Markets were rattled by stagflation prospects, amid talk of a US ban on Russian oil which sent prices to a 14-year high. The US administration is considering a ban on Russian oil imports. The timing and scope of any move remain fluid. Lawmakers said in a bipartisan statement: "As Russia continues its unprovoked attack on the Ukrainian people, we have agreed on a legislative path forward to ban the import of energy products from Russia and to suspend normal trade relations with both Russia and Belarus." The S&P500 is currently down 2.2%. The safe-haven USD rose, while bonds yields rose in anticipation of higher inflation.
The US dollar index is up 0.4% on the day, and at a high since May 2020. EUR fell from 1.0900 to 1.0806 (a 2-year low) before recovering. USD/JPY rose from 114.90 to 115.47. AUD fell from 0.7430 to 0.7312. NZD fell from 0.6915 to 0.6822. AUD/NZD fell from 1.0765 to 1.0712.
US 2yr treasury yields rose from 1.45% to 1.56%, while the 10yr yield rose from 1.70% to 1.80%. 10yr inflation-linked treasuries imply an inflation rate of 2.79% - a record high. Markets fully price a 25bp hike in March. Australian 3yr government bond yields (futures) rose from 1.57% to 1.65%, while the 10yr yield rose from 2.12% to 2.21%. The first RBA rate is priced for July 2022.
Commodities, Brent crude oil futures rose 5.6% to $125 – the highest since 2008, copper fell 3.6%, gold rose 1.1%, and iron ore rose 6.3% to $160 – the highest since August 2021.
Overnight Currency Range
AUD/USD 0.7312 0.7440
EUR/USD 1.0806 1.0967
GBP/USD 1.3102 1.3267
USD/JPY 114.77 115.47
NZD/USD 0.6822 0.6926
USD/CAD 1.2686 1.2815
USD/CNH 6.321 6.331
AUD/JPY 84.31 85.50
AUD/NZD 1.0713 1.0765
Stocks continued to get hit overnight as prospects for an earlier end to the Russo-Ukrainian War seemed to dim. Apart from equities, the action was most pronounced in the oil pits, as the prospect of a ban on purchases of Russian oil by the US was blamed for the further spike in oil prices today, as the Brent barrel spiked to USD 138 at Asia’s open.
AUD/USD managed a 0.7312/0.7440 range overnight before settling at 0.7320 in late trade. Offering interest is now expected toward the overnight high of 0.7440 while demand should materialise as we approach 0.7240/50
Event Risk Data Today
Aust: The February NAB business survey should reflect an improvement in confidence and conditions as omicron related disruptions fade.
NZ: Q4 building work is expected to rebound strongly from the lockdowns in Q3 (f/c: 8.0%).
Eurozone: The third estimate for Eurozone Q4 GDP will confirm the component detail outlined in February (market f/c: 0.3%). Meanwhile, German industrial production should continue to be affected by volatility from supply chain issues in January (market f/c: 0.5%).
US: Consumer credit is expected to post strong gains in January as pandemic savings continue to be worked down (market f/c: $24.5bn). Cost inflation is anticipated to hold small business optimism at weak levels in the NFIB’s February survey (market f/c: 97.4). Meanwhile, the trade deficit is set to remain wide in January on account of strong demand and inventory procurement (market f/c: -$87.3bn); the latter of which will be highlighted in the final estimate of January’s wholesale inventories (market f/c: 0.8%).