Draghi's comments suggest a full EU embargo on Russian energy is still a long way off, which will probably frustrate the U.S. given the ruble has recovered to pre-invasion levels, ING analysts said.

"It seems only a full sanction of Russian energy (Russian gas sales generate about $10bn in FX per month) will be enough to see the ruble coming under severe pressure again--even if Russia does end up defaulting on its sovereign Eurobonds--as recent U.S. Treasury measures seem to intend."

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The euro-sterling exchange rate could fall to 0.82 in coming months from 0.8319 currently but that may be the extent of this year's decline, ING said.

"The challenge for GBP will be if and when year-end market expectations for the Bank of England's bank rate adjust closer to 1.00/1.25% (our house call) versus the 2%+ currently priced," ING analysts said. That adjustment is probably a story for the second half of 2022, however, they said.

The BOE's chief economist Huw Pill is due to speak at 1215 GMT and is unlikely to push back against current rate expectations given inflation looks set to accelerate. EUR/GBP will probably stay in the 0.83-0.84 range for now, they said.

Bonds:

The widening of the 10-year Italian BTP-German Bund yield to 165 basis points, from an average of 110 bps in 2021 reflects a less-supportive monetary policy stance, UniCredit Research said.

However, it doesn't see any additional pressure from this factor, given that forwards now price in a steep trajectory for the European Central Bank's deposit rate, especially in 2023.

For the 2022, money markets are pricing in approximately 50 bps of interest rate rise by the ECB, according to Refinitiv, but some market watchers consider this pricing excessive in light of the growth risks stemming from the Russia-Ukraine conflict.

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Separately, UniCredit said the fact that a large portion of Italy's debt is held by investors with a long-term investment horizon is among the technical factors contributing to the resilience of Italian government bonds.

The holdings of foreign investors are close to their lowest level since 2008, UniCredit added.

A further supportive factor is that most of 2022's net issuance is completed. " We see upside risks to issuance from fiscal measures aimed at cushioning the effect of higher energy prices, although we expect the size to remain relatively low in absolute terms ."

Commodities:

Oil was around 1% higher in Europe but remained close to its lowest level in three weeks after concerted efforts from members of the IEA to release oil from reserves weighed on prices.

The IEA is set to release 60 million barrels, adding to the U.S.'s 180 million barrels over six months. While the amount being released is huge, it will take time to reach the market and likely won't be enough to make up for lost Russian oil, ANZ Bank said.

Moreover, it will likely make U.S. oil producers more reluctant to increase their own output and takes the political pressure off OPEC over its constrained supply.

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Precious metal prices rose as investors looked toward safe-haven assets in the face of equities falling globally, while base metals were largely flat.

A rising dollar--furthered by comments from the Fed on possible rate hikes--and weak demand in mainland China alongside other parts of Asia contributed to the relatively muted price action.

Other News:

Goldman Sachs said the relationship between copper prices and the global macroeconomic environment appears to be weakening, as "ESG, geopolitics and chronic underinvestment [are] all driving copper fundamentals far more than overall global growth."

Copper market "fundamentals were once so connected to global growth [that] copper has been viewed as having a 'PhD' in macroeconomics.

Yet today, 'Dr. Copper' no longer exists," Goldman Sachs said. It believes copper prices are now more connected to public-policy matters, "rallying on concerns of Chilean mining royalties, accelerating European renewables demand and Russian sanctions supply risks rather than falling global growth expectations."

Fitch said copper prices are being supported by a tight supply outlook.

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"Global inventories [are] at critically low levels," Fitch said. Production is also likely lackluster, with only "small increases in output [which] will be driven by Chinese production while Latin American production will continue to lag."

Fitch, which raised its average 2022 copper-price forecast to $10,000 a ton from $9,200 a ton previously, said that "China's zero Covid policy is likely to invoke uncertainty in the country's copper production outlook."

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Fitch also said nickel prices on the LME could consolidate in the $30,000-$40,000 a ton range in the second quarter as Western sanctions on Russia support prices. Fitch expects prices to drop to under $30,000 a ton by year's end amid weaker consumption growth in the medium term.

Fitch raised its 2022 average forecast to $27,500 a ton from $17,000 a ton, which compares with $18,466 in 2021. "Ultimately, Western sanctions on Russia mean that the supply outlook for nickel over the coming years has deteriorated."

