Rates hike from Fed and ECB push markets lower

Risk-off moods remain on the markets – the tightening of the rhetoric of the Fed and the ECB last week minimized the hopes for Christmas rally, expected by some investors of the event. However, this week’s exchange turnover is expected to be reduced due to the approaching Christmas holidays. Asian markets are also in red today – the epidemiological situation in China is still quite difficult. Last week ended on a minor note for the US markets. The Dow Jones Industrial Average dropped 2.12% to 32,920.46 points, the S&P 500 fell 2.3% to 3,852.36 over the week, while the NASDAQ Composite dropped 2.8% to 10,707.41 level.

As part of the updated monetary policy, head of New York Fed J. Williams does not rule out raising the rate to 5-5.5% next year. Although inflation in the United States has begun to ease slightly, it will take longer to return to the target level.

Russian President Vladimir Putin flies to Belarus on Monday for talks with Belarusian leader Alexander Lukashenko for the first time since 2019.  It is expected that the broader involvement of the Belarusian armed forces in the operation against Ukraine could be discussed. Ukraine’s top General Valery Zaluzhniy told the Economist last week that Russia was preparing 200 000 fresh troops for a major offensive that could come from the east, south or even from Belarus as early as January. Explosions were heard early Monday in Kyiv with Russia launching over 4,000 missiles at Ukraine since the start of the invasion. Russian stocks slid this Monday as European gas traded near one month low. IMOEX lost 0.61% to 2,119 and RTSI lost 2.22% to 1,015. Russia’s biggest bank Sberbank and energy giants Gazprom and Lukoil were the major contributors to the fall.  Shares in oil pipeline operator Transneft rose along with shares of steelmakers Severstal, Novolipetsk Steel and Magnitogorsk Iron. Rouble weakened for a fifth day against the US Dollar with USDRUB and EURRUB up again this morning. USDRUB was up 1.46% to 66.11 and EURRUB was up 1.29% to 70.39. Speculative trades together with a new round of sanctions are believed to be behind the rouble weakness. Russian bond yields were slightly higher this morning with 10-year benchmark rouble bonds up 6.5 bps at 10.265%. In other news, the Central Bank of Russia kept the key interest rates unchanged at 7.5% at last policy meeting of 2022 on December 16. The rate has remained flat at 7.5% since October, after the CBR cut it six times since the emergency hike to 20% amid the launch of the full-scale military invasion of Ukraine in February 2022.

EU markets open higher on Monday despite rate hike and tightening rhetoric from ECB on last week. Investors looking for new possibilities and reason to grow for German economic ahead of release IFO index this week. The the DAX index in Germany traded 0.7% higher to 13,993.15, the FTSE 100 in the U.K. added 0.48% to 7,367.10, while the CAC 40 in France traded up 0.85% to 6,501.01 level.

SSA opens mixed to kick off the week. Bonds traded lower on Friday as risk sentiment remained negative with Brent trading sub-80 while treasuries sold off as well. Duration bore the brunt of the selling across the space more so on oilers which saw some tenors shed more than a point. Meanwhile, Ghana extended the deadline for the debt exchange programme to 30 December from the 19th with the government citing the need to give more opportunity to receive feedback from stakeholders.

The NTB secondary market closed on a flat note as average yields remained unchanged across the curve. There was no activity in the market. In the OMO secondary market, average yields also 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 10bps. Average yields on the short end remained unchanged while the medium & long tiers dropped by 15bps respectively. The Jul 2034 bond was the best performer. The market is expected to remain quiet in the short term.