MARKET WRAPS
Watch For:
Canada New Motor Vehicle Sales for December.
Opening Call:
Bond yields and stock futures fell on the possibility of an imminent war in Europe, after weekend diplomacy between Western leaders and Russian President Vladimir Putin failed to yield a breakthrough.
If the losses continue through the opening bell, they will compound a decline for stocks sparked Friday by U.S.warnings that Moscow could invade Ukraine at any moment.Oil prices edged down, after jumping in early trading on concern a war would curtail supplies of Russian crude to global markets that lack significant spare supplies.
Stocks have been buffeted this year by the prospect of an increase in interest rates by the Federal Reserve.The central bank is gearing up to raise borrowing costs to combat the highest rate of inflation in four decades, winding down the easy-money policies that have pushed riskier assets higher for much of the past two years.
The possibility of a ground war in Europe has loomed large as an additional source of uncertainty for investors in recent weeks.Moscow has denied intending to invade Ukraine, but Russia’s military buildup has quickened, with forces positioned on three sides of the country.They include some of Russia’s best-trained battalions and missiles that could strike targets throughout Ukraine.
The U.S.
and its allies are withdrawing diplomatic staff from Kyiv in a sign Western capitals see diplomatic options narrowing.Companies are also taking precautions.
Dutch airline KLM has stopped flying in Ukrainian airspace.Shares of Air-France KLM, the Paris-listed holding company, dropped 6.8%.
Investors say the standoff over Ukraine is difficult to trade because they have no particular insight into the possibility of an invasion and the nature and severity of the West’s response.If Moscow were to attack and the U.S.and its allies responded with sanctions, the hostilities could affect the world economy and markets in unpredictable ways.
One likely consequence, given Russia’s position as a commodities superpower, would be higher energy prices, which could keep up the pressure on central banks to raise interest rates.At least in the short term, stocks and bond yields would likely decline as investors sought safe assets, investors say.
“We have the inflation story and then we have the Russian story,” said Lars Skovgaard Andersen, senior investment strategist at Danske Bank Wealth Management.In the event of an invasion, “there will be some negative effect on markets, but I also think investors are incorporating this,” he added.
Market Insight:
Insight Investment’s central case is for the U.S.CPI to finish 2022 between 2.5% and 4%, well above the Federal Reserve’s target, and to remain elevated well into 2023, a portfolio manager said.
He expects the CPI to normalize, but “the question is when.” Several factors will determine how fast CPI can normalize, such as the feed-through of supply-chain improvements into consumer goods, global energy prices, shelter inflation’s path and wage growth, he said.
He sees shelter inflation and to some extent healthcare as factors remaining the greatest upside risks.Insight Investment expects four interest rate rises by the Fed in 2022, each for 25 basis points, with the risk of five rises.
Forex:
The dollar and fellow safe-haven currencies the Japanese yen and Swiss franc rise on growing fears over the risk of a Russia invasion of Ukraine.
The DXY dollar index rose 0.2% to a near two-week high, USD/JPY falls 0.2% and EUR/CHF drops 0.2%, according to FactSet.
“Developments in Russia/Ukraine hold the key to this week’s market moves, with a lack of de-escalation further supporting the JPY, CHF and USD,” ING forex strategist Francesco Pesole says in a research note.
The dollar should also be helped by speculation about the Federal Reserve raising interest rates by 50 basis points in March, he said.
The euro looks vulnerable after some European Central Bank officials tried to cool excessive interest rate rise expectations and following warnings that a Russia invasion of Ukraine could be imminent, ING said.
Noting that the EUR/USD fell below the key 1.14 level after the remarks last week, ING forex strategist Francesco Pesole said: “Another break lower–below 1.1300–could generate some further bearish momentum in EUR/USD that could extend to the 1.1200-1.1250 area should markets scale back bets on summer tightening by the ECB.”
ECB President Christine Lagarde, ECB economist Philip Lane and ECB officials Francois Villeroy de Galhau and Gabriel Makhlouf have pushed back against the market’s rate rise bets in recent days.
Cryptocurrencies fell early Monday on heightened geopolitical tensions over fears Russia could imminently invade Ukraine.
Bitcoin has fallen 0.65% to $42,085 over the last 24 hours, according to data from Coinbase, below the $47,000 level reached on Jan.1.
But it was well ahead of the year-to-date low of $33,000.
Bonds:
Investors reached for assets they perceive to be havens at times of uncertainty.The yield on benchmark 10-year Treasury notes fell to 1.927% from 1.951% Friday, having reached a two-year high of 2.028% Thursday.
The more than 40 basis point rise in 10-year German Bund yields so far this year is still relatively modest, LBBW’s analysts said.
Although the 10-year Bund yield rose to a three-year high earlier this year, “that puts the benchmark yield just barely at the bottom limit of its trading range from 2017/2018,” they added.
They see this as an ambiguous starting point.”The 10-year Bund yield could easily begin falling back toward the zero line if speculation about a rate hike in the eurozone subsides to some degree.”
On the other hand, EUR long-term interest rates are still lagging considerably in terms of adapting to the changing monetary policy environment, they added.
Commodities:
Oil’s rally paused as investors nervously watch the situation on the Ukrainian border.Building geopolitical tensions over Ukraine has oil traders expecting $100, a level oil hasn’t hit since 2014.
Concerns are rising that a conflict could crimp Russia’s huge oil supplies and disrupt natural gas supplies that transit through Ukraine.The U.S.
warned Friday that a Russian attack on Ukraine could be imminent, sending oil prices over 3% higher.
Prices for natural gas-of which Russia is the single biggest exporter globally-rose on both sides of the Atlantic.In the U.S., gas prices rose 4.5% to $4.12 per million British thermal units.Prices in Europe, which depends on Russia for much of its gas, a chunk of it flowing through Ukraine, jumped 8.8%.
