MARKET WRAPS

Watch For:

2nd Estimate 4Q GDP; Weekly Jobless Claims; New Home Sales for Jan; EIA Weekly Petroleum Status Report; Royal Bank of Canada results

Opening Call:

Stock futures fell 2%-3% early Thursday as investors rushed for safety, after Russian missiles and airstrikes hit Ukraine's capital, Kyiv, and more than a dozen other cities across the country.

The Russian attack-swiftly condemned by President Biden-heightens the pressure on a global economy already reeling from snarled supply chains and some of the highest inflation in years, with Europe likely to bear the brunt of the economic impact.

"This is what appeared unbelievable to most investors, and this is actually happening," said Slava Smolyaninov, Moscow-based chief strategist at BCS Global Markets. "It's a complete change of everything; we are in a different world right now."

Investors were likely to remain cautious for some time, said Daiwa Securities economist Mari Iwashita, pointing to Russia's annexation of Crimea in 2014.

"For now, markets are just worried and risk-averse, but in March, it will likely become a reality as [inflation] data from the U.S. and Europe are expected to show the impact of oil-price increases in February," she added.

Overseas, the pan-European Stoxx 600 fell more than 3%, with similar losses seen in Asia. Japan's Nikkei closed at its lowest since November 2020.

Market Insight:

Heightened volatility as the conflict in Ukraine escalates is a sign that markets hadn't fully priced in the likelihood of deeper conflict with Russia, said UBS.

"We expect continued volatility in the near term as leaders calibrate and announce their response to this escalation."

UBS said energy prices could go higher, while oil-reliant economies could see economic activity take a hit in non-energy sectors.

Forex:

The dollar, Swiss franc and yen all rose as investors sought safe-haven assets on the Russia news.

"Dollar liquidity will be in demand at very uncertain times like this," said ING analysts in a note, adding that they expect the DXY Dollar Index to rise to 97.00.

The Russian ruble weakened to a record low, declining as much as 9% against the dollar and trading at 90 rubles to $1. The Russian central bank said it would start intervening in the foreign exchange market.

Elsewhere, EUR/CHF hit a record low of 1.0292 in early trade Thursday.

"Investors could speculate that Russian money will be heading to Switzerland and out of dollars, ahead of likely more aggressive sanctions," ING said in a research note. "Until [the] Ukraine tension is resolved, expect EUR/CHF to stay offered and we cannot rule out a test of 1.00 if the situation deteriorates further."

Other Currencies:

The currencies most vulnerable after Russia's attack on Ukraine, aside from the ruble itself, are those geographically closest to the crisis and exposed to the imported energy story, said the ING analysts.

The Czech koruna, Hungarian forint and Polish zloty dropped sharply, while the Swedish krona fell to its lowest against the euro since May 2020.

Other Related News:

Rate-setters at the Bank of England and the European Central Bank are likely to sound a more cautious tone at their respective upcoming meetings in March as war grips Europe, said Berenberg.

Russia's full-scale invasion of Ukraine is likely to soften the communication surrounding these central banks' decisions. They are likely to "tread more cautiously at their March meetings" providing "even stronger emphasis on keeping options open upon charting the course of stimulus removal."

Bonds:

Flight to safety was dominating markets, with eurozone and U.S. government bond yields falling sharply across the board, led by the safe-haven German Bund.

"Market expectations regarding Putin's next steps will determine the way forward," said Commerzbank's rates strategists. "Given the high uncertainty in that regard as well as regarding the NATO response, fears of Russian troops crossing further Rubicons should loom large."

Commerzbank expects flight to safety to intensify as markets are facing the prospect of a "very long, headline prone week-end."

Commodities:

Brent crude futures surged above $100 a barrel for the first time since 2014, while the WTI benchmark added more than 5% to trade above $97 a barrel.

"[Russia is] is a commodity superstore, and we are tight in all of these markets right now," said Helima Croft, global head of commodity strategy at RBC Capital Markets. "Any indication that Russia is going to restrict oil exports will cause concern," she said.

---

Comex gold futures rose 1.8% to $1,944 a troy ounce, their highest level in over a year, as investors flocked to safe havens.

"The Russian invasion of Ukraine puts the markets in panic mode," said German refiner Heraeus Precious Metals. "Investors are throwing shares out of their portfolios and fleeing to safe havens."

