Weekly Market Update: Ukraine war and Fed policy minutes keep markets under pressure
Markets opened the week unsettled amid ongoing consternation surrounding the Ukraine war as well as US Federal Reserve policy. Crude oil prices rose in the early part of the week as another round of Western sanctions on Russia was being contemplated following the unearthing of atrocities committed by Russian forces in Bucha. Europeans openly discussed a mandatory phase out of imported coal to go along with additional measures to strength energy sanctions. Western officials also stepped up their rhetoric surrounding President Putin reiterating their belief that war crimes, and potential genocide is being committed by Russia. The pressure seemed to have little baring on the ground though. By Friday, reports circulated that dozens has been killed in Russia missile attack on Ukraine railway station in Kramatorsk which was being used as an evacuation center.
US Treasury yields were jolted higher on Tuesday when Vice Chair nominee Brainard’s hawkish commentary caught investors’ attention, presaging the March FOMC minutes. Wednesday’s minutes essentially supported what we have heard from a full throated chorus of Fed officials of late. Namely, a 50 bps cut remains firmly on the table and is possible in May when the Fed is likely to begin cutting back on the balance sheet as well. According to the minutes, the monthly cap on drawdowns will likely rise to $95B by this summer, but to date officials have not decided the target size for the balance sheet at the end of the process. Increasingly aggressive calls by both Fed officials and forecasters on rates continued to push yields higher as the week progressed. By Friday, US 10-year Treasury yield rose for a sixth consecutive day, notching a new three-year high above 2.7% which resulted in an unwind in the recent curve inversion for the benchmark 2/10 year spread. Oil prices ended the week only modestly higher, with WTI below $100/bbl. For the week, the S&P fell 1.3%, the DJIA slipped 0.3%, and the Nasdaq was dove 3.9%.
In corporate news this week, newly reinstated Starbucks CEO Howard Schultz announced he would halt stock buybacks in order to invest in employees and stores, as unionization efforts accelerate at some of its locations. Costco shares hit a new 52-week high after the store chain announced double digit growth in March same store sales. Twitter added Elon Musk to its board of directors after the Tesla CEO disclosed a large position earlier in the week, though Musk will be limited to taking a 14.9% stake while he serves on the social media giant’s board. Spirit Airlines confirmed receipt of an unsolicited $33/share all-cash takeover offer from JetBlue Airways, throwing a wrench in its planned merger with Frontier Airlines.
SUN 4/3 (EU) Latvia, Estonia and Lithuania stopped imports of Russian gas from Apr 1st - press (RU) Russian Pres Putin said to be under pressure to achieve victory in eastern Ukraine by Russian holiday Victory Day on May 9th - CNN (RU) Russia govt spokesman Peskov: Russia will demand Rouble (RUB) payments for other goods; Russia does not want to make life difficult for Western purchasers of Russian gas MON 4/4 (UK) FCA: To review LME approach on suspension and resumption in Nickel Trading; sees exchange remaining vigilant until situation resolved SBUX Founder and incoming CEO Howard Schultz decides to suspend stock repurchasing program, effectively immediately TWTR Tesla CEO Musk reports 9.2% passive stake - 13G filing (US) US to seek Russia's suspension from UN Human Rights Council - press (UK) Chancellor of the Exchequer (Fin Min) Sunak: It is my ambition to make the UK a global hub for cryptoasset technology CCL Reports one-week period of March 28-April 3 was its busiest booking week in the company's history (double-digit increase from the previous record 7-day booking total) TUES 4/5 (PE) Peru President Castillo declares state of emergency in Lima and Callao; to enforce curfew on Apr 6th due to inflation protests (EU) EU's Dombrovskis: Sanction discussions on Russia to include energy sector with oil, coal sanctions as an option (UR) EU's Foreign Policy Chief Borrell and EU Commission President Von der Leyen to travel to Kyiv this week - press (RU) EU reportedly to ban Russian trucks and vessels from entering the EU; To block all transactions with VTB bank and other three Russian banks already excluded from SWIFT messaging system - press (DE) Germany Finance Min Lindner: EU did Not find deal on corporate tax today; Poland vetoed 15% min tax implementation by 2023 (CN) Reportedly China urges Shanghai to ensure port, shipping operations - press (UR) Czech Republic reportedly sent several T-72 tanks and BVP-1 infantry fighting vehicles to Ukraine - Czech TV TWTR Adds Elon Musk to board of directors; To limit Musk stake to 14.9% while he serves on Board (currently 9.2% stake) *(US) MAR ISM SERVICES INDEX: 58.3 V 58.5E (US) Fed’s Brainard (vice chair nominee): Expects balance sheet to shrink considerably more rapidly