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Deutsche Bank Research summaries

Show content of Brent crude prices rise as Russia/Ukraine peace talks stall

Oil prices moved sharply higher on 12 April, with Brent Crude (+6.26%) closing above US$104/bbl for the first time in more than a week. That came as Russian President Putin said that talk with Ukraine were “at a dead end”, and other haven assets including gold (+0.68%) also moved higher on the day. Meanwhile, in the US, President Biden accused Russia of “genocide”, standing by his comments and saying that “it has become clearer and clearer that Putin is just trying to wipe out the idea of being able to be Ukrainian”.

Those further gains in oil prices meant that European inflation expectations rose to fresh highs, with the 10-year German breakeven up to 2.9%, its highest level yet in data going back to 2009, whilst the 10-year Italian breakeven rose to 2.69%, a level not seen since 2008. Importantly, measures of long-run inflation expectations, ostensibly beyond the influence of the current shock, have increased as well, with the 5y5y forward inflation swap for the Euro Area rising to +1.6bps to 2.38% yesterday, marking its highest level since 2013.

Macro Strategy: Early Morning Reid, 13 April 2022  by Jim Reid

Show content of Impact of Ukraine on World Outlook 2022-24

The following is a short summary of the economic implications of the Russia/Ukraine war highlighted in the World Outlook 2022-24: Over the Brink by Deutsche Bank Research (5 April)

The most important near-term implication of the war in Ukraine for the global economy concerns its impact on key commodities, including gas, oil, foodgrains, and some metals.

Broad commodity prices have jumped another 20% with Russia’s invasion, and under our baseline assumption, uncertainty premiums will persist for some time. We assume that the critical flow of natural gas from Russia to Western Europe will continue, and that this will limit the overall economic damage to a “moderately” negative scenario.

Russia needs revenue to fund its war effort and does not have ample ready alternatives for gas exports. Europe is highly dependent on Russian gas for now and vulnerable to substantial economic disruption if it is cut off. Efforts to greatly reduce that dependency have been accelerated but will take time and investment in alternatives. Russia will be more readily able to sell its oil on the global market to neutral parties, although at a discount given various financial and trade sanctions.

We expect world oil prices to remain elevated in the near term but to begin to decline significantly next year as supply responds positively and global growth slows further, especially in the US and Europe. Russia and Ukraine also figure importantly in various global foodgrain markets, where sanctions on Russia along with severe disruption of Ukrainian production and exports will likely keep prices elevated for much of the next year, until crops can adjust elsewhere.

The report also points out three other important implications of the war for global activity:

  • The disruption of global supply chains via both the interruption of the flow of materials like neon, palladium and platinum, which are essential to the production of microchips, and via the disruption of normal air traffic patterns over Russia between Asia and the West. Russia and Ukraine together account for a large majority of the world’s neon production and purification. Semiconductor producers are estimated to have stocks of such materials sufficient to last up to a few months, but prolonged disruption could soon depress output and raise prices further in key sectors like autos.
  • The Russian economy itself will take a large hit as a result of sanctions. We see Russian GDP declining 8% this year—a markdown of more than 10pp from our December forecast. This is well over ten times the size of the hit felt by Western economies, and enough to reduce global growth by a couple tenths. In our below-consensus forecast, we expect to see Russia record a further y/y decline in 2023
  • More positively for growth, the war has moved Europe to devote significant additional resources to building up defense capabilities over the years ahead. We see this boosting fiscal spending in the EA by as much as 1/2% of GDP on a sustained basis, and along with investment in energy and other fiscal initiatives adding several tenths to GDP growth over the forecast period.

World Outlook 2022-24: Over the brink by David Folkerts-Landau, Group Chief Economist and Global Head of Research and Peter Hooper, Global Head of Economic Research, Deutsche Bank Research (5 April 2022)

Show content of Ukraine conflict and Q1 markets – a reflection

Q1 was a dramatic time in financial markets, featuring Russia’s invasion of Ukraine, accelerating inflation, the start of another hiking cycle from the Federal Reserve, as well as an inversion of the 2s10s US Treasury Note yield curve.

That turbulence meant that the majority of assets in our sample have lost ground over the quarter, with just 9 of the 38 non-currency assets in positive territory. That’s the lowest number since Q12020 back when the Covid-19 pandemic spread and large parts of the world went into lockdown, and the losses were seen broadly across equities, credit and sovereign bonds.