Gold futures rose 0.8%.
TODAY’S TOP HEADLINES
Lockheed Martin Scraps Aerojet Rocketdyne Deal
Lockheed Martin Corp.on Sunday said it had scrapped plans to buy Aerojet Rocketdyne Holdings Inc.after federal antitrust overseers last month sued to block the proposed $4.4 billion deal.
Lockheed Martin, the world’s largest defense company by sales, had hoped to add Aerojet’s expertise in building rocket motors for its own missile and space systems.The proposed deal drew fire from the Federal Trade Commission and rivals that believed the combination could hinder competition.
Nike’s Supply-Chain Snags Bring Pain to Sneakerhead Shops
Even the cool sneaker shops are getting dragged by supply-chain problems.
Several independent retailers told The Wall Street Journal that Nike Inc.
and other global sneaker companies have delayed deliveries of key shoe designs as the industry continues to grapple with production and shipping complications through the Covid-19 pandemic.
Cathie Wood’s ARK Stays the Course, Betting Big on Innovation
Cathie Wood’s ARK Investment Management LLC is snapping up more shares of largely unprofitable companies, doubling down on a bet that many traders and investors expect to be tested this year by rising interest rates.
Over the past two weeks, Ms.Wood’s flagship ARK Innovation exchange-traded fund has bought more than $400 million of high-growth stocks, including Roblox Corp., Block Inc.
and Robinhood Markets Inc.That’s according to the firm’s daily trading logs and stock-pricing data as of Friday.She says the companies, which span videogaming, digital payments, trading and other industries, have the potential to change the world.
Ukrainian Airline Grounds Fleet as Warnings Over Russia Cause Insurers to Pull Cover
KYIV, Ukraine-One of Ukraine’s main airlines said Sunday it was forced to make an unscheduled landing in Moldova and suspended sales for flights this week after its insurers stopped covering aircraft in Ukrainian airspace due to an increased threat of a Russian military invasion.
The announcement by Kyiv-based carrier SkyUp Airlines came a day after Dutch national flag carrier KLM said it had suspended its flights to Kyiv and wouldn’t operate flights in Ukrainian airspace.
Separately, Ukraine said it was advising airlines against flying through a portion of the Black Sea near to where Russia has begun naval military drills.
Saudi Arabia Transfers Aramco Shares Worth $80 Billion to Wealth Fund
DUBAI-Saudi Arabia transferred shares worth about $80 billion in oil giant Aramco to its wealth fund as part of efforts to diversify the kingdom’s hydrocarbon-dependent economy.
The transfer of a 4% stake in state-owned Saudi Arabian Oil Co., known as Aramco, will support the Public Investment Fund’s plan to grow its assets under management to over $1 trillion by 2025, from about $480 billion currently, the Saudi government said Sunday.
Why Russian Invasion Peril Is Driving Oil Prices Near $100
The threat of a Russian invasion of Ukraine is shaking up a fragile global oil market, pushing prices closer to $100 a barrel as traders calculate that supplies will struggle to cushion the effect from any significant disruption in Russian fossil fuel exports.
(MORE TO FOLLOW) Dow Jones Newswires
02-14-22 0552ET
Stocks mentioned in the article Change Last 1st jan.AEROJET ROCKETDYNE HOLDINGS, INC.-5.60% 36.89 -16.42% AIR FRANCE-KLM -4.20% 4.202 13.30% ARK INNOVATION ETF ACC – USD -0.71% 71.39 -23.99% AUSTRALIAN DOLLAR / EURO (AUD/EUR) 0.27% 0.63025 -1.57% AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -0.23% 0.71258 -1.39% BITCOIN (BTC/EUR) 1.46% 37722 -8.82% BITCOIN (BTC/USD) 0.90% 42644.929987 -8.90% BLACKROCK, INC.-1.58% 760.31 -15.63% BRITISH POUND / EURO (GBP/EUR) 0.19% 1.1961 -0.21% BRITISH POUND / US DOLLAR (GBP/USD) -0.32% 1.35274 0.13% CANADIAN DOLLAR / EURO (CAD/EUR) 0.52% 0.695169 -0.65% CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.05% 0.78543 -0.81% COINBASE GLOBAL, INC.0.37% 195.25 -22.92% DANSKE BANK A/S -1.36% 131 17.57% DOW JONES FXCM DOLLAR INDEX 0.15% 12217.58 0.30% EURO / US DOLLAR (EUR/USD) -0.53% 1.13026 -0.18% GOLD 0.63% 1871.1 1.60% INDIAN RUPEE / EURO (INR/EUR) 0.35% 0.011687 -1.24% INDIAN RUPEE / US DOLLAR (INR/USD) -0.45% 0.013217 -1.13% JAPANESE YEN / SWISS FRANC (JPY/CHF) 0.06% 0.7999 1.21% LOCKHEED MARTIN CORPORATION -2.33% 386.97 11.47% LONDON BRENT OIL 0.23% 95.62 22.45% NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.51% 0.66093 -2.76% NIKE, INC.1.01% 141.59 -15.89% ROBINHOOD MARKETS, INC.0.23% 13.35 -25.00% ROBLOX CORPORATION 2.26% 68.32 -35.24% S&P 500 -0.38% 4401.67 -7.29% S&P GSCI NATURAL GAS INDEX 5.72% 194.7748 5.50% SAUDI ARABIAN OIL COMPANY 0.67% 37.3 4.19% US DOLLAR / EURO (USD/EUR) 0.53% 0.884752 0.18% US DOLLAR / RUSSIAN ROUBLE (USD/RUB) -1.39% 76.4938 2.91% WTI 0.44% 94.762 19.34%.
