June 26, 2022

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Stocks fall as fighting rages in Ukraine, oil climbs

Global stocks fall, oil rises in volatile trading after Russia's oil ban

Models of oil drums and a pump lever are shown in front of the stock high and “$100” graph in this illustration taken on February 24, 2022. REUTERS/Dado Ruvic/Illustration

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  • European stocks are volatile, US stock futures are down
  • Fighting continues to rage in Ukraine, some indication of progress
  • Powell expected the Fed to repeat the hawkish outlook
  • Crude oil prices jump as EU weighs Russian embargo

MILAN (Reuters) – Stock markets around the world fell on Monday as fighting raged in Ukraine with no sign of a ceasefire even as negotiations continued, while Brent crude prices rose above $110 a barrel as supplies remained tight.

Turkey’s foreign minister said on Sunday that Russia and Ukraine were close to an agreement on “critical” issues and hoped for a ceasefire if the two sides did not back down from the progress made so far. Read more

Most stock markets rebounded last week in anticipation of a final peace deal on Ukraine, but it may take real progress to justify further gains.

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Ukraine on Monday defied a Russian ultimatum that its forces laid down their weapons before dawn in Mariupol, just as the European Union was about to consider a potential energy embargo on Russia. Read more

US President Joe Biden is scheduled to meet with NATO allies on Thursday and visit Poland on Friday. Read more

“The coming days will be a critical test of whether last week’s risk-rebound was overblown. Hopes for a peaceful resolution in Ukraine have relied more on headlines than evidence,” ING’s Francesco Pesol and Chris Turner said.

“If a ceasefire is not agreed upon in the coming days, markets may struggle to stick to their optimistic approach to the conflict,” they added in a note.

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MSCI World Stock Index (.MIWD00000PUS) It was down 0.1% by 1242 GMT. European stocks were volatile with STOXX 600 across the region (.stoxx) Last indicator up 0.1%.

S&P 500 and Nasdaq futures fell 0.1% and 0.3%, respectively, while Boeing futures fell. (ban) Shares fell 8% in pre-market trading after the 737 crash in China. Read more

In Asia, where Japanese markets were closed for a public holiday, the broadest MSCI Asia Pacific Index was outside of Japan (MIAPJ0000PUS.) It fell 0.8% as investors awaited more details on potential stimulus from Beijing.

Last week’s BofA survey of global fund managers was bearish biased with cash levels the highest since April 2020 and the global growth outlook the lowest since the 2008 financial crisis. Longer oil and tradable commodities have been the busiest and most vulnerable to declines. Read more

The war in Ukraine, soaring commodity prices, supply chain issues, and tightening policies have made investors less optimistic about global earnings growth prospects.

“The range of results now is extraordinarily broad, so at the margins you have to rein in the amount of risk you are taking,” said Keith Lerner, chief investment officer at Truist.

“In the past few years we’ve had huge upward revisions (on earnings) but this year there has been less room for upside earnings surprises. We still think companies will beat estimates but to a lesser degree,” he added.

Investors were also waiting to see if Russia would meet more interest payments this week. It should pay out $615 million in coupons this month while on April 4 the $2 billion bond comes due. Read more

Russia’s OFZ bonds returned to volatile trading in Moscow on Monday as the country looked to gradually resume operations in its financial markets. Stock trading, which has been halted since Western sanctions disrupted markets late last month, remained closed. Read more

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Bond investors braced for more hawks from the US Federal Reserve as President Jerome Powell spoke on Monday and other Fed members during the week.

Policy makers have signaled a series of future rate hikes to move the money rate to anywhere from 1.75% to 3.0% by the end of the year. The market is indicating a 50-50 chance of a half point hike in May and a higher chance by June.

European Central Bank President Christine Lagarde said Monday that the European Central Bank and the Federal Reserve will be out of sync for the foreseeable future, as the war in Ukraine has vastly different effects on their economies. Read more

The German 10-year government bond yield reached a new high since November 2018 at 0.440%.

flattened curves

Bond investors seem aware of the risks to growth given the remarkable stability of the US Treasury yield curve in recent weeks. The spread between two-year and 10-year returns narrowed Monday to 11.37 basis points, the smallest since the pandemic began in March 2020.

Atlanta Fed President Rafael Bostick said Monday that he has decided to raise interest rates eight times for this year and next, fewer than most of his colleagues because he is concerned about the effects of the Russian invasion of Ukraine on the US economy. Read more

Higher Treasury yields helped lift the US dollar against the yen, as the Bank of Japan remains committed to keeping yields near zero. The dollar has remained near its highest levels since early 2016 and was last above par on the day at 119.22 yen, after jumping 1.6% last week.

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Elsewhere, the euro slipped 0.1% to $1.1035, after rebounding 1.3% last week. The dollar index settled at 98.34, far from its recent peak hit earlier in March at 99.415.

Joseph Caporso, CBA’s head of international economics, noted that studies of rapid industrialization from Europe will be an obstacle for the euro this week.

“Europe is most exposed to the decrease in the supply of gas and agricultural imports from Russia and Ukraine, and the increase in their prices,” he said. “A drop in the Eurozone PMI into deflationary territory may push the EUR/USD back near war lows of $1.0806 again.”

On the other hand, the Egyptian pound fell by about 14% after weeks of pressure with foreign investors withdrawing billions of dollars from the Egyptian treasury markets. Read more

In the commodity markets, gold failed to get much of a lift from safe haven flows or inflation fears, losing more than 3% last week. The last gain was 0.2% at $1,924 an ounce.

Oil prices also fell last week, but were rushing higher on Monday as there was no easy alternative to Russian barrels in a tight market.

Brent crude rose 4.2 percent to $112.51, while US crude rose 4 percent to $108.9 a barrel, while European Union countries are considering joining the United States in a Russian oil embargo, while the weekend attack on Saudi oil facilities caused tension.

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Additional reporting by Danilo Masoni in Milan and Wayne Cole in Sydney; Additional reporting by Sujata Rao in London; Editing by Susan Fenton and Emilia Sithole Mataris

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