by Marc Angrand
PARIS (Reuters) – The main European stock markets are expected to fall sharply on Monday after a weekend marked by continued fighting in Ukraine, new economic sanctions targeting Russia and Vladimir Putin’s decision to place the Russian nuclear deterrent on combat alert, a series of exceptional factors that fuels risk aversion.
Index futures suggest a decline of 3.07% for the Dax in Frankfurt, 1.48% for the FTSE 100 in London and 3.34% for the EuroStoxx 50. As for the CAC 40 in Paris, it could drop around 2.8% according to the first indications available.
In Russia, the ruble fell 30% to an all-time low of 119.50 to the dollar before paring losses on central bank interventions.
But the latter could see its capacity for action quickly put to the test: the new set of sanctions announced this weekend by the European Union in coordination with the G7 includes the freezing of its assets outside Russia, in plus the exclusion of the bulk of Russian banks from the SWIFT international interbank messaging system.
By thus banishing Russia from world financial markets, Western countries obviously hope to exert maximum pressure on Moscow to obtain a halt to the invasion of Ukraine. But this strategy entails risks for their own markets, starting with those of raw materials and energy, and for the global economy, among other things because it is likely to fuel an already worrying inflation.
Goldman Sachs has thus just raised its inflation forecast for Europe this year to 5%, while emphasizing that the rise in gas prices would weigh on growth.
All of these factors therefore encourage a withdrawal into the safe havens considered to be the most solid, such as government bonds, the dollar and gold.
VALUES TO FOLLOW:
AT WALL STREET
Futures contracts on the major US indices are currently pointing to a decline of more than 1% for the Dow Jones and more than 2% for the Standard & Poor’s 500 and the Nasdaq.
On Friday, the New York Stock Exchange ended sharply higher for the second consecutive session, confirming its rebound after finishing in the red ahead of the offensive launched by Russia against Ukraine.
The Dow Jones gained 2.51%, or 834.92 points, to 34,058.75, its biggest gain since the start of the year. The S&P 500 gained 95.95 points (+2.24%) to 4,384.65 and the Nasdaq Composite advanced 221.04 points (+1.64%) to 13,694.62. All major S&P-500 sector indices ended the session in the green.
Over the whole week, the Dow gave up 0.1% but the S&P-500 gained 0.8% and the Nasdaq 1.1%.
IN ASIA
At the Tokyo Stock Exchange, the Nikkei index closed with a gain of 0.19% after a seesaw session, as investors were torn between fears linked to sanctions and hopes for a negotiated solution to the conflict in Ukraine.
In China, the Shanghai SSE Composite lost 0.04% and the CSI 300 0.17%. In Hong Kong, the Hang Seng fell 0.87% and hit its lowest level in session since March 24, 2020.
EXCHANGES/RATES
The dollar, the main beneficiary of the rise in geopolitical tension, appreciated by 0.67% against other major currencies and in particular the euro, which fell by 0.93% to 1.1162.
On the government side, the yield on ten-year US Treasury bonds fell by more than eight basis points to 1.9044%.
Its decline reflects both the renewed risk aversion and the downward revision of interest rate expectations in the United States: the markets are now pricing in a 95% probability of a rise limited to 25 points basis of the Federal Reserve’s “fed funds” rate target on March 16 according to the Fedwatch barometer, while the hypothesis of a 50-point hike prevailed before the invasion of Ukraine.
OIL
Crude prices are taking full advantage of the multiplication of sanctions targeting Moscow and the nuclear threat brandished by Vladimir Putin.
Brent crude rose 4.79% to $102.62 a barrel after peaking at 105.07 and US light crude (West Texas Intermediate, WTI) jumped 5.57% to $96.69 after rising to 99, 10. They both remain below the over-seven-year highs hit last week at $105.79 and $100.54 respectively.
OPEC+, of which Russia is a part, is due to take stock of its strategy on Wednesday but the market is not expecting a change in its production strategy.
METALS
The price of an ounce of gold is up more than 1% to 1,908.36 dollars, bringing its rise to more than 6% since the beginning of the month.
The sanctions against Russia are also driving up the price of palladium (+6.17%), of which the Russian group Nornickel is the world’s largest producer, like those of aluminum (+4.25%) and nickel (+1 ,50%).
NO MAJOR ECONOMIC INDICATOR ON THE AGENDA FOR FEBRUARY 28
(Edited by Blandine Hénault)
Copyright © 2022 Thomson Reuters