However, the one asset class that performed incredibly strongly were commodities, with energy, metals and agricultural goods all seeing large gains.

The biggest story of the quarter was undoubtedly Russia’s invasion of Ukraine. That led to a major risk-off move as harsh sanctions were imposed and investors grew concerned about the potential for a further escalation in the war. In fact, by early March, both the S&P 500 and Europe’s STOXX 600 were in correction territory, and Brent crude oil prices hit an intraday peak just shy of US$140/bbl. But since those lows we have seen a partial recovery, and in total return terms that’s meant the S&P 500 is “only” down -4.6% in Q1, whilst the STOXX 600 has lost -5.9%.

Macro Strategy: Early Morning Reid, March and Q1 2022 Performance Review by Jim Reid, Head of Thematic Research, and Henry Allen, Research Analyst, 1 April 2022

Show content of Risk of escalation is reduced

Deutsche Bank Research has commented on “some of the most optimistic headlines we’ve seen since the conflict began”. The 30 March report by Jim Reid says:

“In particular, Russia said it would “dramatically reduce” its military operations around Kyiv, and their chief negotiator Vladimir Medinsky said that Ukraine’s proposals would be passed onto President Putin for a response. Meanwhile Ukraine’s negotiator Mykhailo Podolyak said that the agreement offered would see both sides “resolve issues linked to Crimea and the city of Sevastopol though bilateral negotiations”, which Russia has occupied since 2014. So, although it’s worth pointing out that we don’t even have a ceasefire yet, the fact that both sides might be edging closer towards one another has seen markets reduce the perceived likelihood of further escalation scenarios. The alternative view is that the Russians are simply diverting resources to other areas and this is purely tactical. So, it's still a long way from being over but the tail risks seem to be reducing.”

Macro Strategy: Early Morning Reid by Jim Reid, Head of Thematic Research, 23 March 2022

Show content of Additional sanctions expected from EU Summit

There have not been many headlines about the Russia/Ukraine conflict that seem to suggest material progress on the battlefield or at the negotiation table. The US and European allies will impose additional sanctions on Russia following this week’s EU summit, while Germany is resisting an embargo on Russian oil. Oil put in a subdued performance, with Brent futures falling -0.12% to US$115.48/bbl. However, oil prices have erased losses in Asia with Brent futures rising +1.55% to trade at US$117.27/bbl. Meanwhile European natural gas prices bounced back from their steep declines on Monday to gain +2.54% on 22 March.

Macro Strategy: Early Morning Reid by Jim Reid, Head of Thematic Research, 23 March 2022

Show content of Oil prices rise as Russia/Ukraine peace negotiations remain stilted

The headline risk around the stilted Russia/Ukraine negotiation progress continued. Following from the weekend’s news that Ukraine refused to surrender Mariupol and that the battles would continue, yesterday’s tone was more negative, as the Kremlin indicated progress in talks had been less than they would have liked, and no agreements had been reached as of yet. The more negative rhetoric around Ukraine saw oil prices added to their gains at the end of last week, with Brent Crude (+7.12%) closing at US$115.62/bbl, while WTI saw a similar +7.09% increase to US$112.12/bbl. As at 22 March, Brent futures are up a further +2.28% while WTI futures are advancing +1.96%. In contrast, European natural gas futures fell -8.32% yesterday, their lowest in three weeks, and are now -72.52% below the peaks reached during the height of the supply fears from the invasion earlier in the month.

Macro Strategy: Early Morning Reid by Jim Reid, Head of Thematic Research, 22 March 2022

Show content of US could increase pressure on China for supporting Russia

On Thursday, US intelligence warned that Russian President Putin was likely to increase nuclear sabre rattling should the war drag on. This is something that hasn't come up since three weekends ago, so this is worrying news. Meanwhile, the State Department reported they saw no signs Putin was ready to stop his invasion, dampening hopes of a diplomatic conclusion. Yet, the S&P 500 outperformed, climbing +1.23%, benefitting from the pick up in sentiment following Russia’s sovereign bond payment making its way to bond holders.

The US is re-upping its military support to Ukraine to the tune of US$800m of new weaponry. President Biden is set to speak with Chinese President Xi Jinping later this Friday about the conflict, where Biden will reportedly emphasise the US will impose costs on China were it to support Russia in the conflict. The US House of Representatives followed through on earlier threats by voting to revoke Russia’s most favoured nation status in international trade, enabling the US to impose material tariffs against Russian imports.

