Good morning. Happy Friday.
The Asian/Pacific markets did well. Hong Kong was weak, but Japan, China, South Korea, India, New Zealand, Malaysia, Indonesia and Thailand posted solid gains. Europe, Africa and the Middle East markets are up huge. The Uk, Denmark, Poland, France, Turkey, Germany, Russia, Greece, Finland, Switzerland, Hungary, Spain, the Netherlands, Italy, Portugal, Austria, Sweden and the Czech Republic are all up big. Futures in the States point towards a positive down open for the cash market.
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The dollar is down. Oil is down copper is up. Gold and silver are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Wild swings
Financial markets went on a roller-coaster ride on Thursday as traders monitored the latest happenings in Ukraine, where Russia used air, land and naval forces for an invasion that shocked the world. WTI crude oil surged to more than $100 a barrel for the first time since 2014, before dropping back to trade near the $90 level. The Nasdaq Composite even briefly went into a bear market, before turning a 3.5% intraday loss into a gain of 3.3%. Stock index futures are on the back foot again this morning, with Dow, S&P 500 and Nasdaq all off by 0.8% in early morning action.
Buy the dip: Many players have touted this market maxim since the COVID pandemic, when a steep selloff was followed by an unprecedented amount of buying that sent indices to continuous record highs. Since then, investors have been on the hunt for bargains, or so-called oversold conditions, while algo trading has magnified the sentiment and contributed to big reversals. Wells Fargo’s Paul Christopher is warning that there is still “too much uncertainty” out there, but a question-and-answer session at President Biden’s press conference helped calm some nerves.
“First of all, there’s no doubt that when a major nuclear power attacks and invades another country that the world is going to respond and markets are going to respond all over the world,” Biden said from the White House. “The notion that this is going to last for a long time is highly unlikely, as long as we continue to stay resolved in imposing the sanctions we’re going to impose on Russia. We have purposely designed these sanctions to maximize a long-term impact on Russia and to minimize the impact on the United States and our allies.”
Outlook: Western intelligence officials say Kyiv could fall to Russian forces in the coming hours. Ukraine’s air defenses have been mostly eliminated and the Russian military controls several airfields that it could use to transport more troops into the country. The end-game for Vladimir Putin would be to install a puppet regime in Kyiv, though Ukrainian President Volodymyr Zelenskyy has promised to defend his nation, saying that he and his government will remain in the capital. (6 comments)
Not SWIFT
In response to the Russian invasion of Ukraine, a raft of sanctions were announced yesterday by the U.S., EU and other western powers. President Biden cut off Sberbank (OTCPK:SBRCY), Russia’s biggest lender, from the U.S. financial system, along with four other banks that represent an estimated $1T in assets. He also announced export restrictions on semiconductors and aircraft parts, a swath of measures on Russia’s elites (like freezing their American assets), as well as hampering Russia’s ability to do business in foreign currencies and clear dollar trades on Wall Street.
Missing from the list? Sanctions on Russian energy exports or aluminum supplies, and what would be the most severe action to date: banning Russia from international payments system SWIFT. The Belgian financial messaging platform links more than 11,000 financial institutions, keeping track and facilitating trillions of dollars worth of cross-border transactions each day (Russia accounted for 1.5% of the transactions on the system in 2020).
Payments are possible without the system, but the workarounds are difficult and could have knock-on effects across the global economy. For example, while the U.K. is all in for a ban, Germany is highly concerned about reciprocal damage due to its hefty natural gas imports from Russia via SWIFT. Other nations in the EU are also concerned, and the effort would need to be coordinated to be applied effectively. “It is always an option,” Biden noted in his remarks. “But right now, that’s not the position that the rest of Europe wishes to take.”
Thought bubble: Disagreements on whether to oust a country from SWIFT have happened before. The most recent case occurred in 2018, when the Trump administration sought to cut off the access of Iran (Europe eventually went along with the ban due to fears of being in violation of sanctions against the country). In terms of a SWIFT ban on Russia, its effectiveness is debated among economists. Some say it’s an overhyped tool that could backfire or result in stronger ties with China, while others say it has the potential to shrink Russia’s GDP by as much as 5%. (33 comments)
Crazy commodities
Commodity prices continue to be on watch amid supply concerns over the crisis in Ukraine. The country, along with Russia, accounts for a third of the world’s wheat exports, a fifth of its corn trade and nearly 80% of sunflower oil production. Prolonged tensions could risk significant shipments from Black Sea ports, as well as production and transportation within the countries.
