MARKET ENVELOPES

To watch:

US Q4 Revised Productivity and Costs; US Unemployment Weekly Claims; US Factory Orders for January; Toronto-Dominion Bank first quarter earnings.

Opening call:

Stock futures fell as oil prices continued to climb, as investors watched Russia’s invasion of Ukraine and how a rise in commodity prices is likely to impact inflation and Federal Reserve monetary policy.

Crude prices jumped more than $115 a barrel for the first time since 2008 as refiners balked at buying Russian oil, cutting global energy supplies. Investors fear that a prolonged rise in oil prices could precede a combination of slowing growth and rising inflation, known as stagflation.

“The inflationary impact of oil and natural gas surges is clear. Inflation is going to be more sticky. Interest rates will be pushed higher by central banks worried about inflation and that will be bad for growth. “said Edward Park, UK Chief Investment Officer. investment company Brooks Macdonald. “Stagflation is the big concern for 2023.”

Moscow’s invasion of Ukraine injected volatility into broader markets. Investors are trying to assess how avoiding Russian commodities, including oil, will fuel already high inflation and how aggressively central banks will raise interest rates in the face of additional price pressures and prospects. uncertain economics.

Fed Chairman Jerome Powell said Wednesday he would offer a quarter-percentage-point rate hike at the central bank’s meeting in two weeks.

Russian stock markets remained closed for the fourth day in a row as the government seeks to limit a sell-off, having also imposed capital controls on the rouble.

The London Stock Exchange Group has suspended trading in more than 50 Russian stocks. Index providers MSCI and FTSE Russell have said they will remove Russian stocks from their benchmarks next week and S&P Dow Jones Indices is considering doing the same.

Market overview:

US employers are expected to have added 426,000 jobs in February, signaling strong momentum in the country’s labor market, according to Oxford Economics.

Hiring during the month was likely led by the services sector as activity rebounded from the Omicron-related hit, the economic research firm said. This forecast would leave the employment level at 2.4 million below its pre-pandemic level and Oxford Economics expects the remaining shortfall to be made up in 2H amid robust economic momentum and a higher participation in the labor force.

The February jobs report is due Friday. Economists polled by the Wall Street Journal expect a gain of 440,000 jobs and a drop in the unemployment rate to 3.9%.

Actions to watch:

Shares of Best Buy have fallen this year, and the street isn’t expecting the electronics retailer’s upcoming fourth-quarter report to bring much joy to the market.

Best Buy is expected to report earnings before the bell on Thursday morning, and consensus estimates call for earnings per share of $2.72 on revenue of $16.6 billion.

Expectations aren’t particularly high as the holiday season approaches. The company provided guidance in November when it reported lackluster results, and a majority of analysts tracked by FactSet have cut their EPS estimate for the quarter since that report.

Costco Wholesale will release its fiscal second quarter results Thursday morning, in what could be a stellar holiday performance.

Analysts expect Costco to post earnings of $2.75 per share on revenue of $51.4 billion.

One retailer that always provides monthly sales updates is Costco. And the winner of the pandemic saw the strength of same-store sales continue in December and January, though that didn’t always help the stock.

The company’s previous quarter, reported at the end of 2021, was stronger than expected, although Costco warned it could see supply chain-related toy shortages for the key Christmas season.

Forex:

The dollar rose as Russia’s invasion of Ukraine boosts demand for safe-haven assets and investors digest remarks from Fed Chairman Powell.

“The US dollar is a good safe-haven play, but it’s more of a safe-haven of last resort, for those who want to get rid of their positions and sit on cash while the turmoil passes,” said Swissquote Bank.

Meanwhile, Powell said on Wednesday he would support a 25 basis point interest rate hike at the March 15-16 meeting, fending off speculation for a 50 basis point hike. However, he said the Fed stands ready to offer bigger and more frequent rate hikes if needed.

The euro fell against the dollar as safe-haven flows increase amid the conflict between Ukraine and Russia and the market reduces expectations of interest rate hikes by the European Central Bank, a Commerzbank said.

