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US Market Open: Sentiment subdued, but off worst levels, as Russia-Ukraine negotiations commence

  • G7 leaders declared they will remove selected Russian banks from the interbank SWIFT system
  • Russian President Putin ordered to place Russia's nuclear deterrent forces on high alert citing aggressive statements by NATO leaders
  • Negotiations have commenced between Ukrainian and Russian officials at the Belarus border.
  • European bourses & US futures are pressured, but off worst levels, following weekend sanctions as negotiations commence; Banks lag amid SWIFT measures.
  • BP is to sell its ~20% holding in Rosneft, writing down as much as USD 25bln
  • FX sees the USD pressured and DXY below 97.00 given haven strength, while RUB whipsaws amid sanctions and CBR intervention
  • WTI and Brent are firmer but off best levels with Brent May'22 back underneath USD 100/bbl after briefly surpassing the level in APAC trade
  • Looking ahead, US Chicago PMI, ECB’s Lagarde, Panetta; Fed’s Bostic; EU’s von der Leyen.

As of 11:20GMT/06:20EST

LOOKING AHEAD

  • US Chicago PMI, ECB’s Lagarde, Panetta; Fed’s Bostic; EU’s von der Leyen.
  • Click here for the Week Ahead preview

GEOPOLITICS

  • Negotiations have commenced between Ukrainian and Russian officials at the Belarus border.

RUSSIAN UPDATES

  • Russian negotiator at the Ukrainian discussions says Russia is interested in coming to an agreement with Ukraine as soon as possible, via Ifx.
  • Russian President Putin ordered to place Russia's nuclear deterrent forces on high alert citing aggressive statements by NATO leaders and severe economic sanctions against Moscow, according to Sky News.
  • Kremlin declines to elaborate on Russian President Putin's decision on "special regime" for nuclear forces; declines to comment on the risk of confrontation between Russian and NATO; weapons supplies to Ukraine is hostile towards Russia.
  • Russia was reportedly struggling to take Kyiv and Kharkiv but was pushing across the Black Sea coast, while Maxar satellite imagery showed a large convoy of Russian ground forces and tanks are moving towards Kyiv, according to Reuters.
  • Russia’s Medvedev said diplomatic relations are not especially needed anymore and that it is time to padlock the embassies; subsequently, Russia is not considering recalling ambassadors from European nations, according to Russian news outlet IFX.
  • Russian Defence Ministry has declared full control over the airspace of Ukraine, via an envoy cited by Sky News Arabia.
  • US official said Belarus is preparing to join the Russian invasion of Ukraine, according to Washington Post.
  • Israeli PM Bennet spoke with Russian President Putin in which he proposed that Israel mediate the Russian-Ukraine crisis and stated that President Putin was “open” to mediate with Ukraine, according to an Israeli official.
  • Websites belonging to Tass, Izvestia, Fontaka, RBC and Kommersant have been hacked, via MiddleEastEye's Soylu.

SANCTIONS/ASSISTANCE

  • G7 leaders declared they will remove selected Russian banks from interbank SWIFT system, while US and allies vowed to block Moscow’s access to foreign currency reserves in the west.
  • German Economy Ministry spokesperson says there are still channels by which Germany's gas bills can be paid.
  • EU Foreign Policy Chief Borrell said they approved crippling measures to Russian financial markets including the exclusion of some Russian banks from SWIFT, while he added that about half the financial reserves of Russia’s central bank will be frozen and that the EU will continue support for Ukraine despite Russian President Putin’s reference to nuclear weapons.
  • EU states are to provide Ukraine with fighter jets and are considering sanctions against some of Russia’s wealthiest businessmen, while sources said Germany is in the process of approving shipment of 400 RPGs to Ukraine via a third country.
  • EU Commission President von der Leyen said the EU will ban all Russian aircraft and will supply weapons to Ukraine. EU will also ban state-owned RT and Sputnik, while it will impose a new package of sanctions against Belarusian President Lukashenko’s regime. Furthermore, von der Leyen told euronews that Ukraine is one of us and that they want them in the bloc.
  • Norway is removing Russian assets from its USD 1.3tln sovereign wealth fund and New York City Comptroller Lander said they will specify Russian assets to consider divestment.
  • Binance will not unilaterally freeze crypto accounts in Russia. Over the weekend, WSJ reported that Russian Bitcoin (BTC) and other cryptocurrencies could be part of future sanctions against Russia.
  • EU Defence Ministers to convene today to discus the situation on the ground in Ukraine; will discuss further urgent needs and coordinate assistance.
  • EU expects to receive the membership request from Ukraine soon, according to an official; on the subject, Senior EU diplomat says "becoming an EU member doesn't stop Russian troops; becoming a NATO member might.", via Sky News.

OTHER

  • Iran’s Foreign Minister tweeted that Iran is ready to immediately conclude a deal in talks to revive the 2015 nuclear deal if western powers show a real will. However, there were separate comments from Iran’s Foreign Ministry spokesman that Tehran will not accept a deadline set by the west to revive the nuclear agreement and said all politically-motivated claims by the IAEA about Tehran’s nuclear work must be dropped.
  • North Korea fired what appeared to be a ballistic missile on Sunday, according to the Japanese Coast Guard, while North Korea later confirmed it tested a reconnaissance satellite on Sunday.

EUROPEAN TRADE

EQUITIES

  • Bourses are pressured amid geopolticial tensions and SWIFT sanctions, Euro Stoxx 50 -3.0%; albeit, bourses are off worst levels as negotiations commence.
  • Sectors has Banks as the laggard given SWIFT restrictions while Energy has been torn between benchmark pricing and BP exiting Rosneft.
  • US futures are, in-fitting with European comparables, subdued but off worst levels, ES -1.4%.