Elsewhere, the Nikkei (+0.28%) is up after the Bank of Japan held steady on monetary policy. In a largely expected decision, the central bank kept its interest rate targets unchanged but warned of heightening growth risks emanating from the Russian-Ukraine war as it stuck with a dovish tone.

Macro Strategy: Early Morning Reid by Jim Reid, Head of Thematic Research, 18 March 2022

Show content of Russia-related commodities continued to slide

Positive news flow came out of Russia-Ukraine talks, as a neutrality model that would allow Ukraine to preserve its army seems to be among options on the negotiations table. While comments were otherwise scarce, the head of Russian delegation Vladimir Medinsky said that the talks were going slowly and strenuously. Meanwhile, Russia was officially excluded from Council of Europe yesterday.

Despite relative calm in oil markets, other Russia-related commodities continued to slide, especially so in Europe. The Dutch TTF futures for April delivery fell by -10.73% on Wednesday and around -70% since their intra-day peak on 7 March. Meanwhile, E.ON, German energy supplier, announced it will stop new purchases of gas from Russian companies, although the firm has no long-term contracts. Soft commodities like corn (-3.69%) and wheat (-7.36%), export of which was recently sanctioned by Russia, also declined.

Macro Strategy: Early Morning Reid by Jim Reid, Head of Thematic Research, 17 March 2022

Show content of EU imposes a ban on new investments in the Russian energy sector

On Tuesday, 15 March, western countries and Russia exchanged a new set of sanctions. In particular, the EU approved its fourth package of sanctions, which notably features a ban on new investments in the energy sector in Russia and limits exports of various equipment and technology goods. Russia also submitted a request to leave the Council of Europe.

On commodities, Sergei Lavrov, Russian Foreign Minister, said that sanctions imposed on Russia will not prevent it from cooperating with Iran, and the US confirmed it would not sanction activity covered under a renewed nuclear deal, which was an important hurdle for progress on a deal, potentially enabling Iranian oil supply to return to market.

This drove crude futures lower with WTI (-6.38%) and Brent (-6.54%) both closing below US$100 even if the later has edge back above that landmark this morning. Since hitting their intraday peak last Tuesday, 8 March, WTI and Brent futures are now both down -25%.

Macro Strategy: Early Morning Reid by Jim Reid, Head of Thematic Research, 16 March 2022

Show content of Bond markets are torn between higher energy prices and monetary policy tightening

Some hints of positive diplomatic developments in the Ukraine crisis that materialised on Sunday night helped contribute to another major sell-off in bonds and a mild risk on move in European equities yesterday. While in the States, the reality of the impending Fed tightening cycle pushed yields higher and drove equities lower.

Bonds are in a strange situation at the moment as we seem to have reached a point where higher energy prices are deemed to be signalling recessionary risks and encourage flight to quality flows that push nominal yields lower, outweighing the potentially savage inflationary impact. Conversely, the collapse in the likes of oil and gas since early last week has led to a huge rise in yields as it appears policy tightening is back on the central bank menu. Brent is around -25% from its intra-day highs last Tuesday and 10-year bunds are +46.6bps higher since hitting -0.10% last Monday morning. Meanwhile, 1-month futures on Dutch Gas have fallen from a high of 335 last Monday morning to 110.50 at the close last night. Remarkable moves.

On the conflict, Russia and Ukraine finished a fourth day of negotiations yesterday and decided to take a pause to assess outcomes. Still, it seems that negotiations are making some progress. Meanwhile, President Zelensky is set to address the US Congress tomorrow, while there were reports that President Biden was considering a trip to Europe to express the US’s steadfast support for NATO allies.

Macro Strategy: Early Morning Reid by Jim Reid, Head of Thematic Research, 15 March 2022

Show content of Oil and gas prices see relief, Russian Eurobonds coupon payments ahead

Last week, the war in Ukraine raged on, while negotiations continued to generate little tangible progress as leaders managed expectations down for any near-term resolution. However, there were various green shoots throughout the week when it appeared both Ukrainian and Russian officials left some room for compromise from their original positions.

The glimmers of hope on the war front, along with a more hawkish-than-expected ECB sent sovereign bond yields higher on both sides of the Atlantic this week. Positive news about the supply of oil and gas sent futures lower on the week, despite the US and UK moving to restrict Russian imports.

