By Geoffrey Smith
Investing.com -- Commodity prices skyrocket to multiyear highs as the difficulty of replacing Russian energy and grain supplies to global markets becomes apparent. OPEC is expected to steer a steady course, however, having rebuffed U.S. pressure for a bigger increase in oil output. Fed Chair Jerome Powell and a host of European Central Bank officials will talk about the impact of the war in Ukraine on the outlook for inflation and monetary policy. Eurozone inflation surges to 5.8%. ADP reports its monthly figures on U.S. private-sector hiring. Here's what you need to know in financial markets on Wednesday, 2nd March.
1. Commodities surge
Oil and gas prices skyrocketed, with crude prices touching their highest since 2013 and European natural gas prices hitting new all-time highs on fears that Western sanctions will hit exports from Russia.
By 6:30 AM ET (1130 GMT), U.S. crude futures were up 4.9% at $108.44 a barrel, while Brent crude was up 5.3% at $110.48 a barrel. Benchmark European gas futures were up over 30% at an all-time high.
The moves come ahead of a monthly meeting between Russia and OPEC nations to decide April output levels. They are expected to stick with their existing plan to raise output by a notional 400,000 barrels a day, the U.S.’s traditional Gulf allies having resisted U.S. diplomatic pressure for a larger increase.
Weekly U.S. inventory data are due at 10:30 AM ET, as usual.
Price spikes are also being seen in other commodities where Russia and Ukraine are major exporters. US Wheat Futures rose as much as 7.6% to their highest since 2008, while U.S. Corn Futures in Paris rose 7.5% to an all-time high.
2. Private sanctions compound difficulties for Russian economy
The imposition of official sanctions is being reinforced by a growing number of international companies cutting their links with Russia, a development that threatens to dampen global growth in the short term as well as restricting Russia’s medium-term economic potential.
The world’s largest shipping companies – Maersk, Hapag-Lloyd, MSC and CPM - have all said they will halt all non-humanitarian shipments to Russia, while Apple (NASDAQ:AAPL) said on Tuesday it will halt product sales there and suspend services such as Apple Pay. Visa (NYSE:V) and Mastercard (NYSE:MA) have restricted Russian banks’ access to their networks.
Russian Central Bank chief Elvira Nabiullina was quoted by newswires earlier as saying that the Russian economy is in an “extreme position”. The dollar touched a new record high of 109.59 rubles before retracing. Trading on Moscow’s stock exchanges remained suspended for a third day. The dollar also rose to a 21-month high against the euro, as investors priced in a bigger hit to the Eurozone economy. ECB President Christine Lagarde will later attend a meeting of EU finance ministers to discuss the situation.
3. Powell to testify; Lane, Nagel also weigh in
The head of the U.S. Federal Reserve and the European Central Bank’s chief economist will speak later, amid growing expectations that they will water down their plans to tighten monetary policy in response to the latest developments.
Jerome Powell will testify before the House Committee on Financial Services at 10 AM ET, while ECB chief economist Philip Lane speaks at 11 AM ET. Earlier, German central bank head Joachim Nagel said that German inflation and Eurozone inflation are likely to run well ahead of prior forecasts this year, requiring a monetary policy response.
Data released earlier showed Eurozone prices rose 5.8% on the year in February, far more than the 5.3% expected. The U.S. data calendar for Wednesday is dominated by the ADP private payrolls report for February, which is expected to iron out last month’s blip of a 301,000 drop in private jobs.
4. U.S. Stocks set to open with modest bounce; Dollar Tree, Salesforce, SoFi eyed
U.S. stock markets are set to open moderately higher later, recouping less than half of Tuesday’s losses.
By 6:15 AM ET, Dow Jones futures were up 198 points, or 0.6%, while S&P 500 futures were up in parallel and NASDAQ 100 futures were outperforming slightly with a gain of 1.8%. The three main cash indices had all lost between 1.5% and 1.8% on Tuesday.
Stocks likely to be in focus later include Salesforce (NYSE:CRM) and SoFi (NASDAQ:SOFI), both of which posted stronger-than-expected results after the close on Tuesday. Dollar Tree, Coupang, Snowflake and Abercrombie & Fitch head Wednesday’s roster for earnings releases.
5. Russian troops advance, backed by artillery barrages against cities
The war in Ukraine itself grinds on, with the Ukrainian government playing down earlier (Russian) reports of fresh peace talks.
The mayor of Kharkiv, the country’s second city, was quoted by newswires saying that Russia continues to launch indiscriminate rocket artillery strikes against it. Russia’s Defense Ministry claimed that its forces had taken the southern city of Kherson and made further progress in creating a ‘land bridge’ between eastern Ukraine and Russian-held Crimea. If confirmed, it would bring the Russian forces closer to encircling government forces fighting in eastern Ukraine.
The UN estimates more than 600,000 refugees have fled Ukraine, most of them to neighboring Poland, Hungary, Moldova and Romania. The currencies of those countries, which have disproportionately large trade exposure to Ukraine, all remain under pressure