Global Equities Tumble Over Ukraine Fear

We were perhaps even more amused than our readers by our Friday headline "Stocks Close At New Record High On Russian Invasion, GDP Decline And Pending Home Sales Miss." It appears that today the market forgot to take its lithium, and is finally focusing on the Ukraine part of the headline, at least until 3:30 pm again when everything should once again be back to market ramp normal. As expected, the PMI data from China and Europe in February, was promptly ignored and it was all about Ukraine again, where Russia sternly refuses to yield to Western demands, forcing the shocked market to retreat lower, and sending Russian stocks lower by over 11%. This is happening even as Ukraine is sending Russian gas to European consumers as normal, gas transport monopoly Ukrtransgas said on Monday. "Ukrtransgas is carrying out all its obligations, fulfilling all agreements with Gazprom. The transit (via Ukraine to Europe) totalled 200 million cubic meters as of March 1," Ukrtransgas spokesman Maksim Belyavsky said. In other words, it can easily get worse should Russia indeed use its trump card.

Even though Bunds have failed to close the opening gap higher amid an escalation of concerns surrounding Ukraine, stocks in Europe managed to come off lows, supported by the latest PMI data and reports that gas flow from Ukraine is unaffected. Nevertheless, risk aversion remained the dominant theme and heading into the  North American open, stocks in Europe are seen lower across the board, with financials underperforming. At the same time, commodities and precious metals benefited the most from the flight to quality, with Brent surging over USD 2 overnight and wheat rising the most since September 2012. As a guide, more than half of Russia’s gas exports to the EU are shipped through Ukraine, which is also the third biggest corn shipper and the sixth-largest wheat exporter.

Apart from digesting EU-based PMI reports, market participants also absorbed a raft of UK data, which included Manufacturing PMI, Mortgage Approvals which came in at its highest since Nov’07 and money supply data, all of which failed to have a meaningful impact on GBP/USD. Looking elsewhere, despite the fact that safe-haven related flows weighed on USD/JPY overnight and in Europe this morning, EUR/CHF grinded higher and reversed over half of initial losses. Going forward, there is little in terms of tier-1 macroeconomic data releases, but Draghi is due to testify in Brussels at 1400GMT/0800CST.

Bulletin news summary from Bloomberg and RanSquawk

  • Risk averse sentiment dominated the price action throughout the session amid an escalation of concerns surrounding Ukraine, with fears over prolonged conflict also supporting Brent and soft-commodities in early trade.

  • Bunds gapped higher at the open, with stocks lower across the board and financials underperforming as credit spreads widened.

  • Eurozone PMI Manufacturing (Feb F) M/M 53.2 vs. Exp. 53.0 (Prev. 53.0) and Chinese HSBC Manufacturing PMI (Feb) M/M 48.5 vs. Exp. 48.5 (Prev. 49.5).

  • Treasuries gain, 10Y yield holding near early February lows as Ukraine says Putin’s military is strengthening its presence in Crimea, where ethnic Russians comprise a majority.

  • Russian soldiers attacked Ukrainian army units in the Black Sea district in the last 24 hours, while more armored personnel carriers and war ships have been sighted, the border guard service said today

  • Russia raised its main interest rate the most since 1998 to shore up the economy as the ruble tumbled and stocks sold off the most in five years

  • U.S. Secretary of State Kerry is traveling to Kiev after discussing sanctions against Russia while EU foreign ministers will hold an emergency meeting; Merkel and Obama agreed in phone call yesterday that political solution is only way on Crimea

  • If Obama’s handling of the crisis reinforces doubts about his toughness in addressing foreign challenges, as some critics assert, it could affect a more diverse range of issues: Israeli-Palestinian peace talks, North Korea’s nuclear weapons

  • China’s Communist Party leadership faces a dilemma over where to set a growth goal for 2014 as President Xi Jinping wrestles with sustaining expansion while limiting debt risks, environmental damage and social unrest

  • North Korea fired two short-range ballistic missiles after it launched four into the sea off its eastern coast last week, escalating tensions as the U.S. and South Korea entered the second week of joint military drills

  • Euro-region economic reports in the past month turned out reassuring enough to convince most economists that Mario Draghi doesn’t need to cut interest rates this week

  • Sovereign yields fall, with exception of Greece and Portugal. EU peripheral spreads tighten as bund yields fall. Global equity markets, U.S. stock-index futures decline. WTI crude and gold higher; copper declines

US Event Calendar

  • 8:30am: Personal Income, Jan., est. 0.2% (prior 0.0%); Personal Spending, Jan., est. 0.1% (prior 0.4%); PCE Deflator m/m, Jan., est. 0.1% (prior 0.2%)

  • 8:58am: Markit U.S. PMI Final, Feb., est. 56.5

  • 10:00am: ISM Manufacturing, Feb., est. 52 (prior 51.3)

  • ISM Prices Paid, Feb., est. 57.3 (prior 60.5)

  • 10:00am: Construction Spending m/m, Jan., est. -0.3% (prior 0.1%)

