Stock futures, ruble decline as Russia/Ukraine crisis deepens

Dramatic developments in Russia -Ukraine conflict over the weekend, including Russia putting nuclear missiles on high alert, have led to the introduction of unprecedented sanctions on Russia by US and European allies. Fresh Western penalties further isolate Russia from global financial system and prevent Russian Central Bank form using its foreign reserves to counteract the effects of isolation. New set of sanctions includes switching off a number of Russian banks from SWIFT messaging system, the list of which is being confirmed. At the same time, UK BP moved to dump its shares in oil giant Rosneft joining campaign against Russia. In answer to the latest restrictions, Bank of Russia has hiked interest rates to 20% form 9.5%, restricted sales of foreign currency revenue by exporters and banned non-residents from selling securities. Russian rouble lost more than 30% of its value in early trading and is currently trading at around 113.20 to the USD. Trading on Russian exchanges had a delayed opening with MOEX now up 20% at around 2,4070.48. Officials from Kyiv and Russia plan to meet near Belarus border, but Ukrainian President Zelensky is voicing scepticism over potential results.

The deepening of the Russia/ Ukraine crisis has sent prices of Us equity futures down with S&P 500 futures falling 2% and Nasdaq 100 futures dropping by 2.1%. Prices on crude oil and commodities soared on worries of supply disruptions. WTI crude rose 5.4% to $96.52 per barrel. The prices of haven assets jumped with gold rising 0.9% to $1.906.00 and the yield on 10-year USTs falling 6pbs to 1.90%.   The euro fell on fears of risks for Europe’s economy, which is largely dependent on Russian energy. Fresh sanctions from the West further isolate’s commodity-rich Russia from global finance and fend off its central bank from using foreign reserves to soften the effect of the imposed sanctions. At the same time Russia-Ukraine conflict threatens to put more pressure on inflation by disrupting supply of major resources such as grains, energy, and metals and worsening the price pressures that have been already affecting world economic growth. Investors are anxious to know how all this may change the FEDs plan for a series of interest-rate increases starting in March with Markets now seeing smaller chances of an aggressive Fed take off.

Bunds opened firmer as geopolitics dominate the headlines following another raft of sanctions on Russia over the weekend and hopes for a quick cease-fire faded. 10y DBRs touched a low of 0.165% having closed at 0.231% on Friday as market sentiment improved. An overshoot in French and Spanish CPI for February – 4.1% vs expected 3.6% and 7.5% vs 6.8% expected respectively – also adds to the difficult balancing act for the ECB as it withdraws stimulus while also managing geopolitical disruptions. Peripherals also open firmer with 10Y BTPs touching 1.721% in early trading having closed at 1.748% in Friday’s volatile session. European stocks reverse Friday’s gains with the Stoxx 50 down 2.50% in early trading.

Bearish sentiments continue to dominate the headlines this morning in the SSA sovereign debt space after initially witnessing a much-needed rally last week Friday. Even with brent jumping 2.84% (Friday’s close = $98.57/bbl; Actual = $101.39/bbl), the big oil majors in SSA (NGERIA & ANGOL) continue to bear the brunt of the ongoing tensions between Russia and Ukraine which has led to quite a bit of volatility in that space. To put that into clearer perspective, yields on the NGERIA 9.248 01/21/2049 REGS Corp & ANGOL 9 ⅛ 11/26/2049 REGS Corp dropped by 57bps & 41bps respectively by the close of Friday’s trading and have since also gone up by 18bps & 22bps respectively, since the start of trading today. The volatility witnessed now, begs the question what will happen going into March as we expect a rate hike by the FED and if with the ongoing tensions continue and for how long, will the FED end up scrapping plans on a hike.