Oil and European natural gas prices fell -5.07% (+3.05% Friday) and -30.15% (+3.82% Friday) over the week, following a proclamation from President Putin that Russia would honor its energy export commitments, instead of unilaterally cutting off supply in retaliation to sanctions. For its part, the Iraqi oil minister noted OPEC would increase oil production were supply to reach scarcity levels.

Looking ahead, Wednesday will be a landmark day as this is the date that two Russian Eurobonds have coupon payments. These are small (c. US$120bn out of c. US$1.75bn of annual hard currency coupons) but will be hugely symbolic. Speaking to one of our EM strategists, Christian Wietoska, and one of our European economists, Peter Sidorov, over the weekend their view was that this would likely mark the start of the 30-day grace period that issuers have before a default is officially triggered.

30-days still gives time for there to be a negotiated end to the war and therefore this probably isn't yet the moment where we see where the full stresses in the financial system might reside. There has already been a huge mark to market loss anyway with news coming through or write downs. However, this is clearly an important story to watch.

Macro Strategy: Early Morning Reid by Jim Reid, Head of Thematic Research, 14 March 2022

Show content of Russia/Ukraine talks yield little progress and ECB adopts hawkish position

The meeting of the Russian and Ukrainian foreign ministers failed to produce the progress that some had hoped for. On 10 March there was a more negative tone from the meeting, with Ukraine’s foreign minister Kuleba saying of Russian foreign minister Lavrov that “The broad narrative he conveyed to me is that they will continue their aggression until Ukraine meets their demands, and the least of these demands is surrender”.  

Against that backdrop, there was intense focus on the ECB as they made their first policy decision since Russia’s invasion. They adopted a more hawkish position than had been anticipated by announcing a faster reduction in their asset purchases, which led to a sharp selloff in sovereign bonds as well as a significant widening in peripheral spreads

Yields on 10-year bunds were up +5.6bps yesterday, bringing their gains since the start of the week to a massive +34.3bps. Even if they’re unchanged today, that would still mark their biggest weekly increase since June 2015, when they rose +35.7bps. Furthermore, the widening in the Italian 10-year spread over bunds yesterday (+16.7bps) was the largest daily widening since April 2020.  

In terms of the decision itself, the ECB described Russia’s invasion as a “watershed for Europe”, and pledged to take “whatever action is needed to fulfil the ECB’s mandate to pursue price stability and to safeguard financial stability.” On immediate policy moves, they said that net purchases under their Asset Purchase Programme would go from €40bn in April to €30bn in May and then €20bn in June, and said that they may end purchases in Q3. That came as their inflation forecast for 2022 was upgraded to +5.1% (vs. +3.2% in December), and 2023 was upgraded to +2.1% (vs. +1.8% in December). And in another hawkish move, they also dropped the reference to interest rates potentially moving lower, only saying that rates would remain “at their present levels” until their forward guidance conditions were met, rather than “present or lower levels”. So overall it looks like the concerns about inflation (which is currently at the highest since the formation of the single currency) have dominated the uncertainties presented by the invasion of Ukraine, and overnight index swaps are now pricing in more than 40bps worth of moves this year (+7.6bps on the day) from the ECB for the first time since the conflict began.

Macro Strategy: Early Morning Reid by Jim Reid, Head of Thematic Research, 11 March 2022

Show content of Peace talks inject a more optimistic tone across multiple asset classes

While it’s been another volatile 24 hours for markets, for the first time in a while there’s been a much more optimistic tone across multiple asset classes, with the biggest daily decline in commodities since 2008, a major rebound in global equities, as well as a continued move higher in sovereign bond yields.

That comes ahead of another pivotal day ahead for investors, with many important events taking place:

  1. The Russian and Ukrainian foreign ministers will be meeting in Turkey, marking the first cabinet-level meeting between the two sides since the invasion began.
  2. More will be known about how the European Central Bank (ECB) are viewing matters after their policy decision at 12:45 London time, followed by President Lagarde’s press conference 45 minutes later.
  3. Then the US CPI release will take place at the same time as Lagarde begins her press conference, which will be the final print before the Fed are expected to commence their hiking cycle next week.
  4. And finally, EU leaders are meeting in Versailles later on, amidst growing speculation about whether they might move further on fiscal policy.

