Saturday, September 30

EMEA Morning Briefing: Muted Open Likely as Ukraine Worries Persist


Watch For:

Germany PPI; Bundesbank monthly report; updates from Grammer, Porsche, Salzgitter

Opening Call:

Europe is seen a touch weaker Monday with the latest Ukraine headlines likely to dominate early direction. In Asia, stocks were little changed, with the dollar and Treasury yields edging higher. Oil gained around 3%, while gold dipped.


Stocks in Europe were poised for modest opening losses Monday, as investors continued to weigh efforts for a negotiated end to the war in Ukraine.

Diplomacy is in focus this week as Joe Biden heads to Brussels for a two-day meeting with allies from NATO and European nations.

Asian stocks were largely steady but U.S. futures dropped, although losses were limited.

“Stabilizing stock markets point to less cautious investors. Not because views on geopolitical or policy/rates risk have improved but because price action shows a market more tolerant of those challenges,” wrote Stephen Innes Managing Partner at SPI Asset Management.


Geopolitical concerns bolstered the safe-haven appeal of the dollar in early Asian trading.

MUFG Bank said optimism over limited contagion stemming from the conflict and sanctions may be misplaced, noting that despite peace talks apparently progressing, military actions on the ground suggested otherwise.

Other News:

Informa Global Markets’ Bruce Clark said currency markets were “trading like the war is over,” after the DXY Dollar Index fell 1% last week.

Clark warned demand for the greenback is likely to come back “if there is an escalation in something,” as the currency “has been a primary safe haven currency in all of this.”

Clark remained skeptical that the Fed will be able to raise rates as aggressive as it has indicated, which in his view would weaken the dollar.


Capital Economics’ Franziska Palmas said a more hawkish Fed should strengthen the dollar against major currencies.

“We now anticipate both short and long-term government bond yield differentials between the U.S. and European [developed markets] to move more strongly in favour of the greenback. We now expect the Fed to hike by more than we previously thought, but have not changed our forecast for the other central banks.”

Palmas also forecast a deterioration in Europe’s terms of trade “as the increase in risk premia embedded in European currencies which resulted from the war will partly persist.”


Treasury yields edged higher in largely muted Asian trading.

Yields were mixed Friday, but posted their biggest two-week gains in years, as investors monitored developments in the Russia-Ukraine war and continued to digest the Fed’s efforts to hike rates through 2023. The 2 year-10 year section of the curve flattened in a typical sign of markets bracing for a potential recession.

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Some analysts said the Fed may be unable to hike as much as indicated if the economic downshift forecast implied by the yield curve proves to be correct.

“The market has, to a degree, called the Fed’s bluff on rate hike plans as rate hike expectations were dialed back in the immediate wake of the dot plot release and economic projections,” said Tom Essaye, founder of Sevens Report Research, in a note.

“But the Fed is indeed tightening policy and regardless of the pace of the trend, yields are going higher in the months and quarters ahead.”


Oil futures gained around 3% in Asian trade, extending Friday’s advance after talks between Ukraine and Russia showed little signs of progress.

CBA said financial markets are still largely determining oil prices by assessing the likelihood of a diplomatic solution to the Ukraine conflict. “Physical shortages, linked to current sanctions on Russia, though will eventually play a more dominant role in oil price determination.”

Meanwhile, the market is also keeping an eye on the fresh wave of Covid-19 outbreaks in China, which has resulted in some of the heaviest virus-related restrictions since early 2020, said ANZ.


Gold’s losing streak continued in Asia, after prices booked their sharpest weekly decline since November Friday following the Fed decision.

Gold “may have a choppy short-term road ahead, with the $1,900 level providing key support,” said Edward Moya, senior markets analyst at OANDA. “To the upside, gold might find tentative resistance at the $1,950 level.”

Commerzbank said the market’s focus will likely be on any progress in the talks between Russia and Ukraine. “For a time, hopes that the peace talks could lead to an end to the war had weighed on [gold]”.

Aluminum prices jumped more than 4% on expectations of more Chinese stimulus, which could boost demand for the industrial metal, said ANZ.

Fears of prolonged disruption to supply–due to the Ukraine war–may also support prices. ANZ noted that Australia has stopped exports of alumina and bauxite–both used in making aluminum–to Russia.



