U.S. equities declined on Monday, although pared larger declines and volatility spiked and investors sought the safety of Treasury’s following additional sanctions on the Russian financial system over the weekend.
The S&P500 declined -1.19% as of 07:33 am AEDT paring back half of Friday’s gains with 83% of stocks lower with technology -1.41%, financials -2.26% and health care -1.52% weighing the most while energy +1.71% was the only positive sector as oil and gas prices remain elevated to the conflict in Ukraine. Elsewhere, the Dow Jones declined -1.34%, as did the Nasdaq Composite -0.57% and Russell 2000 -0.22% while the VIX climbed +12.25% to 30.97. As U.S. futures opened during Asian trading they had initially pointed to as much as a -3% decline as investors reacted to sanctions on Russia’s central bank as well as cutting off Russian banks from the SWIFT payment system.
Treasury yields declined across the curve as investors sought safety with the 2-year yield down -15.3 basis points to 1.416%, as were both the 10 and 30-year rates, down -13.3 and -10.4 basis points respectively. Breakeven inflation rates rose across the curve with the 1-year rate up +28.2 basis points to 5.266%, as were both the 5 and 10-year rates up +8.9 and +8.3 basis points respectively. That helped push real yields lower with both the 5 and 10-year rates declining -24.9 and -22 basis points to -1.48% and -0.82% respectively with the U.S. dollar index rising +0.10% as its status as a haven offset declines in real yields. In economic data, wholesale inventories for January declined to +0.8% from +2.2% previously missing estimates of +1.3% while the advance goods trade balance declined to -$107 billion from -$101 billion previously. Traders modestly pared back expectations of rate hikes from the Federal Reserve, with Fed fund futures now pricing +5.5 rate hikes in 2022 down from slightly over 6 previously.
European equities declined although pared larger losses after Russia and Ukraine held ceasefire talks on Monday, although there were little expectations the talks would have meaningful progress. The Euro Stoxx 600 finished -0.09% lower after initially falling nearly -2% as financials -2.73% and energy -2.22% offset gains in defensive sectors utilities +2.21% and industrials +0.57%. The DAX also weakened -0.73%, as did the CAC -1.39% and FTSE100 -0.42%. London listed BP declined -4% after it said it would abandon its stake in Russian state oil company Rosneft at a cost of up to US$25 billion. Investors also sought the safety of government bond yields with 10-year rates across Europe declining between -12.7 basis points in Italy to -3.9 basis points in Greece, as the Euro declined -0.51% to 1.1211 and the Pound was little changed at 1.3405. Elsewhere the Russian Ruble declined -15% against the USD following additional sanctions announced over the weekend.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Despite the negative lead from global equities the ASX looks set to open higher this morning with ASX200 futures +28 points or +0.40% higher at 7,051. The index rose +0.73% on Monday lifted by gains in materials +2.99% as commodity prices continued to rise over the conflict in Ukraine. Shares in Graincorp jumped +5.0% benefiting from expectations of higher grain prices of which Russia is a key producer. Mining majors BHP and RIO strengthened +4.4% and +3.2% respectively, while FMG declined -2.4% with the iron ore price strengthening. In economic data, January’s retail sales rose to the second-highest level on record, up +6.4% over the year and +1.8% over the month above forecasts for a +0.4% gain. The stronger sales figures are a positive sign for GDP scheduled for Wednesday for Q4 2021 with analysts forecasting growth of +3%. Analysts expect little change from the RBA at its policy decision at 14:30 AEDT today expecting another patient statement as the central bank waits to evaluate more data.
Oil prices rose with both WTI and Brent crude +4.62% and +4.16% higher respectively at US$95.84 and US$98.07, paring back initial gains of as much as +8%. Iron ore futures in Singapore rose +3.80% on Monday and are a further +2.52% higher this morning at US$145.50 with global supplies seen as tightening given both Ukraine and Russia are exporters. Gold rose +0.88% to US$1,905 benefiting from lower real yields and its status as a haven, and silver also gained +0.74% to US$24.45. Bitcoin, which is increasingly becoming a barometer of risk appetite bucked the trend, rising +11.5% to US$41,739 with some seeing cryptocurrencies as benefiting in helping to avoid sanctions.
Economic data:
- Australian Manufacturing PMI (MoM Feb) 09:00
- Chinese Manufacturing PMI (MoM Feb) 12:30
- RBA Rate Decision 14:30
- Eurozone Manufacturing PMI (MoM Feb) 20:00
- German Inflation (MoM Feb) 00:00
- U.S ISM Manufacturing PMI (MoM Feb) 02:00
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