Snapshot: Wheat prices have already risen by more than 20% since the start of the year, while corn costs have climbed 15% YTD. That didn’t stop prices from skyrocketing on Thursday, with wheat futures (W_1:COM) hitting their highest levels in nearly 14 years and corn (C_1:COM) hovering near an eight-month peak. The conflict is threatening to disrupt the cost of raw materials and food globally as inflation plagues economies around the globe.
“There is going to be a lot of volatility until Russia decides what it’s going to do,” noted Jack Scoville of the Price Futures Group in Chicago, “but I think a lot of the emotion was spent [on Thursday].”
Go deeper: Daily price limits for wheat futures contracts on the Chicago Board of Trade will expand for today’s session, according to exchange parent CME Group. Limits for soft red winter wheat and K.C. hard red winter will widen to 75 cents a bushel, after the CBOT March and May wheat contracts settled up the normal 50-cent daily maximum on Thursday. Unless wheat futures post another limit move today, the limits will return to 50 cents on Monday.
Interest rate menu
Concerns are growing over a Fed rate hike next month, given the global risks created by the conflict in Ukraine. It’s a kind of Catch-22 situation, where raising rates could exacerbate disruptions to growth, while standing by could worsen inflation and pose a big threat to the economy. The central bank will need to tread carefully in the coming months and year, and the risk of a policy mistake has never being higher.
Fedspeak: A slate of central bank officials stuck to the idea of a rate hike for March despite the uncertainty over Russia’s invasion of Ukraine. Federal Reserve Governor Christopher Waller even suggested a half-point move if inflation data keeps coming in hot, as well as shrinking the Fed’s balance sheet no later than July. Many traders also see the start of a hiking cycle in March, but are still debating how aggressive the Fed will be over the rest of the year.
“We haven’t even completely absorbed and exited the supply shock from the pandemic yet,” added Joe Brusuelas, chief economist at economics advisory firm RSM US.
Analyst commentary: “We have not had such a large and broader based overshoot of inflation in decades,” declared Bruce Kasman, chief global economist for J.P. Morgan. While the bank expects inflation will begin to recede by the middle of the year, a sustained shock could push price pressures higher. “If that happens, the Fed is going to have some very difficult choices.”
Today’s Economic Calendar
8:30 Durable Goods
8:30 Personal Income and Outlays
10:00 Pending Home Sales
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
What else is happening…
Alibaba (BABA) shows slowest revenue growth since listing in 2014.
Block (SQ) tops estimates, sees Square GPV rising 35% Y/Y.
Coinbase (COIN) gives poor guidance due to crypto slump.
Elon Musk and his brother probed for Tesla (TSLA) insider trading.
Nikola (NKLA) reports narrower loss, updates on pilot programs.
U.S. jobless claims drop to their lowest level since the 1970s.
Moderna (NASDAQ:MRNA) unveils new booster amid endemic COVID.
Buybacks: AMD (AMD) launches $8B in share repurchase authorization.
Beyond Meat (BYND) tumbles on deeper loss and shrinking revenue.
Etsy (ETSY) posts holiday quarter results ahead of expectations.
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Good morning. Happy Thursday.
The Asian/Pacific markets suffered big losses. Virtually every market dropped 1-5%. Europe, Africa and the Middle East markets are getting annihilated. Russia is down 35%; Poland and Hungary are down 10%; Turkey is down 8%; and many others are down 3-5%. Futures in the States point towards a big gap down open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is up. Oil is up 8%; copper is up. Gold and silver are up. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
It’s war
Conditions in Ukraine are rapidly deteriorating. Russia has confirmed it was conducting a “special operation” to protect the eastern Donbas region (which it recognized as its own just days ago), citing the need to “demilitarize” Ukraine and accusing the U.S. of crossing its “red line” by expanding NATO. Military facilities have been targeted across the country, including airfields and anti-aircraft systems, and while the developments are hard to confirm, there are already reports of casualties. Airstrikes and explosions have hit the capital of Kyiv, as well as more than a dozen other cities.
Land, air and sea: Ukraine’s border service said its soldiers came under attack along the country’s frontiers with Russia and neighboring Belarus, while tanks have crossed the border with Crimea. Reports additionally suggest that Russian Navy troops have landed in Odessa and are also crossing the border in the city of Kharkiv. Russian cyberattacks are meanwhile hitting the country, with Ukrainian officials citing an intensifying hacking wave of destructive software.
The government in Kyiv is calling it a “full-scale invasion,” with Ukraine’s ambassador to the UN saying “it’s too late for de-escalation.” That’s prompted Ukraine to declare martial law and close its airspace to civilian flights. The military also announced that it shot down five Russian warplanes and one helicopter, though Moscow denied any of its aircraft were hit.