Russia, Failing to Achieve Early Victory in Ukraine, Is Seen Shifting to ‘Plan B’

After Russian forces failed to secure a quick victory over Ukraine, senior U.S. officials see signs the Kremlin is shifting to a new strategy to secure key territorial objectives while seeking leverage to compel the Ukrainian government to accept neutrality between Russia and the West.

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The U.S. and its allies had widely interpreted Russian President Vladimir Putin’s initial objectives to include the seizure of Kyiv in a matter of days, and the replacement of Ukrainian President Volodymyr Zelensky’s government with a pro-Russian regime.


War in Ukraine Is Already Taking Its Toll on Global Food Supplies

Ukrainian farmer Igor Borisov has 2,000 metric tons of corn from the fall harvest stuck in a warehouse behind Russian battle lines. Like other farmers across Ukraine, his crop for this year is also imperiled.

Global concerns that Russia’s invasion would curtail Ukraine’s 2022 harvest have come to fruition. The crop shortfall will extend to the many countries that rely on Ukraine for wheat, corn and cooking oil.


China Says Housing Prices Are Stable, but Developers See Significant Declines

HONG KONG-According to government statistics, China’s housing market has cooled from its hot gains of years past but is still ticking along. The average new-home price rose 1.7% year over year in January and 1.2% in February.

Yet financial filings, marketing materials for apartments, property agents and analysts tell a different story: Debt-burdened developers are selling apartments at falling prices and in some cases providing big discounts to get cash in the door.


China’s Covid-19 Flare-Up Threatens Backlog at Busy Port of Shenzhen

Cargo ships are accumulating at one of China’s busiest ports after another Covid-19 outbreak shut down factories and warehouses in Shenzhen, raising the prospect of a new round of bottlenecks that could push up freight rates and slow deliveries.

There are more than 35 ships waiting to dock in Shenzhen and another 30 farther north in Qingdao, according to shipping brokers. The Port of Shenzhen, which serves a major manufacturing and export hub, includes the Yantian terminal, which handles about a quarter of all U.S.-bound Chinese exports. Shenzhen remains open, but most manufacturing plants and warehouses were ordered to close this past week, and container loading is falling fast as fewer trucks are arriving.


Aramco Profit Hits $110 Billion as Saudis Seek to Expand Investments

DUBAI-State oil giant Saudi Aramco said Sunday its 2021 net profit more than doubled to $110 billion, a boon to the Middle East’s largest economy as it seeks to use its hefty profits for investment opportunities domestically and abroad.

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The world’s largest oil exporter is benefiting from rapidly rising oil prices and said it raised its spending target this year as demand surges and the impacts from the pandemic recede. Brent crude, the global oil benchmark, surged to an average of $70.86 a barrel last year after falling to an average of $41.96 a year earlier. It settled Friday at $107.93 a barrel, down 4.2% for the week. Early this month, oil at times traded above $130 a barrel.


U.K. House Prices Rose in March to All-Time High

U.K. house prices rose in March to a new high for the second consecutive month, according to new data from property portal Rightmove PLC.

The average price of property coming to the market rose by 5,760 pounds ($7,573) in March, an increase of 1.7% and breaking through the GBP350,000 barrier for the first time. First-time buyer asking prices hit a record GBP214,176 after climbing 1.4% in a month. The portal measured 98,310 prices across the U.K over the period from Feb. 13 to March 12.


Pentagon’s Work With Ukraine’s Biological Facilities Becomes Flashpoint in Russia’s Information War

On his first official visit abroad, the new senator from Illinois, Barack Obama, was taken to a facility in Ukraine where the U.S. helped scientists working with dangerous biological materials. But rather than produce biological weapons, U.S. officials in that ramshackle building were trying to prevent lethal pathogens from falling into the hands of terrorists.

“I removed a tray of glass vials containing Bacillus anthracis, which is the bacterium that causes the anthrax,” recalls Andrew Weber, the Pentagon official who was in charge of the U.S.-funded program that worked with the Ukrainian government. Mr. Weber said he showed the tray “to a very concerned-looking young senator.”


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Expected Major Events for Monday

00:01/UK: Mar Rightmove Monthly House Price Index

07:00/GER: Feb PPI

09:00/ICE: Feb Harmonized CPI

09:00/POL: Feb Retail Sales

10:00/LUX: Feb Unemployment

11:00/UK: Feb Aluminium Production report

17:59/POR: Dec ICSG Copper Report

23:00/NED: Feb House Price Index

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March 21, 2022 01:01 ET (05:01 GMT)

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