Equities fluctuate on the possibility of Biden/Putin diplomatic dialogue

US equities finished lower on Friday with Dow Jones losing 0.7%, the S&P 500 declining by 0.7% and Nasdaq dropping by 1.2%. Geopolitical concerns over potential attack of Russia on Ukraine remained the main negative force driving equities lower for a second-straight week. The tightening expectations of global monetary policies added to the negative sentiment with Fed expected to begin hiking rates next month. The question in investors’ minds is whether Fed would stick to its historic 25 bps hikes or will go for a 50-bps rise at some point. Economic data was mixed on Friday with leading indicators declining 0.3% in January versus 0.2% rise expected, while existing home sales jumped unexpectedly by 6.7% in January. Treasuries were higher in a choppy market with 10-year yield declining 4 bps to 1.93%. Treasury yields moved higher later in the day with short-end of the curve outpacing the mid and longer end, resulting in narrowing spread between 2-year and benchmark 10-year yields. This morning US dollar weakened in early European trading on the positive news of a meeting between Biden and Putin. Dollar Index traded 0.3% lower at 95.745 and US futures rose with S&P 500 gaining 0.5%. US markets are closed for President Day today. The focus this week will be on PCE price index on Friday, supposedly Fed’s favourite inflation measure, which is expected to rise to 6% year on year. Preliminary GDP for the fourth quarter will be released on Thursday.

Bunds opened weaker following a thawing of tensions in the ongoing Russia/Ukraine standoff; Presidents Biden and Putin agreed to a summit in principle with details of the meeting to be hashed out during Thursday’s meeting between US’s Blinken and Russia’s Lavrov. 10Y DBRs traded about 0.227% at 07.50 GMT just about reversing all of Friday’s rally. Peripherals also opened weaker with 10Y BTPs some 2.5bps higher than Friday’s closing of about 1.779% at 07.50 GMT. On the data front, German PPI figures for January overshot expectations – prices were up 2.2% for the month (vs expected 1.5%) and 25.0% YoY (vs expected 24.2%). Also in the pipeline are French and German flash PMIs and thereafter figures for the Eurozone will be released.

Latam mid and low beta were mixed this week with a general noted direction of RM selling pressure in low beta names on a general macro sentiment weakness. PARGUY, URUGUA and COLOM were the underperformers of the week with PARGUY down the most -3pts in the long end, the latter two traded -1.5pts and -1pts respectively. BRAZIL and IG sovs fared slightly better with BRAZIL, PANAMA and MEX long ends down only 25-30c on the week. Clear winners were CHILE and PERU, were some demand reported from Asian buyers drove the bonds into positive territory for the week, CHILE 30Y was at +30c and PERU traded up +85c. PETBRA and PEMEX also continued sliding on negative market sentiment with 30Y sector down 20-40c for both. UNIFIN was a big mover last week with the curve down 10-15pts after weak earnings to trade in the 50s area, as buyers seemed to take a pause with CREAL fresh in mind and sellers driving the bonds lower on the lack of liquidity.

The Russian market closed in red by the end of the week. News about the evacuation of civilians from the LNR and DNR to Russia collapsed the main indices. MICEX, after falling by 3.7% on Thursday, lost another 3.4% on Friday, the RTS index lost almost 9% for two days and went below 1400 points. RUBUSD fell by 90 kopecks to close at 77.30 lvl. Incoming news during the day about the escalation and explosion in Donetsk caused a new selloff in the Russian debt. RUSSIA 35 lost 200 bps from 104.5 to 102.5 lvl. RUSSIA 47 fell 3 figures from 105 to 102 lvl. RUSSIA 5Y CDS rose more than 30 bps from 250 to 280 lvl. Over the weekend, Emmanuel Macron had a telephone conversation with Vladimir Putin proposing a diplomatic meeting with the US President Biden. The agenda of the meeting would be agreed between Sergey Lavrov and Antony Blinken on February 24. The situation on the border with Ukraine will be discussed during Vladimir Putin’s special meeting of the Security Council today.