24 February 2022
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Tensions continue to escalate in Eastern Europe

By Khatija Haque

  • Geopolitical tensions escalated in Eastern Europe as the two breakaway states reportedly asked for Russian assistance in fighting Ukrainian troops and President Putin this morning authorized a “special military operation” in the Donbas region. The US announced additional sanctions on the Russian developer of the Nord Stream 2 pipeline and its management team.  Kyiv announced a month-long state of emergency, and EU leaders will hold an emergency summit to discuss the crisis today.
  • Markets responded negatively overnight with US equities closing lower and Asian markets trading weaker this morning. Treasuries rallied even as the San Francisco Fed President Mary Daly said she didn’t see any reason to delay raising rates in March given the current geopolitical tensions. However, she favours a slower pace of rate hikes with at least four 25bp increases this year as well as balance sheet reduction.   
  • Inflation in the Eurozone rose by more than the initial estimates suggested in January, with headline CPI up 5.1% y/y and core down slightly to 2.3% y/y. Higher energy prices have added to near-term upside risks to the inflation outlook, and core inflation is likely to accelerate as well. ECB chief economist Philip Lane said the ECB would adjust its approach if inflation moves towards 2% in the medium term, which he believes is more likely now.
  • Saudi Arabia’s Public Investment Fund (PIF) is reportedly considering options to monetise its 4% stake in Aramco, worth an estimated USD 86bn.  Options being discussed include selling part or all of the holding or issuing convertible debt.    

Today’s Economic Data and Events

17:30 US initial jobless claims (Feb 19) forecast 235k

17:30 US Q4 GDP (2nd estimate) forecast 7.0% annualized

17:30 US core PCE (Q4 21) forecast 4.9% q/q

19:00 US new home sales (Jan) forecast 802k

Fixed Income

  • US Treasuries showed no clear direction as markets digested the news of US sanctions on Russia amid an outlook for higher policy rates. After a considerable spike on the open yields on the 2yr UST moved lower for much of the day to settle around 1.6%, up around 5bps on the day. The 10yr yield also opened with a bump and nudged up to 2% by the end of the day. Currently it is trading around 4bps richer at around 1.96%.
  • San Francisco Fed president Mary Daly said she supported a rate hike in March saying she didn’t “see anything right now that would disrupt plans” to tighten policy. Raphael Bostic, president of the Atlanta Fed, said the Fed should move away from its emergency policy stance .
  • European bond markets were mixed overnight. Gilts slipped, marginally, with 10yr yields up less than 1bp to 1.477% while German 10yr yields pulled back around 1bps to 0.224%. Emerging market bonds were similarly scattershot with yields higher in South Africa by around 6bps to 9.632% on the 10yr while Indian 10yr yields pulled lower to 6.738%.
  • First Abu Dhabi Bank priced a USD 500m sukuk with a coupon of 2.591%.


  • Currency markets showed a general risk-off tone even as the sanctions that the US, EU and others have placed on Russia fell short of the more onerous restrictions that had been suggested. The US dollar was generally supported against peers with EURUSD down 0.16% to 1.1307 while GBPUSD fell back by 0.3% to 1.3544. Both CHF and JPY managed to receive support from haven buying although moves were relatively limited.
  • Commodity currencies were nevertheless generally stronger. USDCAD fell 0.28% to 1.2734 while AUDUSD added 0.2% to 0.7234. NZDUSD was the standout though thanks to a rate hike and projections for higher rates ahead from the RBNZ. Kiwi closed up 0.58% at 0.6772.


  • Asian stocks and US futures are trading down once again this morning as tensions appear to be escalating in Ukraine. So far this morning, the Shanghai Composite has lost -0.3%, the Nikkei -1.1% and the Hang Seng -1.7%. The Nikkei was closed yesterday but the day had been slightly more positive broadly, with the Shanghai Composite closing up 0.9% at the end of the session.
  • European markets also had a slightly better day yesterday, with the FTSE 100 actually closing up 0.1% as initial sanctions appeared to be more modest than had been anticipated. The CAC closed down -0.1% while the DAX lost -0.4%.
  • Losses were more pronounced later in the day however as it became clear that the situation would not resolve quickly, and all three major US indices lost ground. The Dow Jones, the S&P 500 and the NASDAQ lost -1.4%, -1.8% and -2.6% respectively, putting them down -8.8%, -11.3% and -16.7% ytd.
  • Reuters reported that Dubai utility DEWA will announce plans to IPO on 7 March, with a likely listing in April. The news helped to lift the DFM general index 0.8% yesterday.


  • Oil prices showed little clear momentum in either direction overnight as exports of Russian oil and gas are so far uninterrupted by sanctions. Nevertheless, geopolitics more than fundamentals will be the main variable affecting oil prices in the near term. Brent futures are up by about 1% in early trade today to USD 97.38/b while WTI has also gained more than 1% to USD 93.22/b.
  • Iran’s foreign minister, Hossein Amirabdollahian, said that he hoped to settle the last issues surrounding the revival of the JCPOA in the “next few days” which would allow Iran to resume exports of oil at a time when markets are particularly tight.

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Written By

Khatija Haque Head of Research & Chief Economist

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