Global Market Rollercoaster: Full Overnight Event Summary

Since Ukraine is the only wildcard variable in the news these past few days, it was to be expected that following i) the end of the large Russian military drill begun two weeks ago and ii) a press conference by Putin in which he toned down the war rhetoric, even if he did not actually say anything indicating Russia will difuse the tension, futures have soared and have retraced all their losses from yesterday. And not only in the US - European equity indices gapped higher at the open this morning in reaction to reports that Russian President Putin has ordered troops engaged in military exercises to return to their bases. Consequent broad based reduction in risk premia built up over the past few sessions meant that in spite of looming risk events (ECB, BoE policy meetings and NFP release this Friday), Bund also failed to close the opening gap lower. At the same time, USD/JPY and EUR/CHF benefited as the recent flight to quality sentiment was reversed, with energy and precious metal prices also coming off overnight highs.

Despite the apparent reversal in sentiment, stocks were led higher by health care and industrial names, indicating a degree of caution and unwillingness to pare risk premia even further. In terms of macroeconomic data releases this morning, EUR/GBP reversed early losses following the release of lower than expected UK Construction PMI data, while the release of the latest Eurozone PPI data which showed largest Y/Y fall since December 2009 underpinned potential need to ease by the ECB.

Going forward, market participants will get to digest the release of the latest ISM New York report, API oil inventories after the closing bell on Wall Street and the commencement of China’s National People's Congress meeting.

Bulletin news summary from Bloomberg and RanSquawk

  • Treasuries fall, led by 5Y and 7Y; 10Y notes surrender all of yesterday’s flight-to-quality gains as Putin says in press conference there’s no immediate need to send troops to Ukraine

  • Putin accused protestors of overthrowing Yanukovych in illegal coup and that the deposed president had asked for military protection of ethnic Russians

  • Putin also ordered soldiers in western Russia to return to their bases by the end of the week after military exercises ended on schedule

  • China’s money-market rate jumped the most in six weeks, rebounding from a nine-month low, as the central bank withdrew excess cash from the financial system

  • Citigroup and JPMorgan are bracing investors for a fourth straight drop in 1Q trading, a period of the year when the largest investment banks typically earn the most from that business

  • Sovereign yields higher. EU peripheral spreads narrow as bund yields rise from 7-month low. Asian equities mostly higher; Shanghai Composite -0.2%. European equity markets, U.S. stock-index futures gain. WTI crude and gold fall; copper higher

US Event Calendar

  • 9:45am: ISM New York, Feb. (prior 64.4)

  • 10:00am: IBD/TIPP Economic Optimism, March, est. 45.3 (prior 44.9)

  • 11:00am: POMO - Fed to purchase $1b-$1.25b notes in 2036-2044 sector

Ukraine Update

Russian President Putin says no need to send troops to Ukraine yet, military exercise had been planned long ago; use of force in Ukraine is a choice of last resort.

Russian President Putin says we reserve the right to use all legitimate means to protect residents of Eastern Ukraine.

Russia is not considering the annexation of Crimea, says President Putin.

Asian Headlines

JGBs finished the session little changed, with super-longs outperforming on touted dip buying. At the same time, in spite of Shanghai Comp trading lower following liquidity draining op, the Nikkei 225 index managed to settle in positive territory and was supported by a weaker JPY, with USD/JPY and EUR/JPY remaining bid this morning.

The PBoC drained CNY 35bln via 14-day repos and CNY 50bln via 28-repos. (BBG)

EU & UK Headlines

Eurozone PPI (Jan) M/M -0.3% vs Exp. -0.1% (Prev. +0.2%)
Eurozone PPI (Jan) Y/Y -1.4% vs Exp. -1.3% (Prev. -0.8%) - largest fall since December 2009.
UK PMI Construction (Feb) M/M 62.6 vs. Exp. 63.2 (Prev. 64.6) - rains and floods hit home-building, according to Markit.

There will be unanimous agreement on ending the sterilization of bond purchases under the Securities Market Programme (SMP), according to predictions from an ECB source. (DAWN.COM) This comes ahead of this Thursday's ECB rate decision, where analysts remain split on whether the ECB will act to stem deflation risk.

US Headlines

The White House on Monday night touted middle-class tax breaks it is including in its 2015 budget proposal set for release on Tuesday. The expanded tax breaks were mostly called for in President Obama’s State of the Union address last month, in which the president stressed combating income inequality as a top goal. (


Oil & gas related stocks underperformed this morning after reports of an end to war games in Crimea prompted an aggressive slide in energy prices. At the same time, with gold trading lower by over USD 10.00 meant that the heavily correlated Fresnillo also traded with losses close to 10%.


