Growing tensions between Russia and the West


Market players today

  • The week starts quietly as far as the economic releases are concerned.
  • Overnight, we get Chinese industrial production and retail sales, which are expected to show a modest moderation in growth rate compared to November of last year.
  • This week, central banks will be the focus of the Fed meeting on Wednesday, followed by the ECB, Norges Bank, Bank of England and National Bank of Switzerland on Thursday, while the Bank of Japan will close the week Friday morning.

The 60 second preview

Tensions between Russia and the West over Ukraine remain high. Over the weekend, Biden warned Russia that it would face “devastating” economic consequences if it invaded Ukraine. Biden’s warning echoes a joint statement by G7 foreign ministers who warned Russia to either de-escalate activities around Ukraine or face massive consequences. Among the actions envisaged are sanctions targeting Russia’s largest banks and its access to foreign currency. In addition, Germany’s new government, which includes the Green Party, has come under pressure to tie the fate of the Nord Stream 2 pipeline to Russia retreating to Ukraine.

Equities: The strong trading week ended on an overall strong note. Improving inflation data (more below) helped boost initially bitter risk appetite on Friday. European markets gradually rose during the session, ending moderately lower and US markets higher. The negative correlation between yields and stocks has reappeared, with growth and defensive markets on the rise, aided by lower yields. Technology (Apple) and consumer staples were among the best performers, while banks lagged behind. S&P closed higher 1%, Nasdaq 0.8%, Dow 0.6% and Russell 2000 -0.4%. VIX moved south of 20. Technology is also driving gains in Asia this morning. US futures are slightly higher.

FI: Friday’s price action was a story of two themes. In the morning, it was mainly a waiting game, and after the US CPI figure, this resulted in a movement of tightening risk on the spread. Media headlines of a € 60 billion extra budget in Germany (though already floating markets last month) may have weighed on underperformance in Germany. Peripheral spreads tightened around 4bp.

FX: The end of last week was characterized by a pullback in the USD after US inflation as some of the more risk and commodity sensitive currencies in RUB, MXN and GBP gained. EUR / USD is now back above 1.13, EUR / SEK remains in the middle of 10.20 while EUR / NOK is hovering above 10.10.

Credit: CDS indices outperformed cash bonds on Friday where iTraxx Xover tightened by 1.8bp and Main by 0.5bp while HY and IG bonds widened by 0.5bp and 1bp, respectively .

Nordic macro

Swedish markets will wait for November inflation released on Tuesday and the big Prospera survey on Wednesday.


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