A key factor that’s bolstered sentiment and led to that sharp move lower in commodities have been indicators from Ukraine that there could be a basis for talks to continue with Russia, alongside signals about a potential boost to OPEC+ output. Indeed, Bloomberg’s Commodity Spot Index (-5.20%) saw its largest daily decline since 2008 yesterday.

A particular driver of those moves was that Ukrainian President Zelensky himself said in an interview with Germany’s Bild newspaper that he was prepared for certain compromises, with oil prices extending their decline on the back of those comments. That also followed separate remarks from his deputy chief of staff earlier in the day, who said Ukraine was open to discussing Russia’s demands on neutrality if they were given security guarantees. It’s worth stressing that the two sides are still a long way apart from each other, with the deputy chief of staff also saying that they wouldn’t cede a “single inch” of territory, but the gap between the two has narrowed relative to where it had been.

Macro Strategy: Early Morning Reid by Jim Reid, Head of Thematic Research, 10 March 2022

Show content of US ban on Russian imports take energy prices another leg higher

In keeping with the trends of recent days, the most important market developments have been further gains in oil and gas prices over the last 24 hours after the US moved to ban the import of Russian oil and gas. To some extent these moves had already been priced in given building pressure from Congress, but energy prices have taken another leg higher, with Brent Crude closing up +3.87% at US$127.98/bbl even if that was well off the session highs of US$133.15/bbl. On the morning of 9 March, it’s then followed that up with a further +1.91% gain to $130.42/bbl. That would be its highest closing level since 2008, and leaves prices up by over +67% on a YTD basis, and a world away from its levels beneath US$20/bbl less than two years ago after the pandemic initially hit.

The move by the US on Russian energy imports reflected the growing pressure on Western governments to sanction energy, which up to now has been relatively unscathed by the assortment of measures. Indeed, the UK also followed yesterday by announcing that the country would phase out Russian oil imports by the end of the year. This didn’t cover natural gas, but UK Government Business Secretary Kwarteng said that he was “exploring options to end this altogether” as well. We’re yet to see other European nations follow for the time being but given how quickly the US and the UK have moved on sanctioning energy relative to where they were immediately after the invasion, it begs the question of whether the EU might soon follow. EU leaders will be meeting tomorrow at Versailles for a summit, so it’ll be interesting to see if they announce any further measures on that front.

Macro Strategy: Early Morning Reid by Jim Reid, Head of Thematic Research, 9 March 2022

Show content of European Central Bank commitment to price stability

The Euro Area flash CPI print (inflation data) for February 2022 came in at +5.8% (vs the expected 5.6%), which is the highest level in the single currency’s history. Ahead of the monetary policy meeting of the Governing Council of the European Central Bank (ECB) held 10-11 March 2022, Deutsche Bank Research economists expect the Ukraine crisis to prevent the ECB from announcing Asset Purchase Programme tapering at this point. Also, in their view, the ECB’s message will reinforce its commitment to price stability and address fragmentation.

Macro Strategy: Early Morning Reid by Jim Reid, Head of Thematic Research 7 March 2022

Show content of Commodities prices: All-time high for European natural gas

EUR/USD deBrent crude oil futures increased +20.55% over the week (+6.93% Friday, 4 March) reaching US$118/bbl, the highest level since 2013, and the largest weekly increase in absolute dollar terms in Bloomberg’s data dating back to 1988. European natural gas, however, stole the show, increasing +116.20% (+19.73% Friday, 4 March) to an all-time high of €204.14. Unsurprisingly it marked the largest weekly increase in percentage and euro terms on record.

The price pressures extend beyond energy, as agricultural prices also saw marked increases. Russia and Ukraine collectively export just under a third of the world’s wheat, leading wheat futures to increase +40.62% (+6.61% Friday, 4 March). Metals were not spared, with aluminium, copper, and palladium increasing +14.39% (+3.57% Friday), +9.65% (+3.30% Friday), and +27.14% (+8.19% Friday), respectively. The Bloomberg commodity spot index therefore increased +13.02% (+3.34%) over the week, the highest level and largest weekly gain on record.

Macro Strategy: Early Morning Reid by Jim Reid, Head of Thematic Research 7 March 2022

Show content of Risk sentiment is improving, all eyes on the Purchasing Managers' Indices

Over the weekend 19/20 March, Ukrainian officials rejected an offer given by the Russian military for its forces and civilians to surrender the city of Mariupol as shelling continued in Kyiv. Separately, the White House announced that President Joe Biden will travel to Poland in his upcoming trip to Europe for urgent talks with NATO and European allies.

