Futures rise, oil rise as us bans importation of Russian crude
US Stock futures went up as market participants weighed the risk from the continued rise in commodity prices due to the ongoing Russia/Ukraine conflict. S&P 500 futures rose 0.6% while Nasdaq 100 futures increased by 0.6%. Demand for haven assets like USTs and Gold dwindled as the yield on 10-year Treasuries was stable at 1.85% while Gold traded at around $2,045.52 per ounce, down 0.30%. Crude oil prices rose after the U.S. banned imports of Russian fossil fuel. U.K has also prohibited Russian barrels but excluded natural gas and coal. WTI oil was at $126.00 per barrel. Disruptions in supply of commodities are persisting due to the sanctions on resource-rich Russia. These supply disruptions and resulting inflationary pressures could stunt global economic growth. Rising commodity costs portend a major inflation challenge for the FED, which is expected to raise interest rates by 25bps next week. Some investors are of the opinion that the FED will be more aggressive in hiking interest rates this year as it continues to monitor inflation and the war in Ukraine.
Bunds opened steady on Wednesday, firmly in positive territory, after the selling during Tuesday’s session; 10Y yields shed 12.7bps to close at 0.112%. Selling followed reports that the EU is considering a large-scale bond programme to jointly fund defence and energy spending; this was later rebuffed by the EU Commission. Equities shed early gains to close lower; the Stoxx 600 touched an intraday high of 1.69% before ultimately closing 0.51% down. Peripherals traded about flat however during the same session with 10Y BTPs closing at 1.509% from Monday’s 1.507%. On the data front, Eurozone GDP and employment figures came as expected with Q4 YoY employment improving just slightly above the expected 2.1% at 2.2%. Upcoming today on the data front are French Q4 NFPs and Italian industrial production for January.
Minister of Foreign Affairs of Ukraine Dmytro Kuleba and his Russian counterpart Sergey Lavrov agreed to meet on Thursday, March 10th in Turkey. This is the first round of talks between the foreign ministers of the two countries after Russia invaded Ukraine. At the same time the CBR has imposed a ban on foreign currency cash withdrawals for a period of 6 months. The maximum amount anyone could take should not currently exceed $10 000. RUBUSD dropped from 120 to 130 level following the news. The MICEX stock exchange section remains closed today, but derivatives section, where commodities and currencies trade, should open.US Joe Biden announced that the U.S. will banning imports of Russian oil and gas and will give companies 45 days to wind down existing contracts for Russian energy supplies. European officials said they will not be able to replace the supply of Russian oil and cannot follow. The EU depends on Russian oil by about 30%.
The SSA sovereign space continues its firmness at opening today, kicking off from the rally we witnessed the previous day. The oilers (ANGOL & NGERIA) seem to have been the best benefactors of the rally as they seemed to be in line with the recent surge in crude oil prices as BRENT went above $130/bbl. The oilers have already opened more than a point higher with GHANA following behind. The latter (GHANA) seems to have suffered more in the past week given their not so recent downgrade by FITCH and MOODY with FITCH downgrading their long-term foreign-currency issuer default rating (IDR) from B to B- with a negative outlook while MOODY followed suit with a downgrade from B- to Caa1. It has been said that GHANA’s return to the IMF will be essential in restoring its creditworthiness from B- to B with a stable economic outlook. Yields in the GHANA space have recently risen to their highest level in 10yrs as international investors continued to dump the nation’s sovereign papers amidst its fiscal and debt challenges and the ongoing Russian-Ukraine tensions. We look to see what the rest of the week will hold in this space to know if this rally is short-lived or not.