MARKET WRAPS
Watch For:
France Balance of Payments, Foreign Trade; UK Regional PMI,
Business Finance Review; EU Eurogroup meeting of eurozone finance
ministers; updates from Volkswagen, Prada, Talanx, Phoenix Group,
Assa Abloy, Provident Financial
Opening Call:
Equities in Europe are set for a positive start Monday, but
gains are seen capped as investors weigh the latest headlines on
Ukraine. Asian stocks were mostly lower, along with oil and gold,
while the dollar and Treasury yields advanced. U.S. stock futures
edged higher at the start of a week in which the Fed is expected to
raise its benchmark interest rate for the first time since
2018.
Equities:
European shares were poised for opening gains Monday despite
heightened tensions over the war in Ukraine.
Investors in Asia remained on edge following news of a Russian
airstrike on a Ukrainian military training center close to the
Polish border that killed at least 35 and increased the risk of war
encroaching on NATO territory.
The attack, about 10 miles from the Polish border early Sunday,
was far to the west of where the conflict has been concentrated,
and happened a day after Moscow had warned the West that it would
consider arms deliveries to Ukraine as legitimate targets.
A large portion of the military aid from the West-one of the
largest transfers of arms in history-passes through Poland into
western Ukraine, part of the fine line the U.S. and its NATO allies
are walking between aiding Ukraine militarily while steering clear
of providing troops or enforcing a no-fly zone that Ukraine has
called for.
Read more here.
Market Insight:
Capital Economics said commodity prices are likely to remain
volatile in the coming weeks, as investors digest developments in
Ukraine and its consequences for commodity markets.
"On balance, though, the risks to prices are still very much
skewed to the upside, not least as the West could further tighten
restrictions on Russia's commodity exports."
While events in Ukraine will very much be driving commodity
price direction this week, China's activity data due Tuesday will
also paint a clearer picture of Chinese demand.
"We think these data will come in weaker than the consensus
expects, which would support our view that China's demand for
commodities is set to remain soft this year."
Forex:
The dollar continued to strengthen in Asia as worries over the
Ukraine war and this week's FOMC meeting dragged on sentiment.
Capital Economics expects a 25bp Fed hike this week and
"continued commitment to an aggressive tightening cycle, which may
reignite the dollar rally."
Currency markets are seeing higher implied volatility, said
Corpay's Karl Schamotta and Karthik Sankaran.
"Expectations of rate-hikes this year are being recalibrated
lower, but the relative pace of monetary-policy tightening across
developed markets is still expected to favor the dollar," they
said.
"G7 action on immobilizing Russia's huge reserve pile could lead
to attempts by other countries to reduce dollar usage over time,
but the extent of US-EU coordination will make it difficult as the
euro is the only other comparable vehicle."
Unicredit Research said the euro-dollar exchange rate faces
further volatility in the coming week.
"The conflict is seen as a drag mainly for the eurozone and
Eastern European countries, and thus EUR/USD and [the Polish zloty,
Hungarian forint and Czech koruna] are at risk of further
significant fluctuations reflecting swings in market
sentiment."
Other News:
TD Securities said buy USD/JPY, citing economic fundamentals and
technical charts. The currency pair is a better expression of
U.S.-centric risks, particularly the Fed, TD said, noting markets
appear to be underpriced for 2023 rate increases and is a risk that
may be realized in dot-plot at this week's FOMC meeting.
On charts, USD/JPY has nowhere to go but up, particularly now
that 116.40 triple top has been breached, TD said, which entered a
long USD/JPY position targeting 120.00 and a stop-loss order at
115.30.
---
The Bank of England is likely to raise interest rates at its
next meeting but sound cautious in its messaging about the pace of
further rises, potentially weakening sterling, said BDSwiss
Group.
The BOE is widely expected to raise its key rate by 25 basis
points at its March 17 meeting, in line with February's rise.
