"The market does very much recognise that the major risks point towards EUR weakness," he said. The possibility of an energy crisis in Europe by the summer if Russia stops supplying gas, combined with the nuclear threat implied by Russian President Vladimir Putin's announcement that he was putting Russia's nuclear forces on special alert, point to a "significantly weaker" EUR/USD if markets start to price these risks in, he said.
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Currencies in the broader Eastern European region and Turkey came under pressure. The Polish zloty and Hungarian forint both weakened 2.3% against the dollar. The Turkish lira depreciated 1.6%. Bitcoin stood at about $37,900, declining around 3%.
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The Russian ruble stayed weaker even after Russia's central bank more than doubled its benchmark interest rate to 20% from 9.5% to stem the currency's depreciation.
The rate rise comes after the ruble hit a record low after western nations imposed harsh new sanctions against Russia, including blocking some banks from the Swift international banking payments system and freezing the Russian central bank's currency reserves.
"A bank run has already started in Russia over the weekend, and the ruble, if it actually trades today, will be well above $100 to the U.S. dollar," Oanda analysts said.
USD/RUB jumps 28.9% to 108.038, having earlier hit a record high of 119.249 in highly volatile trade, according to FactSet.
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Western sanctions imposed against Russia's central bank will render a large part of its foreign exchange reserves useless, Monex Europe analysts said.
"This is due to the sanctions restricting the Bank's access to financial markets and thus restricting them from liquidating all held securities in EUR, GBP and USD, while they also restrict access to physical FX reserves due to the majority of them being held in eurosystem accounts."
The central bank was using forex reserves to intervene in the currency market to stabilize the ruble. The bank more than doubled its key interest rate to 20% Monday but "further pain" is likely for the ruble given the prospect of countermeasures from Russia on European commodity markets, Monex analysts said.
Bonds:
In bond markets, the yield on the benchmark 10-year U.S. Treasury note fell to 1.906%, from 1.984% Friday, as investors reached for the safety of government bonds.
European government bonds also rallied, with the German equivalent yield declining to 0.157%.
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Eurozone government bond yields traded lower in a sign that investors remain in risk-off mood as Russia and Ukraine prepare for talks for the first time since the invasion began, while Western sanctions start to hit Russia's economic activities.
Portugal's 10-year bond yields drop the most--indicating an outperformance of Portuguese bonds versus eurozone peers--after DBRS Morningstar confirmed Portugal's "BBB (high)" credit rating and raised the trend to positive from.
The 10-year Portuguese bond yield traded about 7 basis points lower at 1.042%, according to Tradeweb.
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Morgan Stanley forecasts 10-year German Bund yields to rise to 0.60% by 4Q, versus 0.186% currently, supported by the combined effect of an early end to the ECB's Asset Purchase Programme, sticky inflation, firm growth, and the start of the normalization of the deposit rate, its rates strategists said.
The decline in excess liquidity and fewer net asset purchases by the ECB should be consistent with wider government bond yield spreads this year, they said.
They forecast the 10-year Italian BTP-German Bund yield spread at 185 basis points by year-end--versus 163 bps currently, according to Tradeweb--with nonresidents increasing their BTP holdings further, offsetting some of the negative impact of lower excess liquidity and early end to APP.
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Interest-rate-sensitive euro investment-grade senior corporate bonds should outperform as benchmark government yields fall and the ECB continues to buy bonds, said UniCredit Research.
"Amid flight to quality, downside pressure on Bund yields is in the cards, meaning that interest-rate risk is limited for credit," analysts at the bank said in a note.
Moreover, ECB corporate bond purchases are likely to limit the downside in iBoxx senior nonfinancial corporate bond index, they said.
This indicates that "interest-rate-sensitive investment-grade senior credit should outperform, while more growth-sensitive high yield and hybrid credit faces the risk of underperforming," they said.
Commodities:
Energy prices rose after Western nations hit Russia with strict sanctions. Brent crude oil and WTI jumped over 4%.
Benchmark European natural gas futures climbed 23% to EUR115 a megawatt-hour. Western nations, including the EU and U.S, said Saturday that they planned to cut some Russian banks out of the Swift financial network and also levied sanctions targeting Russia's central bank.
The sanctions have raised concerns that the supply of oil from Russia could be constrained at a time when energy markets are tight, analysts said.
Gold prices climbed. Seen as a safe asset, prices for the precious metal lifted almost 1% to above $1,900 an ounce, having topped $1,970 last week before easing back.
