Marketmind: A most favored nation no more

People with a Russian flag protest in Berlin
People carrying a Russian flag protest after Russia’s invasion of Ukraine March 5, 2022 in Berlin, Germany. REUTERS/Lisi Niesner/Files

March 11, 2022

A look at the coming day at the markets by Julien Ponthus.

European markets are poised to start trading as it emerges that Western nations will tighten sanctions against Russia over its invasion of Ukraine by removing its trading status as “most favored nation”.

The move, which is not yet official, paves the way for tariffs to be imposed on a wide range of Russian goods and adds to overnight pressure from Wall Street’s Goldman Sachs and JPMorgan to announce an orderly pullout from the country.

While global markets saw a brief glimmer of hope for a diplomatic solution to the crisis this week, sentiment took a clear step towards bearishness this morning.

The US dollar just hit a fresh five-year high against the yen after a strong US inflation report, while the euro struggled to hold up as a hawkish turn by the European Central Bank was offset by risks to growth stemming from the Ukraine crisis.

There are many assets that investors are using to try to gauge the market stress caused by the war in Ukraine, from oil and grains to stocks and bonds, but the euro is increasingly seen as the ultimate ‘fear index’ of this crisis.

Europe’s biggest security crisis since 1945 has sent the common currency on a roller coaster ride that last week pushed it into its worst week since the COVID-19 crash and its biggest daily jump since 2016.

On that front, some investors might be disappointed to read that EU leaders gathered in Versailles, west of Paris, are considering more spending on the Ukraine war but are not yet ready to mention a new joint bond issue.

Meanwhile, futures for European equity markets are pointing to gains of around 1% at the open, which will not offset yesterday’s 1.7% loss.

Oil prices, which are also tending to reveal sentiment on trading floors, are stabilizing this morning and were on course for their biggest weekly drop since November as hopes of bringing more supply to the market, at least temporarily, escalated fears Russian oil seems to overcome bans.

Key developments that should give markets more direction on Friday:

Norway’s Orkla leaves Russia after invading Ukraine

German harmonized inflation +5.5% y/y in February

The British economy recovers strongly in January

Vehicle sales in China up 19% in February

Business sentiment in Japan falls, rising household spending is eclipsed as risks mount in Ukraine

University of Michigan Inflation Expectations

(Reporting by Julien Ponthus; Editing by Saikat Chatterjee) Marketmind: A most favored nation no more


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