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Stocks in Europe are poised for a positive start on Monday, but gains are capped as investors weigh the latest headlines on Ukraine. Asian stocks were mostly down, along with oil and gold, while dollar and Treasury yields rose. U.S. stock futures edged higher at the start of a week in which the Fed is expected to raise its benchmark interest rate for the first time since 2018.
European stocks were poised to open gains on Monday despite heightened tensions over the war in Ukraine.
Investors in Asia remained jittery after news of a Russian airstrike on a Ukrainian military training center near the Polish border that killed at least 35 people and heightened the risk of war encroaching on Polish territory. NATO.
The attack, about 10 miles from the Polish border early on Sunday, was far west of where the conflict has focused, and came a day after Moscow warned the West that he would consider arms deliveries to Ukraine as legitimate targets.
Much of the West’s military aid – one of the largest arms transfers in history – goes through Poland to western Ukraine, part of the dividing line between the US and its NATO allies between military aid to Ukraine while avoiding providing troops or imposing a no-fly zone that Ukraine has claimed.
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Capital Economics said commodity prices are likely to remain volatile in the coming weeks as investors assimilate developments in Ukraine and their implications for commodity markets.
“Overall, however, the risks to prices are still very much on the upside, not least because the West could further tighten restrictions on Russia’s commodity exports.”
While events in Ukraine will largely determine the direction of commodity prices this week, Chinese activity data due on Tuesday will also paint a clearer picture of Chinese demand.
“We believe this data will be weaker than consensus expected, which would support our view that Chinese demand for commodities is likely to remain weak this year.”
The dollar continued to strengthen in Asia as concerns over the war in Ukraine and this week’s FOMC meeting rattled sentiment.
Capital Economics expects a 25 basis point hike from the Fed this week and “continued engagement in an aggressive tightening cycle, which could rekindle the dollar’s recovery.”
Currency markets are seeing higher implied volatility, Corpay’s Karl Schamotta and Karthik Sankaran said.
“Expectations for rate hikes this year are recalibrated lower, but the relative pace of monetary policy tightening in developed markets should still favor the dollar,” they said.
“G7 action to tie up Russia’s huge reserve reserve could lead to other countries attempting to reduce dollar use over time, but the extent of coordination between the United States and the EU will make it difficult because the euro is the only other comparable vehicle.”
Unicredit Research said the euro-dollar exchange rate will face further volatility over the coming week.
“The conflict is perceived as a brake mainly for the euro zone and the countries of Eastern Europe, and therefore the EUR/USD and [the Polish zloty, Hungarian forint and Czech koruna] may experience further large swings reflecting swings in market sentiment. »
TD Securities said to buy USD/JPY, citing economic fundamentals and technical charts. The currency pair is a better expression of risks centered on the United States, particularly the Fed, TD said, noting that markets appear to be undervalued for 2023 rate hikes and this is of a risk that could be realized in points at this week’s FOMC meeting.
On the charts, USD/JPY has nowhere to go but higher, especially now that the triple top of 116.40 has been breached, said TD, which entered a long USD/JPY position. targeting 120.00 and a stop-loss order at 115.30.
The Bank of England is expected to raise interest rates at its next meeting, but remains cautious in its messaging on the pace of further hikes, which could weaken the pound, the BDSwiss group said.
The BOE is expected to raise its key rate by 25 basis points at its March 17 meeting, in line with the February hike. However, the uncertainty surrounding Ukraine means there will be fewer policymakers voting in favor of a 50 basis point rate hike compared to last month, when four out of nine officials backed such a move.
“This could reduce the chances of a 50 basis point rise in the next two meetings, which would be negative for the pound,” BDSwiss said.
The yield on 10-year Treasuries remained firmly above 2% early Monday, extending its rise into a sixth consecutive session ahead of what is expected to be the first in a series of Fed rate hikes.
“Given the focus on reducing inflation, there are concerns that the Fed could move too quickly and threaten growth,” said Lindsey Bell, head of markets and currency strategist for Ally.
“GDP growth could come under pressure in the coming quarters amid high inflation and weak consumer sentiment. The conflict in Ukraine is the wildcard in this scenario. De-escalation will be needed to reduce inflationary pressures.”
S&P said it was maintaining long- and short-term “B-/B” ratings of Ukraine’s foreign and local currencies on CreditWatch with negative implications.
“The CreditWatch status indicates that we could lower the ratings if the military conflict significantly weakens the Ukrainian economy,” S&P said. It expects Ukraine’s debt service and borrowing needs “to be fully covered by international financial support for at least the next 12 months”.
However, S&P also said Russia’s military intervention poses significant risks to Ukraine’s economic growth, public finances and financial stability. S&P said that “as the conflict continues, Ukraine’s technical ability to utilize international financial support and meet its debt service obligations may erode.”
Oil prices fell around 2% in Asia, likely weighed down by the latest Covid-19 developments in China, ING said.
“The rising number of cases has seen the city of Shenzhen go into lockdown. This will raise concerns about the potential impact of demand. More importantly, it suggests that China is not ready to abandon its zero-Covid policy” .
ING also noted that ICE Brent speculators reduced their net long positions last week, signaling heightened risk aversion in the oil futures market.
Oil prices, which have been pushed higher by the war in Ukraine, may have been weighed down by reported comments from Vladimir Putin that there are “some positive changes” in negotiations between the two countries.
Gold futures fell slightly as hopes for progress in Russian-Ukrainian talks diminished bullion’s appeal as a safe haven.
While Putin’s comments likely give market participants hope that the ceasefire talks are headed in the right direction, worries about economic growth aren’t likely to go away any time soon, so the pullback in the gold should be limited, OANDA said.
Aluminum prices also fell, reversing earlier gains spurred by supply disruption concerns, ANZ said.
The gains are mainly due to the UK announcing sanctions against Russian individuals, including Oleg Deripaska, who has a stake in state-owned mining company Rusal and after Rio Tinto announced it planned to stop the shipments to an alumina plant owned by Rusal.
Read: JPMorgan leads talks to contain damage from nickel crisis
Fitch said nickel and aluminum prices are likely to remain high due to likely major disruptions to Russian production and exports of industrial metals.
“We expect significant prolonged disruptions in the coming months at least, which account for 9% and 5% of global production, respectively.”
He said low global inventories of the two metals, due to high adoption of electric vehicles, made them particularly vulnerable to price spikes. “Low inventory will be a big factor in the coming weeks as demand drives out tight supply.”
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March 14, 2022 01:17 ET (05:17 GMT)
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