  • Domestic Vehicle Sales, Feb., est. 11.9m (prior 11.94m)

  • Total Vehicle Sales, Feb., est. 15.4m (prior 15.16m) Central Banks

  • 10:30pm: Reserve Bank of Australia seen holding cash rate target at 2.5%

  • 10:30am: BoE’s Carney speaks on panel in Frankfurt Supply

  • 11:00am: Fed to purchase $2.25b-$2.75b in 2021-2024 sector

Asian Headlines

JGBs rallied and JPY swap curve bull-flattened amid broad based risk averse tone which also saw the Nikkei 225 index settle lower over 1% amid geopolitical tensions in Ukraine. At the same time, after coming under focus last week, USD/CNY traded steady overnight after much of the carry trade premium was eroded by the PBOC engineered squeeze.

Chinese Manufacturing PMI (Feb) M/M 50.2 vs. Exp. 50.1 (Prev. 50.5)
Chinese Non-Manufacturing PMI (Feb) M/M 55.0 (Prev. 53.4)
Chinese HSBC Manufacturing PMI (Feb) M/M 48.5 vs. Exp. 48.5 (Prev. 49.5)

EU & UK Headlines

Eurozone PMI Manufacturing (Feb F) M/M 53.2 vs. Exp. 53.0 (Prev. 53.0)
- German PMI Manufacturing (Feb F) M/M 54.8 vs. Exp. 54.7 (Prev. 54.7)
- French PMI Manufacturing (Feb F) M/M 49.7 vs. Exp. 48.5 (Prev. 48.5)
- Spanish PMI Manufacturing (Feb) M/M 52.5 (Prev. 50.6), highest since April 2010
- Italian Manufacturing PMI (Feb) M/M 52.3 Vs. Exp. 52.8 (Prev. 53.1)

UK PMI Manufacturing (Feb) M/M 56.9 vs. Exp. 56.5 (Prev. 56.7, Rev. to 56.6)
UK Mortgage Approvals (Jan) M/M 76.9K vs. Exp. 74.5K (Prev. 71.6K, Rev. to 72.8K) - Highest since November 2007

Bunds gapped higher at the open but failed to top the high from last week seen at 145.33, which when broken will open up the door to the continuation of highs from last May at 145.80. To the downside, supports levels are seen at 144.19 which is the 61.8% Fibonacci from 25th of Feb.

Moody’s changed outlook on Germany’s Aaa rating to stable from negative, citing diminished risks for Germany in supporting other Eurozone countries. Moody’s said Germany has made progression in fiscal consolidation and the country’s balance sheet faces diminishing risks from banking system. (DJN) Moody’s also changed the outlook on Austria’s Aaa rating to stable from negative, and changed the outlook on Luxembourg’s Aaa rating to stable from negative.

US Headlines

President Obama will release his fiscal 2015 budget on Tuesday, a month late and after an especially muted rollout. The document is widely viewed as “dead on arrival” in the Capitol because appropriators already have their discretionary top-line number for the year starting Oct. 1, and because the midterm election means there is little appetite for changes to entitlements and taxes. (


Stocks in Europe traded lower since the get-go, with Asian equity indices are nursing losses overnight as market participants continued to fret over the unstable situation in Ukraine. Financials underperformed on the sector break-down, while the more defensive sectors benefited from the flight to quality.


GBP failed to benefit from the release of better than expected Hometrack, Manufacturing PMI and Mortgage Approvals data, with GBP/USD and EUR/USD seen little changed, thats in spite of the fact that JPY continued to benefit from safe-haven related flow.

The Russian central bank raised the key rate to 7% from 5.5% effective immediately, adding that the decision to raise rates due to rising inflationary risks and risks to financial stability. (BBG) This meeting was not scheduled until March 14th, as the central bank are forced to intervene in a volatile market after the RUB was heavily sold following military intervention in Ukraine.


Citigroup have raised its 2014 gold forecast to USD 1,305 per oz, from USD 1,255. Analysts also raised its 2014 copper forecast to USD 6,975 per tonne, from USD 6,650 and cut its 2014 iron ore forecast to USD 113 per tonne, from USD 120. (BBG)

Barclays has raised its 2014 crude oil price forecast, on expected higher demand and investor interest levels, coupled with low inventory figures and high geopolitical risks, raising its average WTI price forecast for 2014 to USD 99 bbl, up from USD 97 bbl. (RTRS)

Analysts at SocGen expect crude prices to fall on maintenance and ending winter demand, whilst seeing more downside to WTI crude over North Sea Brent and they expect managed money length on WTI crude to reverse. (BBG)

Ukraine is transiting Russian gas to Europe as normal, according to gas transport monopoly Ukrtransgas. (RTRS)

North Korea have fired two short-range missiles into the sea. (Yonhap) This follows similar missile tests held last week on the Korean peninsula.

Sign Up

Get the InvestingChannel
Free e-Letter Today

Learn More

Independent market opinion, analysis and ideas - delivered every business day

Premium market opinions, analysis, and ideas - delivered every business day

Editor's Picks