Although expectations of a U.S. interest rate hike have also been reduced, the Fed is expected to raise rates further in March and continue to do so despite the Ukraine crisis, Commerzbank’s Antje Praefcke said in a note.

The ECB could hesitate longer before raising rates, even if inflation will pick up due to higher energy prices, she said.

“Rising inflation that is not offset by rate hikes plus the risk of weaker growth: that would certainly be a negative constellation for the euro.”

The ruble fell 11.6% on Thursday against the greenback to 116 rubles to the dollar, according to FactSet. Traders say the reluctance of investors and brokers to touch the currency has limited the ease with which they can trade it.

Currencies in neighboring countries also fell against the dollar as investors worried about the economic fallout. The Polish zloty fell 0.8% on Thursday and the Hungarian forint 0.7%.

Obligations :

In bond markets, the yield on the benchmark 10-year Treasury note climbed to 1.870% from 1.862% on Wednesday.

Amundi is cautious on US, core and semi-core duration due to upward pressure on bond yields, but remains nimble amid new dynamics related to inflation and political issues, he said. declared.

In the current geopolitical environment, core U.S. and European government bonds provide portfolio security, he said.

Amundi expects revenue opportunities in Chinese government and euro peripheral debt, seeing Italian BTPs as those offering attractive relative value opportunities versus German debt, given Italy’s political stability, economic growth potential and the ECB’s objective of avoiding fragmentation in the euro area.

A sustained rally in developed market government bonds is unlikely unless the war in Ukraine leads to a sharp decline in output in major developed markets, Capital Economics said.

The war prompted a rally in long-term government bonds, pushing their yields lower, although bond yields showed signs of tentative stabilization on Thursday morning.

“At the risk of stating the obvious, how bond yields move from here will crucially depend on how the war, sanctions and general level of stress in financial markets evolve, which is highly uncertain. “, said EC.

Capital controls that Russian authorities have imposed in response to international sanctions raise significant questions about the Russian state’s willingness to repay its debt to foreign residents, Scope Ratings said.

“These measures indicate high risk and uncertainty regarding Russia’s political predictability,” he said.

The measures will have other negative implications for financial stability, making Russia more vulnerable to banking and liquidity crises, as well as significantly increasing the risk of further negative credit rating actions for the Russian sovereign in the short term, said the rating company.

Amenities:

Oil continued its rally, approaching the $120 a barrel level, as the market fears extreme tension if the Ukraine crisis rules out Russian crude for good.

Sanctions against Russia have deterred oil traders from dealing with Russian crude, taking it off the market, at a time when markets are already extremely tight.

Brent could climb as high as $145 a barrel, TD Securities said. “Additional benefits are still to be expected as the market does not see much replacement supply for Russian products in the near term,” he said.

Natural gas prices in Europe rose 8%, adding to a rise this week. Investors fear that Europe’s natural gas supply will be disrupted by the war. According to analysts, about a third of Russian gas exports to Europe pass through Ukraine.

There could soon be supply disruptions for metals, such as aluminum and nickel, ANZ said, noting that shipping giant Maersk, which handles shipments for Russian aluminum producer United Co. Rusal, recently suspended its operations in Russia.

Large volumes of aluminum and nickel regularly flow from St Petersburg to other European ports and are at risk of disruption, ANZ said.

Russia produces 17% of the world’s supply of LME-grade nickel, sought after by the electric vehicle battery industry, so the scale of a potential supply disruption could be significant, ANZ noted.

The three-month LME contract for aluminum rose 2.1% to $3,642.0 per tonne and the three-month nickel contract gained 4.1% to $26,935.0 per tonne.

Gold is on the rise, supported by demand for safe havens.

The precious metal will remain highly sensitive to news about the Russian-Ukrainian war and is likely to see a sharp upside as geopolitical tensions and growth concerns are not going away any time soon, Oanda said.

Demand for shelters is likely to remain high as the war is still in its early stages, Oanda said.

   
 
 
   
 
 

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(MORE TO BE FOLLOWED) Dow Jones Newswires

March 03, 2022 06:00 ET (11:00 GMT)

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