Lower precious metal prices failed to weigh on commodity linked AUD/USD, which remained bid, albeit marginally, as the overriding risk on theme supported flows into higher yielding assets. Elsewhere, it was reported this morning citing an advisor to Putin, Glazyev, saying that Russia can dodge any proposed US sanctions by switching to other currencies and creating its own payment system. However, Kremlin official later clarified that Glazyev's comment on USD do not reflect official position.

Reserve Bank of Australia Cash Rate Target (March 4) 2.50% vs. Exp. 2.50% (Prev 2.50%)

The RBA repeated it sees likely period of interest-rate stability and that monetary policy remains accommodative.

The RBA also commented that the exchange rate remains high by historical standards, adding that resource investment is to decline significantly and that non-mining improvement is only tentative. (BBG)


Heading into the North American open WTI crude futures trade lower following the news released this morning indicating that any imminent military conflict in Ukraine has lessened following reports of the conclusion of Russian military exercises, with Putin also stating that there is no need to send troops to Ukraine yet.

Sanctions on Russian oil would be infeasible and ineffective, according to Morgan Stanley, as Russia is integral to the global oil market, representing 13% of global crude production. (BBG)

Gazprom is set to cancel gas discounts to Ukraine, starting in early April. (Interfax)

BNP Paribas has upped its 2014 NatGas price estimate to USD 4.90/mmbtu, up from USD 4.60/mmbtu, as production gains are expected to fall short of exuberant market expectations. (BBG)

Saudi Arabia looks set to produce up to 11mln bpd in Q3 with Saudi oil output gain to gut global spare capacity to near zero, according to Energy Aspect. (BBG)


* * *

We conclude with the traditional Jim Reid (DB) overnight event recap

The Crimean standoff remains the focus for markets, and after the flurry of events yesterday, developments appear to have slowed down in the last 12 hours or so but it’s still too early to say whether we’ve reached a temporary stalemate. As we type this morning, Reuters is reporting that Putin has ordered troops engaged in military exercises to return to their bases, although its not clear if that refers to troops in Crimea or in Russian territory. As we await the next move by the protagonists, attention is turning to Putin’s motivations for seizing control of the Crimean peninsula over the weekend. Opinions are split on whether Putin is looking for leverage in the formation of a new Ukrainian government, or looking to seize the Crimean region as a precursor to potentially reconstructing Ukraine’s eastern border (DB thinks that the latter is unlikely). Others including the FT’s Peter Spiegel think that after last week’s exit of the Russian-backed Ukrainian President Yanukovich and reported threats to Russian interests, the focus is on finding a face-saving Ukraine exit for Vladimir Putin. One way of doing so would be through the EU potentially offering international monitors for Crimea, which could meet the Russian president’s public demand that the peninsula’s Russian-speaking majority is protected. Indeed, Russia’s envoy to the UN argued that the ousted Ukrainian president had asked Putin to use military force in Crimea to restore law and order.

Late Monday, the US government said it was suspending all trade and investment talks with Russia as well as all “military-to-military” engagements. So far there have not been wider military reactions from the West. The US confirmed that there was no change in US ship movements in the Black Sea region. The USS Mount Whitney, a command ship sent into the Black Sea to assist with security surrounding the Sochi Olympics, was due to return to its home port in Italy on either Monday or Tuesday (FT).

In terms of the economic impact on Russia, this will in some part depend on sanctions. On this the international community appears split, with the US seemingly more interested in imposing economic restrictions, while its EU allies are less inclined to do the same. We’ll hear more about this today when US Secretary of State John Kerry meets with officials in Kiev. Our EM strategists think that there are significant doubts about whether the West could agree on meaningful economic sanctions, not least given Europe’s reliance on Russian energy (it still imports almost 30% of its natural gas from Russia, about half of which is shipped through Ukraine). However, the CBR’s rate hike yesterday will have a negative consequence via a squeeze in the domestic liquidity conditions which will be problematic for the banks and an already weak economy. Even without sanctions, a more isolated Russia will likely compound already low investment levels and a diminished growth outlook on long-standing lack of reforms (both economic and institutional). On the whole, our EM strategists believe that there is further upside pressure to Russian CDS spreads. In terms of the Ukraine, the focus remains very much on the potential for near-term aid. According to the FT, the IMF could tap its recently-created “rapid financing instrument”, which would allow it to loan Kiev $1bn without the detailed negotiations needed for a full-scale aid programme. The European Commission has proposed adding €1bn of its own money to the IMF’s loan. Our EM strategists think that the market has not yet priced in a pessimistic scenario of a Ukrainian sovereign default and there is likely further downside to bond prices in their view.

