U.S. equities declined as Dow Jones enters it’s first bear market since march 2020; treasury yield keeps soaring high

U.S. stocks declined on Monday with Dow Jones entering bear market since March 2020. Stocks came under pressure yesterday on worries about rising borrowing costs, while the surging dollar continued to wreak havoc around the world. Meanwhile investors heard from several Fed Reserves officials like Susan Collins, the new president of the Boston Fed, saying that while there’s possibility of a significant downturn, there is a chance such a dire outcome can be avoided. Treasury yields continue to climb, and the U.S. dollar remains in rally mode and is notching fresh multi-decade highs. Also, Unilever announced that its CEO Alan Jope will retire.

The economic week began slowly with a disappointing read on regional manufacturing but will heat up as it matures. Asia finished broadly lower, and Europe has overcome some early weakness and is mixed. However, continued tightening of financial conditions is exacerbating the global uneasiness.

Subsequently, Dow Jones declined 1.11% to finish at 29,260.81, S&P 500 declined 1.03% to finish at 3,655.04 while Nasdaq 100 declined 0.60% to finish at 10,802.92. The 10-year yield Treasury advanced 0.2% to 3.88%. Gold spot price fell 0.9% to $1,630 per ounce while WTI crude oil fell 2.4% and now trades at $76.71 per barrel.

Russian government is expected to close all borders today or tomorrow as tens of thousands Russian people are fleeing the country to escape the mass military mobilization that is currently underway. In the meantime, a planned speech later this week by Russian President Putin may see him declare four occupied territories of Ukraine parts of Russia. The final day of voting began this Tuesday morning in Russia-held regions of Ukraine with the vote expected to serve as a pretext of their annexation. Russian stocks fluctuated this morning after an escalation of the war in Ukraine and chaos caused by a military draft sent the market tumbling to its lowest levels in the last five years. Both IMOEX and RTSI are currently up around 1% on the day and trade at 1,952 and 1,058 respectively. As European gas prices have declined, energy giants Gazprom, Rosneft and Tatneft traded lower. Lukoil was among the best performers despite of the decline, along with metals producers Norilsk Nickel, Poluis, Polymetal and Rusal. Russian ruble continued appreciating this morning helped by the September tax period, the disappearance of risk premium associated with the budget rule’s introduction and banks dropping foreign currency amid sanctions risks over votes in Ukraine. USDRUB lost 0.34% to 58.06 and EURRUB lost 0.39% to 55.86. After surging above 11% on Monday, the yields on 10-year benchmark bond yields have retreated below 10% and now trade at around 9.97%. In corporate news, an aluminum producer, Rusal Capital, sanctioned by the West, failed to get bond holders consent for a one-off alternative payment method to meet the debt obligation on its dollar bonds.

The European markets were choppy as negative sentiment continues to weigh in on markets. Bank of England Gov. Andrew Bailey on yesterday said the institution is “monitoring developments in financial markets very closely” after the British pound fell to all-time low versus the U.S. dollar. In a statement, Bailey acknowledges the U.K. Treasury’s unveiling Friday of its budget plan and further details released Monday. He further noted “BOE’s Monetary Policy Committee will not hesitate to change interest rates as necessary to return inflation to the 2% target sustainably in the medium term.  The 10-year U.K. gilt yield was up 16 basis point to 4.28%. Germany’s 10-year yield was up on 5 basis point to 2.09%. The German Dax weakened 0.46% to 12,227.92, the French CAC 40 index dropped 0.24% to 5,769.39 and FTSE 100 index was flat at 7,020.95.

A pause in the dollar rally ushers a breather to the selling in SSA at the open. The space had traded weaker on Monday as rates sold off with the US 10Y closing 3.92%, 23bps up on the day. ANGOL (-2.375) and NGERIA (-2.25) led losses as Brent also trended lower, trading sub-84/bbl late in the session, both open with a tilt towards the upside.