Stampede Into Safe Havens After Russia Invades Ukraine

February 24, 2022

Overnight advances of the U.S. dollar amount to 6.0% against the Russian ruble, 3.3% relative to the Ukraine hryvnia, 2.8% against the Turkish lira, 2.4% versus the Swedish krona and Brazilian real, 1.8% against the Mexican peso, 1.5% versus sterling, 1.4% vis-a-vis the euro, Korean won and New Zealand dollar, 1.2% relative to the Chinese yuan and 1.1% relative to the Australian dollar. Against other safe havents, the dollar climbed only 0.5% against the Swiss franc and is unchanged versus the Japanese yen.

Equity markets in the Pacific Rim plunged 3.2% in Hong Kong and New Zealand, 3.5% in Singapore, 4.7% in India, 3.0% in Australia, 2.6% in Taiwan and South Korea, 1.8% in Japan, and 1.7% in China. In Europe, which is most exposed politically and economically to the unfolding Russian invasion of Ukraine, equity markets so far are down 4.7% in Italy and Germany, 4.2% in France, 3.8% in Spain, 3.0% in Switzerland, and 2.9% in the United Kingdom.

Less than a half hour into U.S. stock market trading today, the DOW and S&P 500 had tumbled slightly over 2.0%, and the tech-intensive Nasdaq was 1.5% lower and in bear market territory with a cumulative drop of 20.8% from its 52-week high.

The price of West Texas Intermediate oil soared 7.9% overnight. Russian and Ukraine are huge producers of wheat, so that commodity’s prices has shot up to a 9-year high.¬† Whereas gold has climbed 2.5%, the price of a Bitcoin — once touted as an ideal store of wealth in chaotic times — tumbled 5.0% overnight and has lost a total of 48.6% from its November peak.

The current declines of ten-year sovereign debt yields from Wednesday closing levels are presently nine basis points in the United States, six basis points in Germany and the U.K, and four bps in Italy, Spain and France. Earlier today, the 10-year U.S. Treasury yield had been showing a daily slide of at least a dozen basis points.

The war in Ukraine as created some doubts into expected monetary policy changes this year. But inflation is so elevated, it seems highly unlikely that interest rate hikes would be delayed or significantly moderated unless the economy succumbs to recession from geopolitical tensions.

In Kazakhstan, which like Ukraine had been part of the defunct Soviet Union empire, the central bank today hoisted its policy interest rate by a whopping 325 basis points to 13.50%. That increase follows hikes of 50 basis points in January and a trio of 25-bp moves in the second half of 2021. The Kazakhstan tenge sank 6%, and CPI inflation in that country of 8.5% is well above the targeted 4-6% corridor. Central banks in both Russia and Kazakhstan have pledged to intervene in foreign exchange markets to smooth depreciation in their currencies. It would be the first such operations in Russia’s case since it seized Crimea in 2014.

U.S. GDP growth last quarter was revised marginally higher to 7.0% at an annualized rate from 6.9% restimated a month ago. Calendar year U.S. growth of 5.7% in 2021 was the fastest in 37 years and easily enough to offset a 3.4% contraction in 2020. Compared to the same quarter a year earlier, GDP growth swung from a drop of 2.3% in 4Q 2020 to a rise of 5.6% over the four quarters ending 4Q 2021. U.S. inflation measured by the overall personal consumption expenditures price deflator tripled from 1.2% in 4Q 2020 to 3.5% in 4Q 2021, while the core PCE deflator climbed to 4.6% from 1.4%.

The Chicago Fed National Activity index recovered to a three-month high of 0.69 in January from 0.07 in December but remained well below 2.36 last March.

Weekly new U.S. jobless insurance claims last week slid to a 2-week low of 232k, and the four-week average fell to a 5-week low.

Britain’s monthly distributive trades index fell much more sharply in February than had been anticipated to a reading of 14 from January’s of 28.

French consumer confidence dipped a point to 98 in February, matching its lowest reading since May 2021.

Irish consumer confidence fell almost 5.0 index points in February and at 77 was not far above December’s 10-month low of 74.9.

Czech consumer confidence rose 0.3 index points to a 4-month high in February and was accompanied by news of a six-month high in business sentiment.

Icelandic producer price inflation settled back for a second straight month to a still-hefty 17.8% last month, which was not far beneath November’s 21.0%.

South African producer price inflation likewise subsided from December’s record high of 10.8% to 10.1% last month.

Austria’s February manufacturing purchasing managers index of 58.4 was at a 3-month low and 3.1 points lower than January’s reading.

Industrial sales in Italy dropped 2.1% in December, their biggest monthly slide in 15 months. The 14.3% year-on-year increase of sales was the 11th straight advance on such a basis.

Brazilian unemployment, although still in double digits at 11.2% on average in November-January, was its lowest in 23 months.

Malaysian CPI inflation of 2.3% in January remained comparatively subdued compared to the situations in many economies around the world.

The Bank of Korea, which had engineered 25-basis point policy interest rate hikes last August, November and January, left its base rate unchanged at 1.25% after this month’s review. The level matches the rate’s pre-pandemic level. Officials did revise upward projected future inflation for this year but felt a pause this month would be appropriate in light of the Ukraine-Russia war and the country’s recent Covid trends.

Seven-day averages in U.S. Covid-19 cases and hospitalizations are substantially lower than two weeks ago, but a national death count yesterday (February 23) from the disease of 3,025 is high enough to create reasonable doubt that the loosening of mask requirements in many states may prove premature.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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