Commentary: “What we’ve seen since the election of President Zelenskyy, is that Russia had its hopes raised that this was someone they could work with and that could unblock the Minsk II peace process that governed the conflict in eastern Ukraine,” said Zach Witlin, senior analyst at Eurasia Group. “Instead, Zelenskyy has gone from what was thought in Russia, as a Russian-speaking, perhaps even Russian-tolerant president, to a vehemently anti-Russian president. Putin is calculating that he is at risk of losing Ukraine and does not want that to be part of his legacy.” (26 comments)
Take cover
The conflict in Ukraine is roiling many sectors across the globe, with investors fearing contagion in all parts of the market. Stock index futures in the U.S. dropped precipitously overnight, with contracts linked to the Dow and S&P 500 off 2.5%, while the Nasdaq slid over 3%. Equities in Europe are doing worse, with the Euro Stoxx 50 plunging 5% after bourses posted earlier losses across Asia.
Commodities: Ukraine and Russia are also big exporters of precious/industrial metals, as well as grain, but a military blockade could risk significant shipments from Black Sea ports. Aluminum topped its 2008 peak by climbing nearly 3% to $3,388 a ton in London, while gold hit its highest level in more than a year, rising 3.3% to $1971.30. Nickel also advanced 2.4% to $25,085 a metric ton on the news, palladium climbed 4.4% to $2,547 a troy ounce in New York, while wheat futures soared 5.7% to $9.35 a bushel in Chicago and corn prices rose 5.1% to $7.16 (see energy implications below).
Over in Ukraine: The National Bank of Ukraine limited cash withdrawals to 100K hryvnia a day, equivalent to about $3,339.13, and will fix the official exchange rate for Thursday. Activity on Ukraine’s PFTS Stock Exchange was postponed, while the yield on a Ukrainian dollar bond maturing in September 2027 doubled over the last 24 hours to 32.060%.
Over in Russia: The ruble was trading at 89.8903, down more than 10% versus the dollar, prompting Moscow to announce a currency intervention. Meanwhile, yields on Russian benchmark 10-year OFZ ruble bonds hit 10.93%, their highest since early 2016. Russia’s central bank also ordered brokers to ban short-selling as Russian shares plunged, with the benchmark MOEX index losing as much as 45% in early trade.
Elsewhere: The greenback, which could be viewed as a safe-haven during times of geopolitical unrest, was up 0.4% to 96.538, per the U.S. Dollar Index. In the crypto space, Bitcoin (BTC-USD) plunged 9.1% to $35,313, while Ethereum (ETH-USD) is down 13% to $2,374 and XRP (XRP-USD) is off 12% to $0.641629. Bonds caught a flight-to-safety bid, however, with the yield on the 10-year Treasury falling 10 basis points to 1.88%. (71 comments)
Broader sanctions
For now, the western reaction to the unfolding situation in Ukraine will likely be limited to economic sanctions. U.S. and European diplomats have been working for weeks on a coordinated package that is set to be rolled out in the coming days, though initial measures will be announced today as President Biden delivers remarks from the White House.
On the menu: The sanctions will target the families of Putin’s inner circle, prohibiting them from traveling to the west and freezing their assets in western banks. Russian institutions and retail banks will also be cut off from Western finance, while export controls will be imposed on advanced technology like semiconductors and aircraft parts. Meanwhile, the Biden administration slapped sanctions on the Nord Stream 2 AG company and its corporate officers, but that was after Germany halted the pipeline which was designed to double the amount of its gas imports.
Sanctions are not yet planned to touch Russia’s energy sector directly, given the EU’s dependence on Russian gas, though Moscow could weaponize the flows if things get ugly. Others, like Siemens Energy Chairman Joe Kaeser say things are the other way around, with “Russia depending more on oil and gas exports” than its customers. “The western world, the U.S in particular, but also the Middle East, they have been extremely reliable sources who’ve always been offering supply – [it] didn’t work because of the cost difference. But now we have a different playing field.”
Go deeper: Even before the invasion, energy prices were soaring, but WTI crude (CL1:COM) surged 8.7% overnight to $100/bbl – for the first time since 2014 – while Brent crude (CO1:COM) rocketed 9% to touch $105. Energy companies were also among the few winners in the U.S. as premarket trading opened this morning. Marathon Oil (NYSE:MRO) and Continental Resources (NYSE:CLR) are up 6%, Devon Energy (NYSE:DVN) advanced 5%, Chevron (NYSE:CVX) is ahead by 4%, and Exxon Mobil (NYSE:XOM) and ConocoPhillips (NYSE:COP) are 3% higher. (6 comments)
Forceful statements
Russia’s Vladimir Putin: “I decided to conduct a special military operation. Its goal is the protection of people who over the past eight years have suffered abuse and genocide from the Kyiv regime. We urge you to lay down arms immediately and go home. I will explain. All servicemen of the Ukrainian army who comply with this requirement can freely leave the area of military action and return to their families. Whoever would try to stop us and further create threats to our country, our people, should know that Russia’s response will be immediate and lead you to such consequences as you have never faced in your history. We are ready for any situation that arises. All necessary decisions in this regard have been made. I hope that I will be heard.”