Overnight, Turkey’s Foreign Minister Mevlut Cavusoglu indicated that Ukraine and Russia are close to an agreement following progress in peace talks and is hopeful for a ceasefire if both the sides do not backtrack from their current positions. However, there are no other developments on the current state of negotiations.

In line with the improvement in risk sentiment, crude oil prices fell a modest -3.97% over the week (+1.21% Friday), but still put in some large intraday swings. Prices also eased following reports that progress on the Iran nuclear deal would not be handcuffed by sanctions on Russia. European natural gas also fell -23.42% (-0.65% Friday). Given the volatility in energy markets, French President Macron warned the state may need to seize control of some energy firms.

Russian sovereign bond payments made their way to creditors via custodians, despite some uncertainty, avoiding a default. Nevertheless, S&P cut the rating on Russian sovereign debt another notch, considering it at high risk of default. However, Russia’s remaining interest repayments this month will keep investors anxious as a US$447m payment is due on 31 March, followed by a US$2bn payment as a bond comes due on 4 April.

One of the key events this week will be Thursday’s March flash Purchasing Managers' Index (PMIs) from around the world where we’ll see the first impact of the Russia/Ukraine conflict on activity, especially in Europe.

Macro Strategy: Early Morning Reid by Jim Reid, Head of Thematic Research, 21 March 2022

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Deutsche Bank Research Podcasts

Show content of How is the war in Ukraine likely to impact Asian markets?

Sameer Goel, Global Head of Emerging Markets Research, discusses the impact of the war in Ukraine on Asian markets, including the complex trade relationships that have knock-on effects on the rest of the world. 

Listen to the full discussion

Show content of ‘Q&A with’ – a series of concise interviews with research analysts shedding light on issues driving the world of economics and finance – first interview recorded 25 March 2022

Q&A with Jaime Rowbotham - March 29, 2022

We continue with our new ‘Q&A with’ – a series of concise interviews with our research analysts shedding light on the issues driving the world of economics and finance. This time we speak with Jaime Rowbotham, European Airlines Analyst who shares his insights.

Read the full interview

Q&A with Tim Rokossa - March 25, 2022

We are launching ‘Q&A with’ – a series of concise interviews with our research analysts shedding light on the issues driving the world of economics and finance. We kick off with Tim Rokossa who is the Head of German Research as well as the global coordinator of Deutsche Bank's automotive research product.

Read the full interview

Show content of The Fed’s many challenges - recorded on 11 March 2022

How are recent geopolitical events likely to impact the Fed’s policy decisions this year? Despite very elevated inflation, long-term inflation expectations are still well anchored. Could recent energy price developments change this picture? With the Fed trying to achieve a soft landing for an economy weathering both high inflation and geopolitical upheaval, dbresearch has adjusted its forecasts for rate increases and balance sheet reduction. Matthew Luzzetti, our Chief US Economist, speaks with Matthew Barnard, Director of North American Equity Research, in our latest Podzept podcast. Luzzetti details the numerous challenges facing the Fed as it attempts to delicately thread this policy needle.

Listen to the full discussion here: https://www.dbresearch.com/PROD/RPS_EN-PROD/PROD0000000000522311.xhtml

Please note: this podcast was recorded on 11 March 2022. All views discussed were consistent with research published at the time of recording.

Deutsche Bank Research Reports

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Märkte am Morgen, German newsletter on interest rate and FX management for corporates

Show content of Trade with RUB restricted (excerpt from 01.03.2022)

The western sanctions imposed over the weekend have led to a collapse of the RUB. At the start of trading the currency lost 40% of its value against USD which was an all-time low. However, trade only ran sporadically as the Central Bank of the Russian Federation (Bank of Russia) froze onshore markets and market participants from outside of Russia were reluctant in trading the currency. The central bank took a couple of further measures to protects the Russian financial system. Amongst other, it raised its key rate by 10.5 percentage points to 20%.

Moreover, the finance department ordered companies to sell parts of their foreign currency revenues which is also targeted at limiting the slump of the RUB. For securities from foreign investors, brokers announced a temporary selling stop. Furthermore, capital injections and FX transactions are supposed to support domestic financial institutions. The stock market remained closed on 28 February.

