Morning Report

March 18, 2022

“Diplomacy surrounding the war in Ukraine is at a breaking point – when US President Joe Biden meets with Chinese President Xi Jinping today, he will forewarn China of retaliation, should they actively support Russia in Ukraine.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Joe Biden will warn Xi Jinping the US is prepared to retaliate if Beijing actively supports Russia in Ukraine in a call between the US and Chinese leaders that could represent a pivotal moment in the diplomacy surrounding the war. The talks today come as the Biden administration has become increasingly concerned about China’s possible willingness to assist President Vladimir Putin’s invasion, which enters its 23rd day with Russia’s land forces largely at a standstill. Jen Psaki, White House press secretary, told reporters the call was a chance for Biden to see “where President Xi stands”. Antony Blinken, the US secretary of state, said that Biden would “make clear that China will bear responsibility for any actions it takes to support Russia’s aggression, and we will not hesitate to impose costs”. Blinken went on to pour cold water on hopes of a diplomatic settlement to the war in Ukraine, saying there were no signs Vladimir Putin was “prepared to stop” Russia’s invasion of its neighbour.

An immediate EU-wide embargo on Russian oil and gas imports would send economic shockwaves throughout Europe and cause at least £70bn of damage to the British economy, chancellor Rishi Sunak has told colleagues. His warning comes after prime minister Boris Johnson urged western allies to follow the lead of the UK and US and ban imports of Russian hydrocarbons. Last week, US president Joe Biden issued an executive order to prevent imports of Russian oil and gas as part of the west’s broader package of sanctions against Moscow in the wake of its invasion of Ukraine. At the same time, the UK announced it would cut all Russian oil imports to zero by the end of the year but has yet to make its position clear on Russian gas. The EU did not follow suit and instead unveiled a plan to cut Russian gas imports by two-thirds within a year. But last week, more than 100 MEPs signed a letter calling for an EU ban to kick in immediately, despite the huge dependence of countries including Germany on Russian imports.


Sterling is weaker than most major currencies in the early morning trade. British finance minister Rishi Sunak must decide next week whether to spend billions of pounds more to ease the growing cost-of-living squeeze for households and businesses as inflation soars higher. Sunak, who is due to deliver a budget update on Wednesday, wants to steer the public finances of the world’s fifth-biggest economy back to normality after a COVID spending surge which pushed government borrowing to its highest ever in peacetime. But fast-rising inflation – which looks on course to top 8% after Russia’s invasion of Ukraine – has led to calls for Sunak to dig into the public coffers again and provide more emergency support. The cost-of-living squeeze – which is also being driven by higher Bank of England interest rates – is set to overshadow his plans to address the longer-term challenge of fixing Britain’s weak productivity record when he makes his Spring Statement.


The euro is well bid against most major currencies overnight. JPMorgan has processed interest payments sent by the Russian government for two of the country’s bonds, boosting investor expectations that Moscow will avoid defaulting on its debt for the first time since 1998. The Wall Street bank has passed the $117mn in coupon payments to Citigroup, the payment agent responsible for distributing the money to investors, a person familiar with the matter said. JPMorgan sought approval from the US Treasury department before sending the funds to Citi to ensure that it was not contravening US sanctions, the person added. The interest payments for the two bonds were due on Wednesday, but Moscow has a 30-day grace period to make good on its obligations. JPMorgan and Citi declined to comment. According to the US Treasury department, current US sanctions on Russia do not prohibit the country from making these payments to bondholders.


The dollar is slightly stronger against sterling and weaker against the euro this morning. Three current and former members of the Tennessee National Guard falsely identified in a Russian media report as mercenaries who were killed in Ukraine are in fact alive and well, the Tennessee National Guard said on Thursday. President Joe Biden ordered the withdrawal of US troops from Ukraine prior to Russia’s invasion of the country as part of a broader effort to avoid a direct confrontation with the nuclear-armed adversary. But the report published in Russia’s Pravda newspaper identified the Americans by name and gave military ranks for each of them, citing information from pro-Russian militia in Ukraine’s Donetsk. The report even offered an intricate explanation for how the three were identified, using items from a backpack “near the remains of one of the militants” – including a Tennessee state flag. The Tennessee Guard said in a statement: “They are accounted for, safe and not, as the article headline erroneously states, US mercenaries killed in Donetsk People’s Republic.”


Stocks climbed in a volatile session, while the dollar fell and Treasuries wavered a day after a bond-market indicator flashed concern the economy could buckle under the weight of the Federal Reserve’s most aggressive rate-hike campaign in two decades. Oil topped $100 a barrel. The S&P 500 notched its biggest three-day rally since November 2020. Equities rebounded after the implied probability of a default by Russia within the year inched lower, according to credit-default swap pricing. Earlier in the day, stocks dropped as Moscow poured cold water on reports of progress in Ukraine peace talks.  If history is any guide, stock investors shouldn’t be too concerned about the Fed’s decision to tighten policy. Between June 2004 and June 2006, officials raised rates 17 times, with the S&P 500 posting gains of about 12% in the span. The 2015-2018 monetary tightening period was even more positive for risk assets as the index surged about 21%.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: Sweden Feb. unemployment
8:45 a.m.: France 4Q wages
10:00 a.m.: Italy Jan. trade balance
10:00 a.m.: Poland Feb. PPI, sold industrial output
11:00 a.m.: Euro-area Jan. trade, 4Q labor costs
11:30 a.m.: Russia rate decision
12:00 p.m.: UK to sell bills
6:00 p.m.: Baker Hughes US rig count

Corporate Events

Earnings include Vonovia


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