdings as part of an accelerated drive of monetary tightening to control high inflationary pressures. The S&P 500 was at 4,525.12, down 1.26%, Nasdaq 100, down 2.26% at 14,204.17 while Dow closed 0.80% lower at 34,641.18. The yield on 10-year UST’s rose by 6pbs to 2.61%, a level that was last seen between 2018 and 2019. Gold considered a haven asset fell 0.2% to $1,920.00 an ounce. WTI crude was relatively stable at about $102 per barrel but there are still concerns that Russia’s growing seclusion over the war in Ukraine may further interfere with the flow of commodities. Fed Governor Lael Brainard reiterated yesterday that fighting inflation is of utmost importance and the central bank may start offloading its balance sheet swiftly starting from May. Investors are worried that a more Hawkish U.S. central bank could send the economy into a decline, or even a recession. The resurgence of Covid virus in Asia, the ongoing war in Ukraine and fresh sanctions imposed on Russia are also blurring the outlook for commodity prices and economic growth.
US, European Union, and Group of seven are discussing a new round of sanctions on Russia. New sanctions may include US ban on investment in the country and an EU ban on coal imports. So far White House has confirmed that new sanctions will include a ban on new investment in Russia and increased sanctions on financial institutions and state-owned enterprises. EU wants to ban import of Russian fertilizers, timber, rubber, vodka and restrict the export of semiconductors and special equipment. IMOEX lost 4.5% on the news and is now trading around 2650. Russian Sovereign bonds also remain under pressure with Russia 28 at 31 and Russia 47 at 19. Rouble appears to be higher with USDRUB currently at 83.30, but there are capital restrictions in place, and this may not reflect a true picture. Steel producer Evraz Plc was able to pay coupon on EVRAZ 24 in a timely manner, the coupon was received by the BNY Mellon in full. A few Russian companies, including CRBKMO 27, RURAIL 22, SIBUR 23, were due to pay off their debt yesterday. Analysts believe that Russian companies might offer to buy back their bonds in roubles. The Russian Services PMI fell in March from 50.8 to 38.1, the strongest decline in business activity since the beginning of Covid Pandemic in March 2020.
Bunds opened weaker following the trend from yesterday. The 10Y touched a high of 0.665% before dropping to close at 0.614%,5bps down day-on-day. Peripherals mirrored the move on bunds with a weak open; 10Y BTPs yields went as high as 2.239% before retreating to close at 2.172%, 7 basis points firmer. Stocks opened lower; the Stoxx 600, opened lower at 458.24 compared to previous sessions closing of 463.07. Focus remains on ECB Minutes later today.
The space opens weaker amid continued hawkish rhetoric from the Fed, the latest being Lael Brainard – a dovish member – stating that the balance sheet will be reduced “at a rapid pace” as soon as the May meeting. The subsequent selling in treasuries – 10Y is some 20bps higher than Tuesday’s low – ultimately weighing down with only ZAMBIN (+.125) showing some semblance of a resistance; ZAMBIN has been the form name this week, up some 1.5pts so far. KENINT (-0.625) and NGERIA (-0.50) leading losses at the open.