HomeContributorsFundamental AnalysisEU Still Unlikely to Impose Embargo on Russian Energy

EU Still Unlikely to Impose Embargo on Russian Energy

Market movers today

The EU summit continues today following the expanded version yesterday that included US President Biden, and also following the recent G7 and NATO meetings. EU leaders could announce new sanctions against Russia today but they are still not expected to impose an embargo on Russian energy, as Austria has said they would not support such a move.

In terms of economic data releases, it is a relatively quiet day today. UK retail sales are due today with consensus expecting a drop in monthly growth from 1.9% in January to 0.7% in February. Also, Denmark February retail sales figures are out. Our Spending Monitor indicates that retail sales were slightly down in February compared to January.

German IFO index is also released today and consensus expects a marked drop in sentiment in March. Final Michigan survey from March and pending home sales data from February also released in the US.

The 60 second overview

Russia invasion news: Yesterday, US announced a new package of sanctions on Russian elites, politicians and companies. NATO agreed to deploy more military in Eastern Europe. Italy and Germany say that charging RUB for Russian gas would be a violation of contracts. US President Joe Biden says he would like to remove Russia from G20. Russian equities rose yesterday but price movements do not reflect fundamentals, as foreigners are not allowed to sell stocks and Russian funds are required to buy stocks in order to support markets. Jens Stoltenberg will remain NATO Secretary General for another year and withdraws as upcoming Governor of Norges Bank. NATO is concerned about possible use of chemical weapons. EU officials believe that China may supply Russia with technology and hardware in order to soften the blow to the Russian economy from Western sanctions.

Economic indicators: We still do not have a lot of indicators covering the post-invasion period, but we have received some. Yesterday, preliminary PMIs were overall not as weak as one could have feared, but risks remain elevated, also because confidence indicators such as consumer confidence have fallen, especially in Europe. US jobless claims fell to new post-COVID lows suggesting that the US labour market is still in fine shape amid still high labour demand.

Norges Bank and SNB: Norges Bank raised the policy rate by 25bp to 0.75% as expected. While we share many views of Norges Bank, our base case remains that NB will have to halt its normalisation process half a year earlier resulting in a top in policy rates of 2.0% – and not the 2.5% signalled by NB and priced in markets. SNB kept its policy rate unchanged at -0.75% as expected but lifted its inflation path near-term. We believe the SNB is underestimating underlying inflation pressure and hence still expect the SNB to follow ECB eventually.

Equities: Mixed session on Thursday, as US gradually improved over the day. Tech stocks led the index higher as yields calmed, with semis the clear outperformer. S&P500 closed up 1.4%, Nasdaq 1.9%, Dow 1.0% and Russell 2000 1.1%. Chinese markets in the exact reversal this morning, with tech stocks selling off again. However, the rest of Asia and US futures are slightly up.

FI: European rates sold off in the morning session supported by surprisingly resilient PMI figures in the euro area. After noon, European rates were trading virtually sideways. The most central bank sensitive point in the 5-10y area suffered the most with 6-7bp higher on the day while both the shorter dated maturities as well as the long end was up “only” 2-4bp. Spreads tightened across the board except in Italy and Greece which widened marginally – and the latter despite that ECB has decided to include the GGBs as collateral as long as PEPP is reinvested (current guidance at least through the end of 2024).

FX: The SNB monetary policy decision had limited impact on CHF. Higher NOK rates boost the relative attractiveness of owning NOK from a pure carry perspective.

Credit: Only subdued moves in credit markets yesterday where iTraxx Main closed 0.7bp wider while Xover tightened 0.5bp. Cash bonds too saw only very modest movements, with both IG and HY bonds closing around 1bp tighter.

Danske Bank
Danske Bankhttp://www.danskebank.com/danskeresearch
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