U.S. stocks are in the green today following the latest headlines out of Russia, capping a week in which the S&P 500 index has given up 1.5% on widespread risk aversion largely related to geopolitical concerns.
The S&P 500 is currently trading at 1850, 0.2% above Thursday’s closing levels. Treasuries are trading slightly lower, with the yield on the 10-year note one basis point higher at 2.65%, and the 5-year/30-year curve is flattening.
The U.S. dollar is down 0.3% against the euro and the Japanese yen.
The Russia-Ukraine conflict continues to dominate the headlines.
Russian Foreign Minister Sergey Lavrov just told reporters in London that Russia has no plants to intervene in eastern Ukraine, and that Russia will respect the choice Crimea makes in an independence referendum to be conducted this weekend.
Ukraine’s Crimea region, an area home to many ethnic Russians, is expected to vote to declare independence from Ukraine. The market angst over the recent conflict between Russia and Ukraine in recent days has stemmed largely from military developments in Crimea.
“Yesterday’s Ukraine threat roller-coaster may not reverse today ahead of the Crimean election over the weekend,” says David Keeble, head of fixed income strategy at Crédit Agricole.
“Clearly, the West is upping the rhetoric and Russia is not backing down. This makes the weekend vote rather a center point for the fear trade. The main unknowns are not the referendum result or that sanction threats will be displayed, but rather if violence erupts in Crimea, and whether the Russians instantly annex Crimea or play out a waiting game to achieve the same result in the future along with some legal niceties. It all suggests playing it cautious, which is what some clients were doing on Thursday — buying back their shorts [in the Treasury market].”
European indices have been in the red all morning, but have rallied somewhat from the lows, and the German DAX — one of the worst performers in recent sessions — is eking out gains. Euro zone government debt is catching a bid as well, sending yields lower.
Russia’s MICEX equity index closed down 0.9% Friday, and yields on 10-year Russian government bonds denominated in the local currency soared 28 basis points to 9.59%. The Russian ruble is down about 0.3% against the U.S. dollar, while the Ukrainian hryvnia is 1.8% lower.
Data released on Thursday afternoon by the Federal Reserve revealed that foreign holdings of U.S. Treasuries in custody accounts at the Fed by foreign central banks fell by $US104 billion in the week ended Wednesday, March 12, marking what was by far the largest weekly drop on record.
Because Treasuries traded higher throughout the week, however — and there was little chatter about central bank selling among traders — the most likely scenario is that Russia moved a large portion of its Treasury holdings to accounts outside of U.S. jurisdiction in order to get ahead of any possible financial sanctions that may be levied against it by the West as the conflict in Ukraine unfolds, as opposed to foreign central banks actually selling holdings of U.S. government debt.
This morning saw two notable economic data releases in the United States — February producer prices data and preliminary March consumer confidence data. Both missed consensus estimates, but markets were unfazed.