However, uncertainty over Ukraine means that there will be fewer
policy makers voting in favor of lifting rates by a larger 50bps
compared with last month when four out of nine officials backed
such a move.
"That might lower the odds of a 50bp hike at the next two
meetings, which would be negative for the pound," BDSwiss said.
Bonds:
The 10-year Treasury note yield remained firmly above 2% early
Monday, extending its rise into a sixth straight session ahead of
what is expected to be the first in a series of Fed rate rises.
"Given the focus on tamping down inflation, there is a fear that
the Fed could move too fast and threaten growth," said Lindsey
Bell, chief markets and money strategist for Ally.
"GDP growth could come under pressure in the coming quarters
amid high inflation and weak consumer sentiment. The conflict in
Ukraine is the wild card in this scenario. De-escalation will be
necessary to reduce inflationary pressures."
Other News:
S&P said it was keeping Ukraine's 'B-/B' long- and
short-term foreign and local currency ratings on CreditWatch with
negative implications.
"The CreditWatch status indicates that we could lower the
ratings if the military conflict were to significantly weaken
Ukraine's economy," S&P said. It expects Ukraine's debt service
and borrowing needs "will be fully covered by international
financial support over at least the next 12 months."
However, S&P also said Russia's military intervention poses
significant risks to Ukraine's economic growth, public finances and
financial stability. S&P said "as the conflict continues,
Ukraine's technical ability to use international financial support
and meet its ongoing debt service obligations could erode."
Energy:
Oil prices were down around 2% in Asia, likely weighed by the
latest Covid-19 developments in China, said ING.
"The rising number of cases has seen the city of Shenzhen go
into lockdown. This will raise concern over the potential hit to
demand. But also importantly, it suggests that China is not ready
to let go of its zero-Covid policy."
ING also noted that ICE Brent speculators decreased their net
long positions last week, signaling increased risk-aversion in the
oil futures market.
Oil prices, which have been driven higher by the Ukraine war,
may have been weighed by Vladimir Putin's reported comments that
there are "certain positive shifts" in the negotiations between the
two countries.
Metals:
Gold futures edged lower as hopes for progress in the
Russia-Ukraine talks diminished the safe-haven appeal of
bullion.
While Putin's comments are likely giving market participants
hope that cease-fire talks are heading in the right direction,
economic growth concerns are unlikely to go away anytime soon,
hence gold's pullback should be limited, said OANDA.
Aluminum prices were lower too, reversing earlier gains that
were spurred by supply disruption concerns, said ANZ.
The gains were mostly due to the U.K. announcing sanctions on
Russian individuals, including Oleg Deripaska, who has a stake in
state-owned mining company Rusal and after Rio Tinto said it was
planning to stop shipments to a Rusal-owned alumina plant.
Read: JPMorgan Leads Talks to Contain Nickel Crisis Damage
Other News:
Fitch said nickel and aluminum prices are set to stay high on
likely sizable disruptions to Russian production and exports of the
industrial metals.
"We are expecting significant prolonged disruption in the coming
months at least, which makes up 9% and 5% of global production,
respectively."
It said that low global inventories of both metals, due to high
electric-vehicle adoption, have made them particularly vulnerable
to price surges. "Depleted inventories will be an important factor
in the coming weeks as demand chases restricted supply."
TODAY'S TOP HEADLINES
Russian Prosecutors Warn Western Companies of Arrests, Asset
Seizures
Russian prosecutors have issued warnings to Western companies in
Russia, threatening to arrest corporate leaders there who criticize
the government or to seize assets of companies that withdraw from
the country, according to people familiar with the matter.
Prosecutors delivered the warnings in the past week to companies
including Coca-Cola Co., McDonald's Corp., Procter & Gamble
Co., International Business Machines Corp. and KFC owner Yum Brands
Inc., the people said. The calls, letters and visits included
threats to sue the companies and seize assets including trademarks,
the people said.