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The lithium-mining industry is likely to gravitate closer to spot pricing, especially if the commodity's rally continues, UBS said.

Today, there is a big difference between spot prices and the average price miners receive, in large part because a greater proportion of sales are often locked in early at a fixed price.

For comparison, UBS highlighted the iron-ore market, where evolving market dynamics eventually made the difference between spot and fixed prices unworkable.

Now, some lithium producers are also signaling a shift away from fixed prices, which are less common among new entrants than incumbent suppliers. "Overall, this should see a further narrowing between industry realization and the spot price."


EMEA HEADLINES

Shell Warns of Up to $5 Billion Hit From Russia Exit

Shell PLC said it expects to book accounting charges of up to $5 billion in the first quarter related to its decision to exit its Russia operations, including joint ventures with energy giant Gazprom PJSC, in the wake of Russia's invasion of Ukraine.

The London-based oil major provided the guidance Thursday ahead of quarterly earnings scheduled for May 5.


Tanker Operators Frontline and Euronav Propose All-Stock Merger

Norwegian shipping firm Frontline Ltd. Thursday announced a proposed merger with Belgian peer Euronav NV to create a global oil tanker business worth $4.2 billion.

Frontline, 39%-owned by Norwegian billionaire shipping magnate John Fredriksen, said the all-stock deal is based on an exchange ratio of 1.45 Frontline shares for every Euronav share, resulting in Euronav shareholders owning around 59% of the combined group and Frontline shareholders owning 41%.


888 Agrees to Reduced Price for William Hill's Non-US Arm, Shares Rise

888 Holdings PLC shares rose sharply in early trade Thursday after it said the price that it will pay for William Hill's international business has been reduced to 1.95 billion to 2.05 billion pounds ($2.55 billion-$2.68 billion).

Shares at 0713 GMT were up 42.60 pence, or 22%, at 234.60 pence.


Bang & Olufsen 3Q Net Profit Missed Forecasts, Sees FY Guidance at Low End of Range

Bang & Olufsen AS on Thursday backed full-year guidance, but said higher component and logistics costs would put margins and free cash flow at the low end of the range.

The Danish consumer-electronics company posted a fiscal third-quarter net loss of 16 million Danish kroner ($2.3 million) for the three months to Feb. 28. Analysts had expected a net profit of DKK9 million, according to a FactSet poll.


Entain Starts Year in Line With Expectations; Group Net Gaming Revenue Up

Entain PLC said Thursday that it has started the year strongly and is performing in line with expectations, as business benefits from the return of retail following last year's Covid-19-related store closures.

The Ladbrokes owner said first-quarter group net gaming revenue was up 31% on year, driven by the reopening of retail.


Germany's Industrial Production Rose in February

German industrial production increased in February, despite supply-chain constraints.

Total industrial output--comprising production in manufacturing, energy and construction--rose 0.2% in February compared with the previous month in calendar-adjusted terms, statistics office Destatis said Thursday. Economists polled by The Wall Street Journal had forecast a 0.2% increase.


Russia, U.S. Face-Off Boosts Default Risk

The derivatives market is flashing signals that the tit-for-tat between the U.S. Treasury and the Kremlin is increasing the likelihood of a Russian government default after Russia's Ministry of Finance announced Wednesday it will restrict the ability of some foreign investors to convert their payments into dollars.

The cost of buying a five-year derivatives contract for protection against a Russian government default, also called a credit-default swap, jumped on Wednesday to around 75% of the total value of the debt insured, according to data from ICE Data Services.


Ukraine Urges Civilians to Flee Looming Russian Offensive in Eastern Regions

Ukraine urged civilians to leave the eastern Donetsk, Luhansk and parts of the Kharkiv regions as it braced for a major new Russian offensive following Moscow's withdrawal from the north of the country.

"You need to evacuate now, while this possibility still exists," Ukraine's deputy prime minister and minister for occupied territories, Iryna Vereshchuk, said on Ukrainian TV on Wednesday. "Later, people will be under fire and under threat of death. We won't be able to help because it will be practically impossible to cease fire."


Europe Keeps Russian Oil, Gas Flowing Despite Tightening Sanctions

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04-07-22 0632ET