Russian President Putin’s speech at Victory Day didn’t deliver the feared escalation in the war against Ukraine. Markets reacted stoic, avoiding the trap to turn positive on the likelihood of a near-term cease-fire. Oil prices cede ground though in a move which was also inspired by a Bloomberg report that the EU will drop a proposed ban on EU-owned vessels transporting Russian oil to third countries. That would be an easing of the latest sanctions package against the country. The final element at play are the continued and stricter Chinese lockdowns (Beijing, Shanghai). Brent crude slid from $113/b to below $110/b after failing to take out $113.61 to $115.73 resistance over the past couple of sessions. Other commodities trade on the back foot as well with most metals losing 2% to 3% and Nickel (-6%) underperforming. Soft commodities paint a more mixed picture.
The setback in commodities didn’t set the stage for a turnaround on other markets. Rate markets remain in the driver’s seat in absence of other eco data and events. The German yield curve steepens with yield changes ranging between -6.1 bps (2-yr) and +3.5 bps (30-yr). We admit that bonds are off worst intraday levels as US investors joined the fray. The German 10-yr yield set a new recovery high at 1.2% with the EU 10y swap rate briefly above the psychologic 2% mark for the first time since end 2014. The same reasoning goes for US Treasuries with US yield changes currently ranging between -8.6 bps (2-yr) and +4.1 bps (30-yr). The US 10-yr yield set a new YTD high at 3.2%. Sentiment on European stock markets remained sour with main indices giving away 1.5% and more. The EuroStoxx50 is dropping towards the YTD sell-off low at 3387. Main US indices open with 1%+ losses.
EUR/USD tested the 1.05 big figure for an eighth session running, but a break lower was again avoided. The risk adverse market setting and decline in commodities might have suggested otherwise. At EUR/USD 1.0542 it’s hard to talk about a sustained rebound either. EUR/GBP is going nowhere near last week’s best levels around 0.8550. Northern Ireland’s election outcome (see below) had no impact. Thursday’s UK Q1 GDP numbers will be closely monitored against the grim eco outlook for the remainder of the year.
UK Secretary of State for Northern Ireland Lewis will meet leaders from the country’s two political parties, Sinn Féin and the DUP, and insist on both to quickly form a government. The DUP came second during last week’s elections for the Stormont assembly which saw the Sinn Féin nationalists become the largest party for the first time since the power-sharing executive was created in 1998. The DUP has refused to join the coalition as long as the NI protocol is in place, saying it disrupts trade with mainland UK. Sinn Féin, looking to unite Ireland, is fine with the arrangement. Except for the political instability this standoff may trigger, it also adds another layer to UK discussions with the EU regarding the protocol. On the EU’s current proposals, PM Johnson’s spokesperson Blain said they “don’t go anywhere near far enough to make the protocol sustainable”. It may eventually lead the UK to trigger Article 16, suspending key parts of the agreement unilaterally.
The Reserve Bank of India intervened in all FX markets to protects the rupee, a person familiar said. The Indian rupee gapped lower to an all-time low (USD/INR >77) this morning before depreciating further to USD/INR 77.46 in the close at noon. The RBI is sitting on a pile of about $600bn in reserves that it will put to use against speculators, the person said, adding that the central bank is seeking an orderly depreciation. High inflation and an aggressive Fed tightening cycle is putting many emerging markets under pressure, including India. The central bank last week raised policy rates at an unscheduled meeting to 4.4% in a vain attempt to stem the currency slide.