The movers on the market today
The focus remains on the Russian-Ukrainian war and any new signals of a possible energy embargo from Europe.
We have little economic data, but the DOE’s weekly U.S. oil inventory data may get more attention than usual.
The overview in 60 seconds
Biden bans Russian oil: Yesterday, US President Biden issued an executive order ordering the US to ban imports of Russian fossil fuels and investment in Russia’s energy sector. The ban applies immediately to new orders and allows 45 days to complete existing orders. Russian oil accounted for 3% of US oil imports last year. In this regard, the direct impact on the US market will be small. Given current prices, we should expect US oil production to increase this year. Overall, the ban has little direct impact on the United States, but is a strong signal for Russia. Oil held steady around $130 a barrel overnight.
The UK also bans Russian crude oil: In a concerted move, the UK has also announced that it will phase out the use of Russian oil by the end of 2022. The UK also plans to reduce its dependence on Russian gas. For more on the US/UK ban on Russian oil, see this FT article.
The EU unveils its plan to reduce dependence on Russian gas: As expected, the EU yesterday announced its strategy to reduce its dependence on Russian gas by two-thirds this year. The plan is to exploit new supplies and rely on efficiencies. See also the FI section on news that the EU plans to issue bonds to fund energy transition and defense spending in the future.
Russia threatens to retaliate: In response to the concerted sanctions against Russian oil, Russia warned against countermeasures. On Monday, Russia warned it could cut off natural gas supplies to Europe via the Nord Stream 1 gas pipeline. Putin has already signed an order to restrict trade in certain goods and raw materials, but he remained vague about the actual measurements.
Fitch warns of impending default: Fitch Ratings warned last night that a Russian bond default is “imminent”, referring specifically to the decision to pay foreign-currency-denominated holders to be paid in roubles.
Poland makes all of its MIG-29 combat aircraft available to the United States: In reality, this means that Russian fighters are on their way to Ukraine and need the Russian fighters their pilots are trained for. Analysts see a risk that this will be seen as an escalation of the war on the Russian side.
LME closes for nickel trading: A gigantic squeeze in the nickel market forced the LME to suspend nickel trading for the rest of the week after the price doubled to above USD 100,000 a tonne. According to FT, this left a Chinese metals tycoon with a huge potential loss. The explosion in the price of nickel is extraordinary. But it underscores the seriousness of the situation, especially in metals where Russia has a dominant market position. The market must consider both the risk of sanctions and Russian countermeasures.
Shares: The turmoil continued on Tuesday, with most stock indexes closing slightly lower. Unlike previous weeks, this was not a risky session, but rather a reversal in the performance of the sector. Defensives fell the most, while cyclicals and banks – especially European ones – outperformed. S&P500 -0.7%, Dow -0.6%, Nasdaq -0.3%, Russell 2000 0.6% higher. VIX even fell slightly and US futures are pointing slightly higher this morning.
FI: Yesterday, core EU bond yields rose significantly, the spread between the periphery and core EU narrowed and German ASW spreads tightened following the story that the EU plans to issue bonds that will fund defense and energy spending in the future. in response to the war in Ukraine. This is a continuation of the response to the Covid-19 crisis, where the EU introduced the NGEU to support European economies through grants and loans and funded by issuing through the EU .
Effects : The SEK and NOK gained against the AUD, NZD and CAD yesterday on an otherwise relatively stable FX trading day where commodity markets remained quite volatile. EUR/USD traded around the 1.09 level and GBP/USD fell to 1.31
Credit: Performance was mixed in the credit market yesterday, with CDS indices performing well while cash bonds lagged. Itraxx Xover tightened by 11bp and Main by 2.2bp while HY bonds widened by 7bp and IG by 3bp.