U.S Stocks climbed higher after concerns over the Russia-Ukraine issue
The U.S stocks benchmark rose by 0.2% on Wednesday, a day after closing down more than 10% from its 3rd January record after the news of Russia deploying soldiers in Ukraine’s Donbas region. The DJIA and Nasdaq hovered around the flatline. The issue between Russia and Ukraine has caused uncertainty around investors. Recently, Ukraine declared a state of emergency and began to mobilize reservists. Investors say that the effect on stock and bond markets are difficult to predict and this is mainly due to the fast-moving diplomatic and military development and also the possible spillover effects of the higher energy prices into inflation in Western Economies. Strong economic growth is also helping the stock market to largely take the Russia-Ukraine crisis in its stride. Private data firm IHS Markit said Tuesday its composite Purchasing Managers Index for the U.S. rose to a two-month high in February, suggesting the economy had gained momentum.
The yield on the 10-year Treasury Notes rose from 1.947% on Tuesday to 1.988% today and prices are down since yields move in the opposite direction to bond prices.
Pan-Continental Stoxx Europe 600 gained 0.4% and this growth was led by shares of auto and chemical companies. Shanghai Composite Index rose 0.9% and Hong Kong’s Hang Seng gained 0.6%. As for stocks of the day – Barclays rose 6% after disclosing its net profit.
President Biden announced a ban on participation in the secondary market for any Russian Bond issued after March 1 as he accused President Putin of launching an invasion of Ukraine. The EU plans to follow suit with its own ban on the sale or purchase of new Russian Debt, according to people familiar with the proposal. This could raise Moscow’s borrowing costs and foreshadow tougher curbs that would shut western investors out of the country’s debt market entirely. Russia’s borrowing costs have already risen sharply this year in anticipation of new sanctions being imposed, reflecting a sharp fall in the price of the country’s debt. The yield on 10-year local currency bonds has climbed to 10.9 per cent, up from 7 per cent in September, and yields on dollar bonds have also climbed higher. However, some investors believe the absence of foreign financing would not be a problem for Russia, at least in the short term. This is because they have vast oil revenues, more than $630 billion in foreign reserves and low debt levels. However, if oil prices dip below $20 a barrel, it should pose a threat to Russia. Russia’s bond comprises more than 6% of JPMorgan’s widely followed EM bond index for local currency debt and 3% of the foreign currency version. Cutting exposure to zero would be a very risky bet on the underperformance of Russian bonds, which means that investors are in effect forced to hold these bonds. Due to the recent ban by President Biden, JPMorgan has told investors to expect newly issued Russian bonds to be excluded from its indices. If new bonds were excluded, Russia’s share of the index would gradually decline over time as eligible bonds mature.
VW in advanced talks over €20bn listing of Porsche Brand
Volkswagen (VW) is now in advanced talks with the investment vehicle of its controlling shareholder, the Porsche-Piëch family, towards a €20bn IPO of its Porsche Brand, which would be one of Germany’s biggest listings in years. It plans to raise at least €20bn through floating about a quarter of Porsche, which it expects to be valued between €80bn and €90bn. Half of the shares offered would have voting rights attached and a special dividend was also being considered. This announcement has caused VW stocks to rally up 9%. The final decision had yet to be taken and it would be subjected to approval by the VW Group’s management and supervisory boards. The supervisory board meeting is due to happen next month, but board members are likely to meet sooner. Porsche SE, the listed investment vehicle of the Porsche-Piëch family, which owns 53.3% of the VW shares that carry voting rights, said it might buy ordinary shares in Porsche as part of a potential IPO. Shares in Porsche SE were up 9 per cent at €88.88. Now the question is what will VW do with the proceeds of this IPO?