Ukraine’s Volodymyr Zelenskyy: “Dear Ukrainians, this morning Russian President Putin announced a special military operation in Donbas. Russia carried out strikes on our military infrastructure, on our border guards. Explosions were heard in many cities in Ukraine. We introduced martial law throughout the state. I had a conversation with President Biden… The U.S. is starting to gather international support. Today, we need each of you, each of you to be calm. If possible, stay at home, please. We are working. The army is working. The entire security and defense sector of Ukraine is working. Don’t panic. We are strong. We are ready for everything and we will defeat everyone because we are Ukraine. Glory to Ukraine.”
President Biden: “President Putin has chosen a premeditated war that will bring a catastrophic loss of life and human suffering. Russia alone is responsible for the death and destruction this attack will bring, and the United States and its Allies and partners will respond in a united and decisive way. The world will hold Russia accountable. I will meet with my G7 counterparts in the morning and then speak to the American people to announce the further consequences the United States and our Allies and partners will impose on Russia for this needless act of aggression against Ukraine and global peace and security. We will also coordinate with our NATO Allies to ensure a strong, united response that deters any aggression against the Alliance.”
EU’s Ursula von der Leyen: “We will not let President Putin tear down Europe’s security architecture. He should not underestimate the resolve and strength of our democracies. The European Union stands with Ukraine and its people. Ukraine will prevail. We condemn this barbaric attack, and the cynical arguments used to justify it. Later today we will present a package of massive, targeted sanctions. The sanctions will target strategic sectors of Russia’s economy. We will freeze Russian assets in the EU and stop access of Russian banks to our financial market. This is designed to take a heavy toll on the Kremlin’s ability to finance war.”
NATO’s Jens Stoltenberg: “Once again, despite our repeated warnings and tireless efforts to engage in diplomacy, Russia has chosen the path of aggression against a sovereign and independent country. This is a grave breach of international law, and a serious threat to Euro-Atlantic security. I call on Russia to cease its military action immediately and respect Ukraine’s sovereignty and territorial integrity. NATO Allies will meet to address the consequences of Russia’s aggressive actions. We stand with the people of Ukraine at this terrible time. NATO will do all it takes to protect and defend all Allies.” (127 comments)
Today’s Economic Calendar
8:30 GDP Q4
8:30 Initial Jobless Claims
8:30 Chicago Fed National Activity Index
9:00 Fed’s Barkin Speech
10:00 New Home Sales
10:30 EIA Natural Gas Inventory
11:00 EIA Petroleum Inventories
11:00 Kansas City Fed Mfg Survey
11:10 Fed’s Bostic: “Banking on Success in a Digital Era”
12:00 PM Fed’s Barkin: Economic Outlook
12:00 PM Fed’s Mester: U.S. Economic Outlook and Monetary Policy
1:00 PM Results of $50B, 7-Year Note Auction
4:30 PM Fed Balance Sheet
8:00 PM Fed’s Waller: U.S. Economic Outlook
What else is happening…
Software development: Six tech stocks with direct exposure to Ukraine.
Fed’s Daly: It’s time to exit extraordinary monetary support.
eBay (NASDAQ:EBAY) slides after setting guidance below consensus marks.
Facebook parent Meta (FB) details next-gen AI investments.
Nine-session losing streak… 3M (NYSE:MMM) sinks to lowest since May 2020.
Cathie Wood appears to cut ties with Palantir Technologies (NYSE:PLTR).
Lemonade (NYSE:LMND) plunges after weak outlook, short of consensus.
Goldman Sachs (NYSE:GS) considers clawbacks to discourage departures.
Ford (NYSE:F): No plan to spin off EV business, but change coming.
—————
Good morning. Happy Wednesday.
The Asian/Pacific markets closed mostly up. China, Hong Kong, South Korea, Australia, Malaysia and Indonesia did well; Japan was closed. Europe, Africa and the Middle East are doing well. The UK, France, Germany, Finland, Switzerland, Norway, Spain, the Netherlands, Italy, Portugal and the Czech Republic are up; Russia and South Africa are down. Futures in the States point towards a moderate gap up open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is down slightly. Oil and copper are down. Gold and silver are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Correction territory
U.S. indices managed to cut their losses on Tuesday, but the drop was still deep enough to push the S&P 500 into correction territory for the first time since Mar. 2020’s COVID-related selloff. The key index fell 1% during the session, resulting in a 10.6% decline since peaking at 4,818 on Jan. 4. While commodity prices remain elevated, the S&P 500 could climb back out of the hole today, with futures contracts tied to the index pointing a 1% gain ahead of the open. Meanwhile, the Dow and Nasdaq climbed 0.8% and 1.4%, respectively.
