From Marc to Market:
Overview: Bold new sanctions on Russia and more weapons for Ukraine were announced over the weekend. Russia responded by raising the readiness of its nuclear forces. As a result, the risk-on seen ahead of the weekend has been reversed. When then-US President Trump ordered the assassination of Iran's Major-General Soleimani in January 2020, it seemed to signal a year of geopolitics. Instead, it was about Covid. At the end of last year, Omicron threatened to keep the pandemic front and center. Instead, with Russia's invasion of Ukraine and the large-scale response, geopolitics has eclipsed the pandemic. Asia Pacific equities edged and traded higher except for Hong Kong and Singapore. Led by the financial and energy sectors, the Stoxx 600 is off by about 1.6%. US futures are around 1.3% lower. Bonds have caught a bid. The US 10-year yield is off four basis points to 1.92% and the 2-year is off six basis points to 1.50%. European core benchmark yields are 1-2 bp lower, while the peripheral yields in Spain and Italy are edging higher. In the foreign exchange market, the dollar is firm, while the Swiss franc and Japanese yen are the most resilient among the major currencies. The Scandis are leading the losses, off 1.0%-1.6%. A small number of Asian currencies, including the Chinese yuan are steady to firmer against the dollar, while most are heavier. The Russian rouble (~-18.5%) and central European currencies (~-2%) are hit the hardest. The JP Morgan Emerging Market Currency Index is off 2.2%, which would be the most since mid-March 2020.
Gold and oil rallied, as one would expect, but did not take out last week's highs. Gold stalled near $1930 (last week's high ~$1975) and fell to $1893.5 in the European morning before stabilizing to straddle the $1900-level. April WTI rallied to almost $100 but has steadied around $96. US natgas prices are up around 2% to recoup the last pre-weekend loss. Europe's natgas benchmark has surged but is coming off its highs. It held below last week's highs and is up almost 15% on the day. Iron ore rallied about 4%. Copper is about 0.8% higher. The price of May wheat is up about 5.5% after falling 8% before the weekend.
Asia Pacific
China is taking a more nuanced position vis a vis Russia than may meet the eye. Although it tends not to receive much attention in the US press, Chinese banks typically follow OFAC (US Office of Foreign Asset Control) rules and sanctions. They adhere to them for the same reason many others do: fear of being excluded from the dollar market. Four of the largest Chinese banks complied with US sanctions against Iran, North Korea, and even top officials in Hong Kong. Reports suggest Chinese refiners have stopped taking fresh seaborne oil from Russia. Two large banks also have restricted funding for the purchases of Russian commodities. Other international lenders are imposing restrictions on trade finance linked to Russia. One report told of a state-owned Chinese coal importer unable to get a credit line from banks in Singapore for shipments to Russia. China may dislike NATO, which did not appear to play the proclaimed defensive role in Afghanistan but fears its banks would be sanctioned for transgressions....
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