---

Aluminum, nickel, and palladium--all metals heavily produced in Russia--rallied. Aluminum and nickel benchmark prices hit decade highs, while palladium touched a six-month high.

Russia is the world's third-largest producer of aluminum and nickel and the largest producer of palladium. For palladium, fears that sanctions could hamper supply from Russia were encouraging consumers of the metal to stock up, driving prices higher, said Kirill Kirilenko, a precious metals analyst at CRU Group.


TODAY'S TOP HEADLINES


Russia Attacks Ukraine, Drawing Broad Condemnation

Russian troops and tanks pushed into Ukraine and airstrikes hit the country's capital and more than a dozen other cities early Thursday after President Vladimir Putin said he ordered a military operation to "demilitarize and de-Nazify Ukraine" and bring its leaders to trial.


U.S., Allies Poised to Hit Russia With Broad Sanctions for Ukraine Invasion

The U.S. and its allies are poised to unveil further sanctions, now that Russia has launched what President Biden called "an unprovoked and unjustified attack" on Ukraine, hoping a fresh tranche of penalties will have a greater deterrent effect than the first set.

On Tuesday, after Russian President Vladimir Putin sent troops into two breakaway regions of Ukraine, Western nations imposed sanctions on Russian sovereign debt, six Russian banks, several wealthy Russians linked to Mr. Putin's inner circle, Defense Minister Sergei Shoigu and other high officials, and halted the Nord Stream 2 natural-gas pipeline.


Russian Attack on Ukraine Sends Oil Prices Above $100 a Barrel for First Time Since 2014 Crash

A global oil benchmark surged above $100 a barrel for the first time since 2014, after Russia launched military attacks on Ukraine, pushing tanks and troops into the country and hitting cities with airstrikes.

The most-widely held futures for Brent crude, which call for delivery of oil in May, jumped more than 5% in London trading hours to $99.14 a barrel. Earlier, they touched $100.29 a barrel. Soon-to-expire contracts for delivery in April rose as high as $103.78 a barrel. In the U.S., benchmark West Texas Intermediate crude futures added more than 5% to trade at $97.22 a barrel.


Russia Attack on Ukraine Threatens European Gas Supplies

Natural-gas prices rose around the world as Russia's new military push against Ukraine posed a threat to Europe's already tenuous supply of the vital heating and power-generation fuel.

Russian President Vladimir Putin earlier this week said he wouldn't turn off his country's flow of gas to Europe, after deploying troops to two breakaway Ukrainian provinces. But his announcement early Thursday of fresh military action in the country ratchets up risks to Ukraine's gas-transport infrastructure, crucial to European supplies. It also poses the threat that Russia will shut off its gas in response to Western sanctions meant to punish Moscow.


San Francisco Fed President Says March a Good Time to Raise Rates

Federal Reserve Bank of San Francisco President Mary Daly said on Wednesday she remains on board with the central bank raising interest rates next month.

"It is time to move away from the extraordinary support that the Fed has been providing during the pandemic and bring monetary policy in line with the challenges of today," Ms. Daly said in a speech. "Absent any significant negative surprises, I see our next meeting, in March, as the appropriate time to begin this adjustment."


Bank of Korea Holds Rate Steady, Signals Tighter Policy

South Korea's central bank held its base rate steady on Thursday after making three increases in the past six months as it signaled tighter policy and forecast stronger inflation.

The Bank of Korea kept its benchmark seven-day repurchase rate unchanged at 1.25%, a pre-pandemic level set in January after back-to-back rate rises.


Ukraine Air Space Closed to Commercial Air Traffic, Eurocontrol Says

Ukrainian airspace has been closed to all civilian aircraft, according to Eurocontrol, which manages European air traffic. A formal notice to pilots and operators has been sent, warning of the "potential hazard for civil aviation."

Late Wednesday three Ukrainian airports issued formal notices to pilots that each had closed for the night and would only reopen on Thursday morning. The unusual closure notices triggered speculation that they were related to an imminent full-scale invasion by Russia. Kharkiv International Airport, one of Ukraine's biggest airports, sits along Ukraine's northeastern border with Russia and said it had closed its runway until 8:35 a.m. local time.


Justice Department Shifts Approach to Chinese National-Security Threats

The Justice Department is ending a Trump-era initiative to counter national-security threats from China after it led to a series of failed prosecutions of academics that sowed broad distrust in the higher-education community.

(MORE TO FOLLOW) Dow Jones Newswires

02-24-22 0501ET