U.S. market focused on geopolitics

Wall Street ended with another positive session on Tuesday despite the volatile – inflation report showed producer prices rising 8% y/y in October against an estimated 8.3% rise, which indicated a further reduction in price pressure. Retailer shares were in demand while Walmart jumped 6.5% to 147,44 points after its annual sales and profit forecast.

But a certain increase in geopolitical risks is putting pressure on market sentiment today, Asian markets are trading mainly in red while Shanghai Composite losing 0.43% to 3.120 level, Hang Seng down 1.2% to 18,158 points and Nikkei 225 mostly flat at 28,015 level. Although Joe Biden’s statements that the missiles “are unlikely have been launched from Russia based on the trajectory” somewhat reduced the intensity of passions.

The Dow Jones rose 56.22 points, or 0.17%, to 33,592.92, the S&P 500 gained 34.48 points, or 0.87%, to 3,991.73 and the Nasdaq Composite added 162.19 points, or 1.45%, to 11,358.41. DXY index which measures the greenback against six peers fell 0.24% to 106.404 while Government UST 10Y yields decreased at 2.18% to 3.7696 level.

Poland said Tuesday a Russian-made rocket killed two people when it landed 6 kilometers from the frontier with Ukraine. This happened on the day of a massive Russian missile attack on Ukraine with Russia aiming at Ukraine’s energy and other infrastructure. However, US President Joe Biden told to reporters at a G20 meeting in Bali that the rocket was unlikely to have been fired from Russia, the comments that may limit a risk of major escalation. NATO ambassadors were meeting Wednesday morning with Poland and the country will decide whether to invoke Article 4 of the NATO charter based on these discussions. Russian stock market dropped following the incident on the Polish border with IMOEX losing 0.37% to 2,156 and RTSI losing 0.36% to 1,155. Energy giants Gazprom, Novatek and Lukoil were among the biggest contributors to the retreat, as was Sberbank and Internet Company Yandex. Tatneft rose after the oil producer proposed a dividend of RUB 6.86 per share for the third quarter. Russian rouble was mostly flat this morning with USDRUB holding at 60.40, EURRUB lower by 0.13% at 62.69. Russian bond yields lost with 10-year benchmark rouble bonds losing 3 bps to 10.030%.  In economic news, Russian GDP has contracted by 4% year-on-year in the third quarter of this year with deepest cuts suffered by transportation, wholesale trade and mining. According to analysts, sanctions will set Russia back by five years and will continue hurting Russian manufacturing and mining industries.

EU markets opened mostly higher despite fears of an attack on Poland, one of the members of NATO. However, Western leaders, including U.S. President Joe Biden, urged caution at the G20 meeting in Indonesia to avoid a major escalation with Russia, especially since there doubts about the missile was launched from, while Moscow has denied responsibility for the strike. The DAX futures contract in Germany traded 0.1% higher at 14,3379 level, the FTSE 100 futures contract in the U.K. rose 0.3% to 7,390 points, while CAC 40 futures in France added 0.15% to 6,6650.

Elsewhere, the latest inflation data out of the U.K. showed that consumer prices rose 11.1% in October from a year earlier, a jump from 10.1% the prior month and a 41-year high, suggesting the Bank of England will have to continue hiking interest rates from current 3% level for some time to come.

A muted open for SSA as the positive risk sentiment appears to have cooled following missiles which hit Poland on Tuesday. KENINT (+1.125) outperformed yet again on Tuesday as the new government continues to tread the path towards fiscal consolidation; in addition to aiming to reduce expenditure by an equivalent $2.47 billion for the current fiscal year, the state will reduce its majority shareholding in the country’s sole power company to 15%. ANGOL (-.375) struggled to break free from a lethargic start as bonds were readily in supply, particularly duration.

The bonds market closed on a flat note. Average yields on the short & medium tier of the curve increased by 1bps while the long end dropped by 2bps. The Mar 2050s was the best performer. The worst performers were the Feb 2028s & Apr 2029s. The NTB secondary market closed on a slightly positive note once again with average yields dropping by 1bps across the short to medium tier of the curve. Also, yields closed flat on the long end of the curve as there was no activity. In the OMO secondary market, yields closed flat across the curve. Nigeria Oct. CPI Rose 21.1% on Year; Est. +21.3% Nigeria – Oil production increased in October to 1.014m bpd.