Bigger picture: Current market fears are centered around sanctions, though the first wave of them appeared to be quite targeted and not that economically damaging. Measures from the U.S. were leveled against two of Russia’s largest financial institutions, three members of Russia’s elite, as well as sovereign debt, but left the crucial energy sector untouched. Moscow has also taken steps to insulate its economy since the annexation of the Crimean Peninsula in 2014, trimming its budget, broadening its trade portfolio, diversifying away from U.S. Treasuries and dollars, and bolstering hard currency reserves.
“The market sees the various sanctions as modest and perhaps not as aggressive as feared,” said Chris Weston, head of research at brokerage Pepperstone. “For now, one could assess there is a vibe across markets that Russian troops will hold Donbass, but push no further.”
Central bank policy: Besides escalating tensions between Moscow and Kyiv, Wall Street is also dealing with a surge in inflation and quantitative tightening. Investors have been trying to size up the Fed’s path forward in recent months and some economists are warning that inflation could even top 10% should Russian actions result in an energy supply shock. Bets on aggressive rate hikes are moving up again in response, with swaps traders now pricing in a better than 35% chance of a half-point move in March, up from under 15% earlier this week. Fed Governor Michelle Bowman has also suggested a 50 bps increase could be in the cards if the next inflation readings come in too high.
Energy concerns
Just months after the COP26 Summit in Glasgow, energy security is dominating climate action in the headlines, as the prospect of a war involving Russia rattles the energy market. Germany on Tuesday halted the Nord Stream 2 pipeline – which is designed to double the amount of its gas imports – after the country made the decision to phase out nuclear power in 2011 and discontinue coal power by 2030. With Germany now relying on Russia for 55% of its gas imports, fears of an energy crisis are growing, as well as increasing worries that crude could even hit $100 a barrel.
Quote: “Germany is right on Nordstream2. The pipeline has to be assessed in light of the security of energy supply for the whole of Europe,” tweeted European Commission President Ursula von der Leyen. “We are still too dependent on Russian gas. We have to strategically diversify our suppliers and massively invest in renewables.” Russia’s Gazprom (OTCPK:GZPFY) owns the entire Nord Stream 2 pipeline, but paid half of the $11B in development costs, with the rest coming from Shell (NYSE:SHEL), Germany’s Uniper (OTC:UNPPY) and Wintershall (OTCQX:BASFY), Austria’s OMV (OTCPK:OMVJF) and France’s Engie (OTCPK:ENGIY).
Germany’s decision to halt Nord Stream 2 “is no small joke,” said Daniel Tenengauzer, head of markets strategy at BNY Mellon, adding that a potential war or stricter sanctions could have a cascading effect on Germany’s manufacturing economy. President Biden likewise said he would do everything in his power to insulate American consumers from Russian sanctions, but recognized that that costs would likely rise. “Defending freedom will have costs for us as well, here at home. We need to be honest about that. I want to limit the pain the American people are feeling at the gas pump. This is critical to me.”
Go deeper: Renewed importance on energy independence could weigh on policymakers’ efforts to decrease the usage of fossil fuels, with coal imports to the EU in January climbing 56% from the prior year. The U.K. Coal Authority also recently allowed a mine in Wales to increase output by 40M tons over the next two decades, while Australia is planning to open or expand more coking coal mines. Over in the U.S., U.S. Energy Secretary Jennifer Granholm is urging American producers to raise their oil and gas output, even telling the National Petroleum Council in December to “get your rig count up.”
Emission-less travel
Speaking of cleaner energy, Airbus (OTCPK:EADSY) said it plans to test a hydrogen-powered engine on a modified A380 by the middle of the decade. The move could bring lower-emissions to commercial air travel, which is responsible for 2.4% of the world’s annual total. Airbus hopes the development will result in a zero emissions aircraft entering service by 2035 and has even released mockups of three “hybrid-hydrogen” concept planes to make “zero-emission flight a reality.”
How it will work: Airbus chose the A380, the world’s largest passenger jet, for the test program because it has room to store massive liquid hydrogen storage tanks and the extra equipment. The adapted jet will have the experimental engine mounted on the rear fuselage, along with four conventional engines on its wings. A partnership was also inked with CFM International, a joint venture between France’s Safran (OTCPK:SAFRY) and General Electric (GE), to develop the hydrogen-powered engine.