JPMorgan Leads Talks to Contain Nickel Crisis Damage
Some of the world's biggest banks worked over the weekend to
resolve a crisis in the nickel market that leaves them on the hook
for billions of dollars owed by a Chinese metals giant.
JPMorgan Chase & Co., Standard Chartered PLC and BNP Paribas
SA were among the banks and brokers seeking to reach an agreement
with Tsingshan Holding Group, people familiar with the discussions
said. Trades placed by the Chinese steel and nickel producer on the
London Metal Exchange contributed to an uncontrollable rise in
prices that led the exchange to halt trading and cancel eight
hours' worth of transactions last Tuesday.
Hedge Funds' Commodity Bets Soar After Russia's Invasion of
Ukraine
Hedge funds that placed bullish bets on commodities are notching
sizable returns from the biggest rally in decades following
Russia's invasion of Ukraine.
Soroban Capital Partners LP, a $10 billion stock-picking hedge
fund in New York, is one of the biggest winners, making at least
several hundred million dollars on the trade since February, a
person familiar with the matter said. Other winners include New
York macro fund Castle Hook Partners and value investor Pilgrim
Global. The bet was that a yearslong drop in spending on new
commodity supply and efforts to limit carbon emissions would push
up materials prices and shares of producers, according to people
familiar with the firms.
Russia-Ukraine War Threatens Wheat Supply, Jolts Prices
Russia's invasion of Ukraine threatens a big portion of the
world's wheat supply and has sent prices on a dizzying ride to new
highs as well as the sharpest weekly drop in years.
Wheat stockpiles were already running low and prices were the
highest in years thanks to two years of poor growing weather when
Russia's attack jammed up Black Sea trading and endangered nearly a
third of the world's exports. The invasion prompted fears of food
shortages in countries fed with imported grain and pushed prices to
new highs.
Chip Makers Stockpiled Key Materials Ahead of Russian Invasion
of Ukraine
Almost two years of chip shortages have had an unexpected upside
for the semiconductor industry: It is better prepared to manage the
turmoil caused by Russia's invasion of Ukraine.
Production of vital raw materials for chip making is
concentrated in Russia and Ukraine. The countries are a major
source of both neon gas, needed to feed lasers that print minute
circuitry onto silicon, and the metal palladium used in later
manufacturing stages.
Russia Asked China for Military Assistance, U.S. Officials
Say
WASHINGTON-Russia has asked China for military equipment and
other assistance for its war effort, according to U.S. officials,
who didn't specify what Russia had requested.
News of Russian President Vladimir Putin's request for help from
Beijing, first reported by the Washington Post, comes as Russia's
war effort in Ukraine has been bogged down and as U.S. national
security adviser Jake Sullivan heads to Rome on Monday to meet with
a top Chinese official on the conflict inside Ukraine.
U.S. Won't Negotiate Ukraine-Related Sanctions With Russia to
Save Iran Nuclear Deal
The U.S. won't negotiate exemptions to Ukraine-related sanctions
on Russia to save the 2015 Iran nuclear deal and could try to
strike a separate accord excluding Moscow, a senior U.S. official
said, a diplomatic effort complicated by an Iranian missile attack
on Iraq that sent American troops rushing for shelter.
With one of President Biden's top foreign-policy goals
imperiled, the U.S. official said Washington would start exploring
alternatives to the deal over the next week if Russia didn't back
away from its demands for written guarantees exempting Russia from
Ukraine-related sanctions that could curtail its future trade with
Iran. Such guarantees could undercut the West's punishing array of
sanctions leveled at Russia over the Ukraine invasion.
Crypto Aims to Boost Influence With Washington Hires
WASHINGTON-The cryptocurrency industry has staked out a spot at
Washington's revolving door, hiring scores of former government
officials and regulators as it seeks to shape policies to govern
the largely unregulated market.
