Macro: Sandcastle economics
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Morning Brew March 10 2022
Erik Schafhauser
Senior Relationship Manager
Summary: Risk sentiment flourishes, Oil falls ECB Looms
Good Morning,
Risk saw a massive revival yesterday as there appears to be progress in Ukraine talks, oil dropped and fears of a further escalation in Ukraine faded somewhat. UK Oil fell by USD 25 per barrel from 131 to 106 to recover to 113.
Equities had one of their best days ever with the Dow up two percent the S&P 500 2.6% and the Nasdaq 3.6%. The Dax gained 7.9% and the Eurostoxx 50 6.7%.
EURUSD could recover to above 1.10 to trade at 1.1056, GBPUSD is at 1.3180 and gold as well as silver fell to 1985 and 25.55.
US 10 year Yields are 25 bps off the lows, the USD Index fell more than 1 point to 98.06 and EURCHF rose to 1.0250.
The US Approved 13.6 billion USD in aid for Ukraine and also government funding until September with 1.5 trillion, Joe Biden also instructed to analyze a digital USD. Bitcoin falls 6%. The order will require the Treasury Department, the Commerce Department and other key agencies to prepare reports on "the future of money" and the role cryptocurrencies will play.
BNP Paribas has cut off its Russia-based workforce from its internal computer systems to prevent hacking attacks.
Althea points out that: It might be a matter of days before Russia defaults on its debt
Any developments in Ukraine aside, the ECB meeting and the press conference will be the key event today. With inflation soaring the market is divided on what to expect. Oil prices should curb overall demand and hamper growth so it is likely that actions may be pushed back. Interest rate Futures show a probability of 94% for no change and 6% for a hike by 10 basis points. Unless there is a huge surprise, the press conference at 14:30 CET will be more interesting than the rate decision at 13:45
Russia might default on its sovereign debt as soon as next week if the government pays in ruble interests on Eurodollar bonds that do not have "fallback optionality." Investors who bought insurance through CDS might be disappointed. The Credit Derivatives Determination Committee has not ruled whether payment in another currency constitutes a default event, but it may clarify this point today. In the meantime, investors are waiting for the interest and notional payment for the Rosfnet bonds, which matured on March 6
Continue to expect sharp market moves and spikes in volatility.
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