Several complex engineering challenges will need to be ironed out first. Those include a cryogenic distribution system, a liquid hydrogen to gas conversion process, as well as special cooling and coating materials. Note that the hydrogen combustion engine, which burns the element in a gas turbine to generate thrust, is different than hydrogen fuel cells (like the ones used in EVs), which generate electricity from hydrogen to power an electric motor.
Outlook: Rival Boeing (BA) is also looking to lower emissions, but has increased its focus on more sustainable aviation fuels due to the economics behind the new technology. While sustainable aviation fuels are more expensive than conventional jet fuel, storing hydrogen requires additional equipment that adds weight, reducing the amount of people or cargo that can go on a plane. Richard Aboulafia, managing director at AeroDynamic Advisory, even goes as far to say that “hydrogen is what happens when engineers and economists don’t talk to each other.”
‘Freedom Convoy’
Another story that’s been flying under the radar due to Russia’s recent actions in Ukraine is that Canada has managed to clear out protesters in downtown Ottawa, which have been camping out there for weeks. The “Freedom Convoy” movement, which started with truckers demonstrating against COVID vaccine requirements and restrictions, even spread to several border crossings with the U.S., including the crucial Ambassador Bridge that connects downtown Detroit with Windsor, Ontario. Prime Minister Justin Trudeau ended up invoking emergency measures to quell the protest, which gave powers such as compelling towing companies to remove trucks from designated areas.
Economic price tag? The disruption was said to cost the Canadian capital over $800K per day in policing expenses, and that does not include the collateral damage felt by businesses in the surrounding areas. It also upended U.S. cross-border trade worth $350M a day, with the auto industry alone facing losses as high as $1B, including manufacturers like Ford (NYSE:F), General Motors (NYSE:GM) and Chrysler-maker Stellantis (NYSE:STLA). While the Ambassador Bridge has been cleared, it’s going to take several weeks for things to return to normal, said Peter Nagle, auto research analyst at IHS Markit.
The Emergencies Act also allowed authorities to declare certain areas as no-go protest zones, where demonstrators could be subject to arrest. “You can disagree with elected officials. You can certainly disagree with me. But you can’t harass your fellow citizens who disagree with you. You can’t hold a city hostage. And you can’t block a critical trade corridor and deprive people of their jobs,” added Trudeau. Others argue that the invocation of emergency powers threatens civil liberties, while their expansive nature could set a dangerous precedent for future civil protests.
More controversy: The Canadian government instructed banks to lock the private and/or business accounts of individuals involved in the weeks-long demonstration, saying it was crucial during the declared emergency period. “We were very clear that we would be following the money, that we would be using financial tools to disrupt illegal blockades and occupations,” Finance Minister Chrystia Freeland declared. “These measures were put in place to disrupt illegal activity in Canada.” While the accounts are now in the process of being unfrozen, organizers of the Freedom Convoy dubbed the move financial warfare, saying it would “sow mistrust in both the banking system and the government and the repercussions will be felt for years to come.”
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:55 Redbook Chain Store Sales
9:00 Fed’s Daly Speech
10:00 State Street Investor Confidence Index
11:30 Results of $22B, 2-Year FRN Auction
1:00 PM Results of $53B, 5-Year Note Auction
What else is happening…
Best and worst stocks sensitive to Ukraine/Russia – J.P. Morgan.
Digital World Acquisition (DWAC) soars on launch of TRUTH Social.
Cautious sales guidance spooks investors at Home Depot (HD).
Macy’s (M) ends lower on supply chain and labor concerns.
Supreme Court rejects Energy Transfer’s (ET) Dakota Access appeal.
Activision (ATVI) postponing 2023 Call of Duty release – Bloomberg.
Volkswagen (OTCPK:VWAGY) said in advanced talks for Porsche IPO.
Roku (ROKU) rebounds as Citi’s suggests stock could double.
Teladoc (TDOC) falls despite earnings beat, bullish 2022 outlook.
—————
Good morning. Happy Tuesday. Hope you had a good weekend.
The Asian/Pacific markets posted big losses. Japan, China, Hong Kong, South Korea, Taiwan, Australia and Singapore fell more than 1%. Europe, Africa and the Middle East lean down. Russia, Greece, South Africa, Finland, Turkey, Hungary and Austria are posting the biggest losses. Futures in the States point towards a down open for the cash market, but they well off their lows from overnight.