Those working for or advising cryptocurrency firms or investment
funds include three former chairs of the Securities and Exchange
Commission, three former chairs of the Commodity Futures Trading
Commission, three former U.S. senators, and at least one former
White House chief of staff, former Treasury secretary and former
chair of the Federal Deposit Insurance Corporation.
China Pursues Afghanistan's Mineral Wealth After U.S. Exit
MES AYNAK, Afghanistan-Following the American exit from
Afghanistan, China's move to claim the country's vast mineral
wealth is centered on a mountain south of Kabul.
The mountain and the barren surrounding valley, in Logar
province, a two-hour drive from the capital, contain one of the
world's biggest untapped reserves of copper.
How Europe Hopes to Wean Itself From Russian Natural Gas
International efforts to sanction Russia for its invasion of
Ukraine have magnified a long-running dilemma for the European
Union: Its attempts to wean itself from coal have left it more
reliant on Moscow for natural gas. This dependence has made it
reluctant to support the kind of tough sanctions on energy exports
that some say are essential for thwarting Russia's aggressions.
As part of its efforts to cut greenhouse-gas emissions, the EU
has reduced its reliance on coal, the burning of which produces
more carbon dioxide than oil or natural gas.
U.S. Talks to Ease Oil Sanctions on Venezuela Get Blowback
The Biden administration's interest in regaining access to
Venezuelan oil is facing stiff opposition at home over concerns it
would prop up an autocratic regime that is a close ally of
Russia.
The pushback comes from both Republicans and many prominent
Democrats, as well as Venezuela's U.S.-backed opposition, that
recently warned officials in Washington it is a mistake to consider
turning Caracas back into an energy ally without restoring
democracy there first.
Russian Prosecutors Warn Western Companies of Arrests, Asset
Seizures
Russian prosecutors have issued warnings to Western companies in
Russia, threatening to arrest corporate leaders there who criticize
the government or to seize assets of companies that withdraw from
the country, according to people familiar with the matter.
Prosecutors delivered the warnings in the past week to companies
including Coca-Cola Co., McDonald's Corp., Procter & Gamble
Co., International Business Machines Corp. and KFC owner Yum Brands
Inc., the people said. The calls, letters and visits included
threats to sue the companies and seize assets including trademarks,
the people said.
Russian Missiles Strike Ukrainian Military Training Base Near
Polish Border
A Russian airstrike on a Ukrainian military training center
close to the Polish border threw into sharp relief the hazards of
the Western push to deliver arms support to Kyiv while avoiding
direct conflict with a nuclear adversary.
The airstrike killed 35 people at the facility in Yavoriv about
10 miles from the Polish border early Sunday, far to the west of
where the conflict has been concentrated, one day after Moscow
warned the West that it would consider arms deliveries to Ukraine
as legitimate targets.
Write to paul.larkins@dowjones.com
Expected Major Events for Monday
00:01/UK: Feb UK Regional PMI
06:00/FIN: Feb CPI
07:00/ROM: Feb CPI
07:00/ROM: Jan International trade
07:00/ROM: Jan Industrial production
07:00/SWE: Feb CPI
07:00/GER: Feb WPI
07:45/FRA: Jan Foreign trade
07:45/FRA: Jan Balance of payments
08:00/SPN: Jan Retail Sales
08:00/SVK: Jan Employment and average monthly wage in selected
branches
08:00/SVK: Jan Turnover in selected branches of economy, incl
Industry & Construction
08:00/CZE: Jan Retail trade
09:00/BUL: Jan Trade with third countries - preliminary data
09:00/BUL: Dec Trade with EU Member States - preliminary
data
09:30/UK: Annual CPI Basket of Goods and Services annual
review
09:30/UK: 4Q Business Finance Review
10:00/CYP: Jan Foreign Trade (provisional)
10:00/LUX: 4Q GDP
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(END) Dow Jones Newswires
March 14, 2022 01:17 ET (05:17 GMT)
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