Negative reaction of the U.S. markets on the eve of the Fed meeting and pessimism in high-tech sector – as reacts to the planned stronger tightening. The Dow Jones fell 2.25%, to 33,202.22; the S&P 500 lost 2.49%, to 3,895.75; while the Nasdaq dropped 3.23%, to 10,810.53. Added pessimism yesterday’s rhetoric of the ECB. However, additional pressure on the market was also provided by weak statistics in the US in November to October (-0.6% mm vs 1.3% mm), the annual dynamics decreased to 6.5% y/y vs 8.3% y/y, indicating that high inflation continues to affect consumer demand. Today’s session is expected to be more volatile due to $4 trillion option expiration.
Russian forces launched the latest large-scale missile attack on Ukraine infrastructure with power and water supply cuts reported. Among the targets were “crucial infrastructure” in the Kharkiv region in the northeast. Explosions were also heard in some districts of Kyiv. The US on Thursday sanctioned Vladimir Potanin, Russia’s richest man, but left his company, mining giant Norilsk Nickel untouched, as it tried to maintain stability in the metals market. Russian stocks fell for a third straight day as EU reached an agreement on a ninth package of sanctions on Russia over its invasion of Ukraine. The measures were agreed on Thursday evening and will impact more than 100 individuals and dozens of entities. IMOEX lost 0.11% to 2,124 and RTSI lost 0.49% to 1,037. Fertilizer producer PhosAgro slid as much as 4.2%. Other major contributor to the fall were Sberbank and energy giants Gazprom and Lukoil. Internet company Yandex and gas producer Novatek were among a few gainers. Russian rouble weakened again this morning poised for a fourth week of losses for the first time since March, when the currency crashed to a record low after Russia’ invasion of Ukraine. USDRUB gained 0.18% to 64.53, while EURRUB lost 0.17% to 68.83. Speculative trades and a new round of sanctions were the factors behind rouble weakness. Russian bond yields were higher today with a 10-year benchmark bonds yield gaining 0.44% to 10.215%. Russian Central Bank will make an interest rate announcement later today for the last time this year. No changes are expected with current benchmark rates set at 7.5%.
The ECB struck a hawkish tone after delivering the expected 50bps hike to its benchmark rates. 10Y bunds shed 14bps to close at 2.083% on Thursday as the ECB vowed to continue acting aggressively to rein in inflation which is forecast as 6.3% in 2023. Peripherals fared even worse with benchmark BTPs shedding 30bps to close at 4.166%. The selling continues at the open with 10Y BTPS trading 15bps higher at 0800GMT while the corresponding bunds were up 7bps. Stocks fared the same with the Stoxx 600 shedding 2.85%, the worst performance since May; the index continues lower, trading 0.33% down at 0815GMT. On a positive note, German PMIs for December faring better than expectations, albeit in contraction territory; composite PMI came at 48.9 against an expected 46.5. Corresponding eurozone figures will follow later in the session before EU CPI figures for November round off the major data releases for the session.
SSA opens mostly weaker as the selling from yesterday shows little signs of abating. Bonds traded weaker as the ECB added to the Fed’s hawkish rhetoric in the fight against inflation during its MPC on Thursday. ANGOL (-1.50) and KENINT (-1.125) leading the slide on the day while EUR-denominated issues for IVYCST (-.50) and SENEGL (-.625) weighed on the respective curves.
The NTB secondary market closed on a flat note as average yields remained unchanged across the curve. There was no activity in the market. NTB Primary Auction took place across three tenors: 91, 182 & 364 days with stop rates at 5.50%, 7.30% & 9.89% respectively. These were significant drops from the previous stop rates. In the OMO secondary market, average yields closed flat across the curve.
The FGN bonds secondary market again closed on a positive note with average yields across the curve, closing lower by 20bps. Average yields on the short, medium & long tiers dropped by 10bps, 30bps & 15bps respectively. The Feb 2028 bond was the best performer. The market is expected to remain quiet in the short term.