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FX

  • Rouble plunges to fresh all time low before drastic CBR intervention via a hike in key rate to 20% from 9.5% - Usd/Rub off 100.0000+ peaks, but still elevated.
  • Renminbi rallies towards record peak vs Dollar and remains in demand as a regional safe haven even though major state-owned Chinese banks reportedly bought USD/Cny at 6.3100.
  • Buck bid elsewhere, but off best levels as DXY slips below the 97.000 handle.
  • Euro underperforming on Russia-Ukraine headwinds, while Franc outperforms unchecked by official selling it seems - Eur/Usd capped at 1.1200, Usd/Chf and Eur/Chf eyeing 0.9200 and 1.0300 respectively.
  • Aussie gets some retail therapy ahead of RBA policy meeting, Aud/Usd holding around 0.7200
  • Major Chinese state-owned banks seen buying USD at around 6.31 in USD/CNY, according to Reuters sources.

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FIXED INCOME

  • Bonds back off from best levels as talks between Russia and Ukraine with the aim of a ceasefire get underway.
  • Curves remain flat amidst growing stagflation concerns.
  • US Treasuries and Gilts see more switching from Mar22 to Jun22 contracts as turnover rolls.

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COMMODITIES

  • WTI and Brent are bolstered amid the geopoltical tensions, though off best levels as negotiations commenced and Brent May'22 fails to hold onto USD 100/bbl.
  • OPEC+ revised its 2022 oil market surplus forecast down to 1.1mln bpd from 1.3mln bpd and it missed oil output targets by 972k bpd in Jan vs. 824k bpd in December, according to the JTC.
  • BP (BP/ LN) is to exit its 20% shareholding in Russian oil major Rosneft and will write down as much as USD 25bln at the end of Q1 as a result of its Rosneft exit.
  • North Sea Troll crude oil stream is to load 6 cargoes in April vs. 7 planned in March, according to Reuters sources.
  • UK Ministers are said to be preparing to release over 1mln barrels of the UK’s strategic oil reserve to tackle rising fuel prices, according to The Times.
  • Spot gold is bid alongside haven-FX, regaining the USD 1900/oz mark though remains capped by overnight highs at 1931/oz.
  • China state planner will step up supervision of iron spot and futures markets to ensure stable market operation, while it will hold a meeting with the market regulator and the Dalian exchange to look into irregular trading in iron ore spot and futures markets.
  • Traders warned they are unlikely to make wheat offers from the Black Sea region at Monday’s Egyptian buying tender, according to Bloomberg.

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NOTABLE EUROPEAN HEADLINES

  • Support for UK’s ruling Tory party fell to the lowest levels since 2005 following the Downing St. parties scandal with PM Johnson and half the cabinet seen to lose their seats if an election were held now, while Labour would gain 150 seats for a total of 352 seats and 14-seat overall majority, according to The Sunday Times citing the MRP model projection.

DATA RECAP

  • UK Lloyds Business Barometer (Feb) 44 (Prev. 39)

Click here for the US Early Morning Note

CENTRAL BANKS

  • ECB's Wunsch agrees with the market view if tightening and disagrees with the idea that ECB tightening will cripple the economy, according to Leader-Post.
  • ECB's Panetta says ECB should take moderate and careful steps in adjusting policy, so as to not suffocate the recovery.
  • CBR hikes its Key Rate to 20% (prev. 9.50%), ready for further rate action; Governor Nabiullina to hold a briefing at 13:00GMT/08:00EST
  • CBR says stock market trading in Moscow will not open on Monday will not open derivatives trading either; President Putin to meet CBR Governor Nabiullina later today; Kremlin says no reason to doubt CBR effectiveness.
  • Russian Central Bank said it releases a capital buffer that banks hold in respect to unsecured consumer loans and mortgage loans in both RUB and foreign currency which frees up RUB 733bln in reserves, while it ordered market players to reject foreign clients' bids to sell Russian securities from 04:00GMT on February 28th, according to Reuters.

APAC TRADE

EQUITIES

  • APAC stocks traded cautiously after Russian President Putin ordered nuclear forces to be placed on high alert and with the west imposing further sanctions such as excluding some Russian banks from SWIFT and restrictions targeting CBR’s international reserves.
  • ASX 200 shrugged off early weakness, helped by the commodity-related sectors and stronger than expected Retail Sales.
  • Nikkei 225 swung between gains and losses with pressure from the haven flows into JPY.
  • Hang Seng and Shanghai Comp. traded mixed with Hong Kong dragged lower by large tech and virus concerns with a lockdown for the city said to not be ruled out during mass COVID testing, while losses in the mainland were limited after the PBoC continued its firm liquidity effort and China’s Politburo reiterated to step-up implementation of macro policies to stabilise the economy.

NOTABLE APAC HEADLINES

  • PBoC injected CNY 300bln via 7-day reverse repos with the rate at 2.10% for a CNY 290bln net injection.
  • PBoC set USD/CNY mid-point at 6.3222 vs exp. 6.3196 (prev. 6.3346)
  • China urged the US to resume rational policy towards China and bring US-China relations back on track at an early date, as well as uphold the One China principle, according to Global Times citing Chinese Foreign Minister Wang.

DATA RECAP

  • Australian Retail Sales MM Final (Jan) 1.8% vs. Exp. 0.4% (Prev. -4.4%)
  • New Zealand NBNZ Business Outlook (Feb) -51.8% (Prev. -23.2%)
  • New Zealand NBNZ Own Activity (Feb) -2.2% (Prev. 11.8%)
  • Japanese Industrial Production (Jan P) -1.3% vs. Exp. -0.7% (Prev. -1.0%)
  • Japanese Retail Sales YY (Jan) 1.6% vs. Exp. 1.4% (Prev. 1.4%, Rev. 1.2%)
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