————— Masterclass Overview –>> here —————
The dollar is down slightly. Oil is up; copper is unchanged. Gold and silver are up. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
War footing
Russia’s standoff with the West continues to intensify as Vladimir Putin announced he would recognize two self-proclaimed separatist republics in eastern Ukraine. The Russian president also went on to sign aid and cooperation pacts with regional leaders in Donetsk and Luhansk (which include the right to build military bases), at a televised Kremlin ceremony that was condemned by the U.S. and EU. “I consider it necessary to take the long overdue decision to recognize the independence and sovereignty,” Putin declared. “Ukraine for us is not just a neighboring country, it is an integral part of our own history, culture and spiritual space.”
Response: Some sanctions were announced unveiled by the U.S. and its allies as Putin planned to send in peacekeeping forces (see below), though Moscow has continued to deny plans of an invasion. Ukraine said it will also stick to a peaceful path, with President Volodymyr Zelenskyy emphasizing that Putin merely “legalized” troops already present in self-proclaimed republics since 2014. “We’re dedicated to diplomatic means of solving this issue. We’re not reacting to any provocations. This is our choice. We are on our land. We’re not afraid of anyone and everyone.”
Following the news, the UN Security Council held an emergency meeting, but with Russia being one of the five countries that hold veto power, measures like sanctions are non-starters. Russia also holds the rotating presidency this month, so it sets and chairs the agenda for council meetings, likely shielding itself from further trouble. Meanwhile, the U.S. State Department on Monday evening relocated its diplomatic staff in Lviv, Ukraine, to Poland, citing safety and security reasons.
Next steps: President Biden “reiterated that the United States would respond swiftly and decisively, in lockstep with its allies and partners, to further Russian aggression against Ukraine.” The developments may also torpedo a last-minute summit with Biden, which was arranged by French President Emmanuel Macron over the weekend. The White House said it was prepared to meet with Putin “in principle” – if Moscow refrained from further invading Ukraine – but U.S. officials said they can no longer commit to a gathering that has a “predicate that Russia won’t take military action, when it looks as imminently like it will.” (1 comment)
Tensions hit markets
U.S. markets were closed for Presidents’ Day on Monday, but intensifying tensions between the West and Russia was on full display across the globe. Russia’s benchmark stock index, the MOEX, plunged 10.5% for its largest daily percentage decline since the invasion of Crimea in 2014, while the pan-continental STOXX Europe 600 slid 1.3%. Jitters are also showing up in America, with futures contracts tied to the Dow and S&P 500 slipping 1.3% and 1.5% overnight, while the Nasdaq fell back 2.2%.
Analyst commentary: “A limited invasion of Donbas would be a temporary headwind on risk assets, but we would not view that as a bearish gamechanger unless it spiraled into a broader conflict between Russia and the NATO,” Kinsale Trading wrote in a research note. In Goldman Sachs’ worst case scenario, a 10% decline in the Russian ruble would push the S&P 500 down another 6% compared to Friday’s close, with several more percentage points of weakness seen in Europe. Deutsche Bank also pointed out that typical geopolitical selloffs are usually around 6%-8% on average, taking three weeks for stocks to bottom and another three for them to recover.
Elsewhere, the energy sector is on watch, with Russia supplying about 40% of the EU’s natural gas supplies via pipeline. Dutch gas futures, a European benchmark, surged as much as 13% to €82 a megawatt-hour, while natural gas futures (NG1:COM) in the U.S. traded up 6% at $4.72/mmbtu. Moscow is also a key oil player, producing roughly 11% of the world’s supply (or 10.5M barrels per day), sending WTI crude futures (CL1:COM) up 3.7% to $94.46/bbl in response to the developments. “We could see prices surpass the $100-a-barrel mark very quickly and it even has an upside of $10 a barrel if we start seeing most sanctions being placed on Russian oil exports,” said Sri Paravaikkarasu, Asia oil lead at FGE.
Other commodities were also impacted, with Russia (and Ukraine) being a major supplier of metal and grain. Aluminum closed in on an all-time record, rising as much as 1.9% to $3,342 a ton on the London Metal Exchange, while Chicago wheat futures (W_1:COM) jumped to a near one-month high as trading resumed after Presidents’ Day. Together, Russia and Ukraine account for a quarter of global trade in the grain, and concerns about Black Sea shipment disruptions could send soaring food costs even higher.
Eye on safe-havens: The uncertainty led investors to seek the relative safety of sovereign bonds, with the yield on the benchmark 10-year Treasury sliding as much as 7 basis points to 1.846%. Bullion also caught a bid as gold touched an eight-month high at $1914.40 an ounce. Interestingly enough, cryptocurrencies (the new age safe-haven touted by crypto believers) took a hit on the news, suggesting it is still trading in line with the riskiest of assets. At the time of writing, Bitcoin (BTC-USD) – referred to by some as digital gold – is down 6.6% to $36,808. (25 comments)
Sanctions begin
Vladimir Putin’s recognition of two breakaway regions, and his order to send in “peacemakers,” does not constitute a “further invasion” that would trigger a broader sanctions package since it’s “territory that they’ve already occupied,” a Biden administration official told Reuters. The U.S. will continue to pursue diplomacy with Russia until “tanks roll,” which it believes could happen at any time. Putin’s announcement will still prevent American investment, trade, and financing in Luhansk and Donetsk, while additional measures from the White House will be announced later today.