than prior recovery; Fed ready to take stronger action if inflation and inflation expectations indicators suggest need for such action (US) Fed's George (FOMC voter, hawk): A 50bps hike will be an option we have to consider; Fed may have to go above neutral to bring inflation down - TV interview (NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: -1.0% v -0.9% prior (US) Atlanta Fed GDPNow: Cuts Q1 GDP forecast to 0.9% from 1.5% SAVE Confirms receipt of unsolicited $33/shr all-cash proposal from JetBlue Airways *(CN) CHINA MAR CAIXIN PMI SERVICES: 42.0 V 49.7E (1st contraction in 7 months and lowest level in two years) WEDS 4/6 (RU) Russia govt spokesman Peskov: If there is to be a successful negotiation between the Russian and Ukrainian delegations, there will have to be a meeting between Putin and Zelensky at the highest level - French tv interview (RU) Russia Finance Min Siluanov: Had to pay Roubles (RUB) to holders of 2022 and 2042 eurobonds as foreign bank rejected to process FX payment in amount of $649.2M (CN) China oil firms Sinopec, CNOOC and Petrochina reportedly stay away from trading new Russian cargoes for May loadings; Some independent refiners continue ESPO** crude imports - press (CN) China vows use of monetary policy tools to aid domestic economy at the proper time and in a flexible way - Chinese media (DE) German Chancellor Scholz: Confidentially discussing possible security guarantees with Ukraine; Not making any preparations to postpone exit from nuclear power - speaking in Berlin (RU) UN to vote on suspending Russia from United Nations Human Rights council - press Reportedly US banks, including Wells Fargo and Bank of America debating a plan to use Zelle to challenge Visa and Mastercard; Plan to expand Zelle to merchant payments - press TM North America sales exec: See US sales of 15.5M units in 2022 vs 16.5M y/y, citing supply chain headwinds (US) Association of American Railroads weekly rail traffic report for week ending Apr 2nd: 502.2K total units, -2.7% y/y (US) USPS raises price of First-Class Mail Forever stamp by 6.5% from 58 cents to 60 cents, effective July 10th *(US) FOMC MAR MINUTES: OFFICIALS GENERALLY EYED MONTHLY $60B CAP FOR TREASURY DRAWDOWN AND $35B FOR MBS DRAWDOWN; MANY ON FED WOULD HAVE SOUGHT 50BPS MARCH HIKE IF NOT FOR UKRAINE WAR COST Reports Mar total SSS +12.2% (ex-gas and FX) 005930.KR Reports Prelim Q1 (KRW) Op 14.1T v 13.4Te (highest Q1 Op since 2018); Rev 77.0T v 75.0Te (Rev record high) HPQ Berkshire Hathaway files Form 3, reports purchase of ~121M shares in the co.[~11.4% stake] (US) Reportedly House speaker Pelosi in talks to visit Taiwan [would be the first US House Speaker to visit Taiwan in 25 years] - press THURS 4/7 066570.KR Reports Q1 (KRW) Op 1.88T v 1.52T y/y; Rev 21.1T v 18.81T y/y (CN) China Foreign Min spokesperson Zhao Lijian: US House Speaker Pelosi should immediately cancel her trip plan to Taiwan (RU) Russia Foreign Min Lavrov: Ukraine presented new proposals and new draft agreement on Apr 6th, different from Istanbul ones; Ukraine proposes to discuss Crimea, Donbas status which is unacceptable STZ Reports Q4 $2.37 adj v $2.15e, Rev $2.10B v $2.02Be; Plans $500M share repurchases in Q1 CAG Reports Q3 $0.58 v $0.57e, Rev $2.90B v $2.84Be; Guides Q4 gross inflation* 16% *(US) INITIAL JOBLESS CLAIMS: 166K V 200KE (lowest since 1968); CONTINUING CLAIMS: 1.523M V 1.302ME (US) Speaker Pelosi tests positive for COVID-19, trip to Asia postponed to a later date (RU) Russia govt spokesperson Peskov: We have had significant losses of troops in Ukraine, its a tragedy - TV interview (US) Senate confirms Biden nominee Ketanji Brown Jackson to Supreme Court by 53-47 vote (as expected) (EU) EU reportedly to support Russian coal embargo in fifth round of sanctions - press *(US) FEB CONSUMER CREDIT: $41.8B V $18.1BE (record level) TSLA CEO Musk: Trailing 12-month deliveries >1.0M; Tesla seeking to produce 500K Model Y at Texas factory, to start Cybertruck production next year AAPL Reportedly orders for the 5G iPhone SE and AirPods are stable - Digitimes FRI 4/8 (DE) German Chancellor Scholz reportedly delaying a final decision over whether to give Ukraine high-end tanks for its battle against Russia. initially expected this week - Politico MAERSKB.DK Launches Maersk Air Cargo unit; Expected to be fully operational as of H2 2022 *(RU) RUSSIA CENTRAL BANK (CBR) CUTS KEY 1-WEEK AUCTION RATE BY 300BPS TO 17.00% (INTRA-POLICY MOVE); Says further rate cuts possible during upcoming meetings (EU) EU adopts 5th round of sanctions against Russia, including ban on Russian coal import from Aug 2022 and banning Russian vessels from EU ports (EU) Reportedly EU has already started working on the 6th package of sanctions against Russia; Next objectives could be uranium and/or oil sanctions via monthly reductions, tariffs or escrow accounts, or a combination - press (UR) Slovakia PM: Delivered its sole S-300 air defence system to Ukraine *(CA) CANADA MAR NET CHANGE IN EMPLOYMENT: +72.5K V +79.9KE; UNEMPLOYMENT RATE: 5.3% V 5.4%