We were perhaps even more amused than our readers by our Friday headline “Stocks Close At New Record High On Russian Invasion, GDP Decline And Pending Home Sales Miss.” It appears that today the market forgot to take its lithium, and is finally focusing on the Ukraine part of the headline, at least until 3:30 pm again when everything should once again be back to market ramp normal. As expected, the PMI data from China and Europe in February, was promptly ignored and it was all about Ukraine again, where Russia sternly refuses to yield to Western demands, forcing the shocked market to retreat lower, and sending Russian stocks lower by over 11%. This is happening even as Ukraine is sending Russian gas to European consumers as normal, gas transport monopoly Ukrtransgas said on Monday. “Ukrtransgas is carrying out all its obligations, fulfilling all agreements with Gazprom. The transit (via Ukraine to Europe) totalled 200 million cubic meters as of March 1,” Ukrtransgas spokesman Maksim Belyavsky said. In other words, it can easily get worse should Russia indeed use its trump card.
Even though Bunds have failed to close the opening gap higher amid an escalation of concerns surrounding Ukraine, stocks in Europe managed to come off lows, supported by the latest PMI data and reports that gas flow from Ukraine is unaffected. Nevertheless, risk aversion remained the dominant theme and heading into the North American open, stocks in Europe are seen lower across the board, with financials underperforming. At the same time, commodities and precious metals benefited the most from the flight to quality, with Brent surging over USD 2 overnight and wheat rising the most since September 2012. As a guide, more than half of Russia’s gas exports to the EU are shipped through Ukraine, which is also the third biggest corn shipper and the sixth-largest wheat exporter.
Apart from digesting EU-based PMI reports, market participants also absorbed a raft of UK data, which included Manufacturing PMI, Mortgage Approvals which came in at its highest since Nov’07 and money supply data, all of which failed to have a meaningful impact on GBP/USD. Looking elsewhere, despite the fact that safe-haven related flows weighed on USD/JPY overnight and in Europe this morning, EUR/CHF grinded higher and reversed over half of initial losses. Going forward, there is little in terms of tier-1 macroeconomic data releases, but Draghi is due to testify in Brussels at 1400GMT/0800CST.
