MARKET WRAPS
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Federal Reserve Board of Governors closed meeting.
Opening Call:
Stock futures dropped after Russian forces intensified strikes across Ukraine and as the threat of a potential ban on imports of Russian oil helped spur a surge in energy prices.
Fighting in Ukraine continued unabated over the weekend, with humanitarian corridors intended to evacuate civilians from cities closed after coming under fire from Russian troops. The U.N. said Sunday that 1.5 million Ukrainians have fled the country in the past 11 days, creating the fastest-growing refugee crisis in Europe since World War II.
Oil prices soared, with global benchmark Brent crude jumping 8.5%, the highest level since July 2008. Earlier Monday, it topped $130. The U.S. and European partners are discussing a ban on imports of Russian oil, Secretary of State Antony Blinken said Sunday. A European gas benchmark surged 48% to a record high.
Rising oil prices are spurring concerns about demand destruction and a global recession, said Michael Hewson, chief markets analyst at CMC Markets. "It's hard to see much in the way of significant upside for stock markets now against a backdrop of continued escalation" in Ukraine, he said.
Higher commodity prices and the resulting accelerated inflation are complicating the next moves of major central banks, who were largely set to begin tightening monetary policy before the war began. The European Central Bank is meeting this week, and investors will be watching for changes to its growth outlook and what this could mean for policy.
"This toxic cocktail poses a huge problem for central banks. Do they tighten monetary policy and risk pushing the world into a recession even quicker or do they allow inflation to rip higher, which would do the same thing?" Mr Hewson said.
Investors appear to be in classic flight-to-safety mode and stocks are suffering as a result, said Kelvin Tay, the Singapore-based regional chief investment officer for UBS. Very high oil prices will function as "a tax on the global economy, and therefore global growth will actually have to slow," he said.
Stocks to Watch:
Bed Bath & Beyond stock jumped 39% in premarket trading Monday after GameStop Chairman Ryan Cohen took a big stake in the home-goods retailer and urged it to explore strategic alternatives, including a full sale of the company.
Cohen, who co-founded online pet products retailer Chewy owns a 9.8% stake in Bed Bath & Beyond through his investment firm, RC Ventures LLC, according to a letter sent to its board Sunday. That makes him a top-five shareholder in the New Jersey-based chain, which is valued at around $1.6 billion.
Shares in Bed Bath & Beyond leapt 39% to $22.42 in premarket on Monday. The stock has dropped 47.76% in the last 12 months.
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Oasis Petroleum and Whiting Petroleum could announce an all-stock merger early this week, The Wall Street Journal reported.
A combination of the rival North Dakota shale drillers would be worth about $6 billion. Oasis has a market value of $2.8 billion; the market cap of Whiting is nearly $3.3 billion.
Following the close of trading Friday, Oasis shares have gained 14.7% in 2002 as oil prices have soared (early Monday, West Texas intermediate crude oil was at $124.25 a barrel, up 7.5%, as the U.S. and its allies were considering a ban on Russian oil). Whiting shares have risen 29% year to date.
In premarket trading Monday, Oasis was rising 6.4% to $153.69 and Whiting jumped 7.9% to $89.99.
Whiting Petroleum was the first major oil-and-gas company to file for bankruptcy during the pandemic. It emerged from bankruptcy in September 2020.
Forex:
The dollar jumped as demand for the safe-haven currency surges due to Russia's continued invasion of Ukraine and the possibility that sanctions could include a potential ban on imports of Russian oil.
The DXY dollar index surged to 99.2130, its strongest since May 2020. "Expect the dollar to remain in demand today and DXY to continue heading towards 100," ING analysts said in a note.
Dollar demand and concerns about the impact of the Ukraine war on the European economy caused the euro to dive to a 22-month low of $1.0824.
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European currencies fell against the dollar as investors worried that a potential crackdown on Russian energy imports by the U.S. and its allies would hurt economic growth in the region.