EMEA HEADLINES
Russia's Ruble, Financial Markets Are Hammered by Sanctions
Powerful Western sanctions rocked Russia's financial system and triggered a spiral in the ruble, drawing the central bank into an emergency doubling of interest rates.
The Russian ruble fell as low as 111 to the U.S. dollar from 83 on Friday, a drop of more than 20% and, if sustained, the biggest single-day fall on record. But trading was spotty, with local onshore markets frozen by the central bank and markets outside Russia reluctant to trade the currency.
Populist Embrace of Putin Cools After Ukraine Invasion
Russian President Vladimir Putin's decision to launch a full-scale invasion of Ukraine is testing the adoration of some of Europe's loudest populist leaders.
Matteo Salvini of Italy's main anti-immigrant party has worn T-shirts emblazoned with Mr. Putin's face. Eric Zemmour, a far-right candidate in France's April presidential elections, once said he dreamed that someone like Mr. Putin would save France. Marine Le Pen of France's far-right National Rally traveled to the Kremlin to meet Mr. Putin.
BP to Exit From Stake in Russia's Rosneft Following Pressure From U.K.
British energy giant BP PLC said Sunday it will exit its nearly 20% stake in Russian government-controlled oil producer Rosneft, days after it was pressured to unload the holding by U.K. officials amid Russia's invasion of Ukraine.
The British company faces a potential loss of as much as $25 billion-encompassing the maximum possible impact of selling the Rosneft stake, valued at $14 billion, plus a big expected charge related to foreign-exchange losses. Currently, BP relies on Rosneft for roughly one-third of its oil-and-gas production.
Russian Energy Giants Gazprom, Rosneft Fuel Moscow's State Coffers
Russia's financial system was under siege Monday, but the country is still pumping and exporting vast amounts of oil and natural gas to the rest of the world, delivering cash in the face of Western sanctions and a financial cushion for President Vladimir Putin. At the heart of it lie two London-listed energy giants.
Gas exporter Gazprom PJSC and oil giant Rosneft PJSC fund a large chunk of the Russian state and are among the country's largest employers. Neither have been targeted by major Western sanctions, a sign of their importance in the global energy markets. Rosneft says it is Russia's biggest taxpayer, contributing a fifth of budget revenues. Gazprom paid 2.3 trillion rubles, or $32 billion, to Russia's budget in 2020, according to the company. That amounts to around 6% of budget revenues, based on International Monetary Fund data.
AB Foods Expects Higher 1H Revenue, Adjusted Operating Profit
Associated British Foods PLC said Monday that revenue and adjusted operating profit for the first half of fiscal 2022 are expected to be significantly higher than a year earlier.
The British conglomerate also said sales and adjusted operating profit for the 24 weeks ending March 5 are anticipated to be above the pre-pandemic levels of the first half ended Feb. 29, 2020.
Equinor to Exit From Russia JVs Amid Ukraine Invasion
Norwegian energy major Equinor ASA said Monday it has decided to stop new investments into Russia and to start the process of exiting from its Russian joint ventures following Moscow's attack on Ukraine.
"We are all deeply troubled by the invasion of Ukraine," Chief Executive Anders Opedal said.
Ukrainian Forces Hold Kyiv as Talks With Russia Are Planned
KYIV, Ukraine-Russian and Ukrainian officials prepared to meet for the first talks since Moscow began its invasion four days ago, as Ukraine's defenders held on to the capital, Kyiv, and pushed back Russian troops in urban combat in its second-largest city, Kharkiv.
In a sign of growing tensions with the West over Ukraine, Russian President Vladimir Putin ordered the country's nuclear-deterrence forces to be put on alert.
Russia's Tight Embrace of Belarus Raises Prospect of Nuclear Deployment
MINSK, Belarus-Belarusians voting in today's referendum are poised to abandon the country's nonnuclear status, an outcome that could lead to Moscow deploying such weapons in Belarus just as Russian President Vladimir Putinraised the alert level for his country's nuclear forces.
Alexander Lukashenko, Belarus's longtime leader, is expected to tighten his grip on power in the far-reaching constitutional referendum that is all but certain to pass in the country's tightly controlled political system, with polls closing late Sunday. The vote, beyond upending Belarus's position on nuclear weapons, could allow Mr. Lukashenko to extend his term as president.
GLOBAL NEWS
Inflation Raises Expenses for Pension Funds
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02-28-22 0643ET