Turning to overnight markets, sentiment is certainly firmer compared to yesterday with small gains seen on the Nikkei (+0.3%) and Hang Seng (+0.4%) on the back of lower risk aversion. In keeping with this theme, gold (-0.01%) has given up some of its 1.8% gain on Monday and US treasury yields (+1bp) have edged off YTD lows. S&P500 futures are up 4.5pts or 0.25% as we type. A number of EM bourses continue to lag though, including the KOSPI (-0.37%), HSCEI (-0.11%) and Jakarta Composite (-0.3%) partially catching up to what was a very weak day for EM assets yesterday. Chinese stocks (-1.0%) are leading the region’s losses ahead of the National People’s Congress. In Asian fixed income, the 5bp rally in UST yields on Monday is boosting demand for Asian credit. A number of high beta EM sovereign credits are 3-4bp tighter as investors see them being relatively isolated from the issues of their Eastern European counterparts. The AUDUSD is 0.1% lower this morning after the Reserve Bank of Australia said that it will be keeping rates on hold for a “period” and reiterated its reference to the AUD’s strength.

Coming back to yesterday, in Western Europe markets spent much of the day combing through the financial sector looking for banks which had the highest exposure to Russia and the Ukraine. Judging by stock price moves, Raiffeisen (- 9.6%), Unicredit (-6.2%), ING (-5.6%) and Soc Gen (-5.5%) came under the most scrutiny, leading European financials (-2.7%) lower as the worst performing sector in the Stoxx600 (-2.27%). A number of banks scrambled to release press statements yesterday quantifying their exposure to the two countries in question. ING Bank disclosed that it has EUR8.5bn in commercial bank loan exposure in Russia and Ukraine and Socgen generated some worries as the foreign bank with largest bank network in Russia (Bloomberg), but it said that its Ukranian exposure was negligible. Raiffeisen as the owner of the biggest foreign lender in Ukraine was forced to suspend the sale of its Ukraine unit. Unicredit said that it has temporarily closed some branches in the Crimean region and said that it will limit ATM cash withdrawals from Ukraine to a maximum of UAH1500 per 24 hours (equivalent to around US$150). The European senior financials credit index (+6.125bp) underperformed the broader European main index (+4.125bp).

Across the Atlantic, the S&P 500 (-0.74%) rebounded off the intraday lows after the Russian military downplayed talk of an ultimatum to Ukrainian forces in the Crimea (the ultimatum passed this morning without major incident). Financials (- 0.93%) also were the worst performing sector in the US and investors shrugged off the better data flow with Ukraine headlines driving market direction. Though it was largely ignored, yesterday’s data flow gave some hope that US is finally emerging from its weather-induced slowdown – but you could be forgiven for thinking the opposite if you were in Washington DC area where yet another heavy snow storm hit accompanied by extremely low temperatures on Monday evening. Nevertheless, looking at the Bloomberg US Economic Surprise index, negative surprises bottomed at a two-year low in late February and have been rising since.

January US personal income (0.3% vs 0.2% expected) and personal spending (+0.4% vs 0.1%) were both above consensus though there were downward revisions to December spending numbers. The ISM manufacturing (53.2 vs 52.3 expected) also beat estimates, rebounding in February following a sharp fall in January. The ISM result was driven by gains in new orders (54.5 vs. 51.2) and inventories (52.5 vs. 44.0). Brent and WTI closed 2% higher apiece on talk of supply disruptions but NYMEX natural gas fell 2.5% as expectations that the worst of the cold weather conditions have passed. The government bond complex across the Core was well bid, perhaps supported by Draghi’s comments to the European Parliament where he warned that the longer that inflation stays at the current level, the greater the risk that it won’t go back to 2% in a reasonable time period. Towards the end of the US session, Citigroup’s CFO warned that the bank faces a weak 1st quarter with trading revenues down in the high mid-teens year-on- year. This is a consistent message to JPM’s comments last week suggesting that markets revenues would be down 15% yoy this quarter.

Looking at the day ahead, we have a relatively quiet day ahead in terms of data releases but there will no doubt be plenty of attention paid to the developments in the Crimean region. On Capitol Hill, the Senate Banking Committee has postponed a confirmation hearing for the nominations of Stanley Fischer, Jerome Powell and Lael Brainard to the Fed Board of Governors. The postponement was because of government office closures on Monday as a result of snow storms. A new date has not been set for the confirmation hearing, according to a statement from the banking committee.

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