What would a wider package look like? As the U.S., U.K. and EU discuss the details behind closed doors, Germany halted its approval of Nord Stream 2. The $11B gas pipeline was designed to double the amount of gas flowing from Russia to Germany, but things could get ugly quickly, with Moscow exporting nearly 40% of the EU’s natural gas supply. The West may also sanction Russia’s financial sector – as well as Vladimir Putin’s inner circle – which would be more targeted than the latest round of sanctions.
With Putin’s allies located across the highest levels of industry, the penalties could affect the business interests of oil majors operating in the country like BP (NYSE:BP), Shell (NYSE:SHEL) and Exxon Mobil (NYSE:XOM), and commodity traders like Glencore (OTCPK:GLCNF), Vitol, Trafigura and Gunvor. The last time around, when Russia annexed the Crimean Peninsula in 2014, sanctions worked a little differently. For example, the penalties leveled against Rosneft (OTCPK:RNFTF) didn’t limit its supply or production, but rather restricted its ability to fund future growth by limiting its Western financing, while curbing access to certain technologies used in exploration activities.
Outlook: Reports suggest that the West is preparing a series of sanctions, which could be implemented in successive rounds depending on the degree of the invasion. There is also the risk that Russia may unveil its own counter-sanctions, like severing oil and gas supply completely, which would drive up the cost for consumers. At its worst, it could spark a sanctions war, that could cut Russia’s banks off from the SWIFT international banking system or ban Western investment funds from holding Russian government bonds. (40 comments)
What does Putin want?
“Russia wants to revise the post-Cold War settlement. It wants to talk about no more NATO expansion and it wants to talk about no more NATO military, structural or institutional presence in countries like Ukraine,” said Michael Kofman, Director of Russia Studies at research and analysis group CNA. “The Russian goal has always been to impose their will on Ukraine, to secure Ukraine’s strategic orientation and the like, but without actually having to control the territory or pay for it.”
Snapshot: “Going to reiterate. Russia is not unilaterally giving away its main leverage over Ukraine, for nothing (plus getting sanctioned), or just introducing troops into occupied territories where it has already kept forces on rotation for 8 years. That’s not what this is about,” Kofman added in a tweet. “If you look at the evolution of this crisis, Putin’s grievances, and the disposition of Russian forces, it suggests that this is a play for Ukraine, with maximalist aims. Recognition of DNR/LNR is just a significant political step in that rapidly unfolding scheme.”
“For Putin, it’s not just 30 years of historical wrong but centuries of injury inflicted on Russia, the Soviet Union and the Russian Empire,” explained Fiona Hill, senior director for European and Russian affairs on the National Security Council during the Trump administration. “Russia wants to have coercive power. This is what this is about.”
Go deeper: “Right now I have my doubts that the European political elite and diplomats understand the full complex of problems they will run into as Putin works to advance his agenda,” said Aleksei Chesnakov, a former adviser to the Kremlin on foreign policy. “He wants more decisive steps militarily, politically and economically. He is ready.”
Today’s Economic Calendar
9:00 S&P CoreLogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
9:45 PMI Composite Flash
10:00 Consumer Confidence
10:00 Richmond Fed Mfg.
1:00 PM Results of $52B, 2-Year Note Auction
1:00 PM Money Supply
3:30 PM Fed’s Bostic: “Role of the Federal Reserve in the Community”
What else is happening…
Evolving activism: Icahn takes aim at McDonald’s (NYSE:MCD) animal rights.
Disney World (NYSE:DIS) raises prices for multi-day tickets and Park Hopper.
Shell (NYSE:SHEL) LNG market update: Historic deficit in the coming years.
Trump’s TRUTH Social platform (NASDAQ:DWAC) hits Apple’s App Store.
Microsoft (MSFT) approached Activision (ATVI) days after misconduct allegations.
Tesla (NASDAQ:TSLA) Autopilot draws scrutiny from German regulators.
Novavax (NASDAQ:NVAX) COVID shot could be granted U.S. nod ‘within weeks.’
Pentagon to unveil plan to boost rare earths and lithium stockpiles.
Cash flows show recession risks are rising – BofA Securities.
SoFi (NASDAQ:SOFI) to buy Technisys in an all-stock deal valued at $1.1B.
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