The euro fell 0.6%, its lowest level since May 2020, according to FactSet. Investors have broadly sold European assets since the onset of Russia's war against Ukraine, worried that potential disruptions to energy supplies, a growing number of refugees to some countries and impacts on other commodities could weigh on growth.
The British pound declined 0.5% against the dollar to its lowest level since November 2020.
Currencies of eastern European nations nearest Ukraine have been the most heavily sold against the dollar. The Polish zloty declined 2.2% Monday to its lowest level in more than 20 years, and the Hungarian forint declined almost 4%. Both the zloty and the forint have also fallen sharply against the euro.
Russia's currency sank to a record low Monday as traders struggled to get access to the ruble. The ruble fell to 137 to a dollar, a decline of more than 10% from Friday's close, as traders say that the ability to buy and sell the Russian currency has become more limited as fewer banks want to settle transactions against it in the offshore market.
Bonds:
The yield on the benchmark 10-year Treasury bond edged down to 1.715% Monday from 1.722% on Friday, extending its descent, after posting the biggest one-week decline since March 2020 last week.
Bond yields are expected to drop moderately in the next three to six months, LBBW's analysts said. For the Fed, LBBW's analysts still expect five to six interest rate rises in 2022, but the likelihood of "super-sized" interest rate increases of 50 basis points has probably faded for now, they added.
They cut their 10-year U.S. Treasury yield forecast for the year-end to 2.25% from 2.50%, keeping the mid-2023 yield forecast at 2.70%. They expect the 10-year Bund yield at 0.30% at end-2022, down from 0.50% expected previously, while the mid-2023 forecast remains at 0.70%.
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Safe-haven assets are unlikely to lose their attractiveness in the short term because of the war in Ukraine, Raiffeisen Bank's analysts said. "As we do not expect an immediate easing of the conflict, but even a further intensification could still be ahead, we do not think that safe havens should lose their attractiveness in the short term," they said.
The German Bund curve reflects intensified demand for safe havens, and an adjustment, but not a reversal, of the European Central Bank's interest rate cycle, they said.
Raiffeisen's analysts expect an incipient monetary tightening by the ECB in 2022 to be likely, but the war in Ukraine represents a major uncertainty factor for the extent and timing of the monetary policy outlook.
Commodities:
Oil prices rose to their highest level since 2008 after the U.S. said it and some European countries were considering a ban on Russian oil imports. Brent crude oil jumped almost 8%.
It had earlier risen as high as $130 a barrel for the first time since mid-2008. U.S. Secretary of State Antony Blinken said Sunday that there were "very active discussion[s]" about the step.
Cutting off Russia's sizable oil exports could weigh on U.S. growth and push Europe into a recession, wealth manager Exinity said. "If the crisis gets worse and Europe imposes sanctions on Russian oil with no response from OPEC members, expect prices to jump above $200," the firm said.
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Gold prices pushed past $2,000 a troy ounce for the first time in 18 months as investors turn to safe-haven assets because of the Russia-Ukraine conflict. "Gold is a viable hedge for war and should continue to trend higher through both the inflation and geopolitical risk," SPI Asset Management said.
Gold might struggle to rise much above its current level, however, and should the Russian central bank choose to sell its large gold holdings, prices could also come under pressure, the firm said.
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Nickel prices soared as traders fear Western nations could seek to target Russia's metal exports with sanctions following its invasion of Ukraine. Benchmark three-month nickel on the LME surged over 26% to $36,765 a metric ton, its highest level since 2008.
The U.S. said that together with some European nations it was considering banning imports of Russian oil. That has raised fears that Russia's metal exports could be next, said brokerage Marex.
"The ceiling seems to be missing, and markets are trading as if there is a lot of panic," the firm said. Other metals are also rallying, with copper up 1.9% at $10,796 a ton and aluminum up 4.9% at $4,028 a ton.
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03-07-22 0612ET