The Bank of Russia also delayed the trading start for domestic loan and foreign exchange markets, which makes it hard to assess the further development of the ruble. The quotations were unsteady and very volatile, the liquidity was obviously very low. The rapid depreciation of the RUB will weigh heavily on the Russian economy and further aggravate already high inflation rates.

The Bank of Russia has fixed the trading margin for USD/RUB transactions within Russia at 76.145 to 90.00. However, it remains unclear whether or not it can enforce this range. According to Elvira Nabiullina, Chairwoman of the Bank of Russia, the central bank had already intervened on the FX market on 24 and 25 February to support the RUB. The freeze of Russian central bank reserves at western central banks could significantly complicate future interventions.

PERSPEKTIVEN am Morgen, German newsletter from Dr. Ulrich Stephan, Chief Investment Strategist for Private and Corporate Clients

Show content of Government bonds in demand, (excerpt from 02.03.2022)

Before US President Joe Biden’s “State of the Union” speech, markets have priced in further escalation in Ukraine. Not only have stock markets seen the worst two months since the pandemic broke out two years ago, but on 1 March, bond markets were in focus as well. With oil prices significantly above 100USD per barrel inflation expectations have also picked up strongly – in Germany by 2.5% and in the US by 3.3% for the next five years.

Nevertheless, yields on ten-year government bonds dropped quite significantly. German Bunds now yield negative at -0.08%, US treasuries stood at 1.71% after they had been up to more than 2% before. Moreover, the market expects a less restrictive monetary policy. Obviously, market participants anticipate a stronger economic slowdown, economists however barely expect impacts from the war on the US or China – and even for Europe in case of an energy supply stop it is still anticipated that economic performance is improving.

Show content of Status of sanctions and gold price fluctuations (excerpt from 28.02.2022)

Russia's invasion of Ukraine and the spiral of violence and threats have left me stunned. The tragedy people are facing is appalling. Against this backdrop, the United States, Canada, the European Union (EU) and the United Kingdom have decided to tighten sanctions, in addition to the EU bans on Russian state media and the closure of airspace. While details are not yet known, the new sanctions are intended to target Russia's financial system.

  • One move will be to exclude certain Russian banks from the SWIFT financial messaging system. Since energy deliveries are excluded, this is not a complete ban on international payment transactions.
  • The Central Bank of the Russian Federation will also be targeted by the sanctions. The aim is to prevent central bank reserves from being used to pay third parties or stabilise the Russian rouble.

Last, the sanctioning countries aim to ensure the freezing of foreign assets held by those individuals affected by the sanctions.

While the sanctions will not take effect immediately, Russia has responded by putting its armed forces on heightened alert. In addition, no one can rule out the possibility of curtailment or part curtailment of oil and gas supplies from Russia. However, a further increase in energy prices would not only push up inflation but also impact the economy, especially in Europe.

On 24 February, as the Russia-Ukraine conflict escalated, the price of gold jumped to around US$1,975 per troy ounce – its highest level since the beginning of September 2020. In euro terms, gold traded higher than ever before at €1,768 per troy ounce. This price spark is driven by two developments: First, gold is considered a “safe haven”. Second, due to the situation in Ukraine, the prices for oil and natural gas as well as for many other commodities also rose significantly, driving a widespread anticipation of further inflation. Since the sanctions imposed by the United States and Western Europe initially excluded energy and Russia has not yet stopped its exports of these commodities. As a result, gold prices fell by almost US$100 from the above high levels. Nevertheless, because of gold's character as an “insurance” against stock market turmoil, it remains sensible to retain a small amount in portfolios.

Source: excerpt from “Perspektiven am Morgen” newsletter, 28.02.2022


The information, advice and estimates (“Information”) on this Deutsche Bank AG website have been prepared in a highly volatile environment and do not constitute investment, legal or tax advice. The United States, the United Kingdom and the EU are imposing sanction packages in rapid succession, with the next wave of sanctions already under discussion. This means that the impact on customers and the banking sector is constantly changing and cannot be predicted with any certainty. All information is therefore subject to change without notice and may differ from information that is or has been included in other documents published by Deutsche Bank, including research publications. All information is provided for information purposes only and without contractual or other obligation. No warranty is given as to the accuracy, completeness or adequacy of the foregoing information

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