WORLDWIDE: HEADLINES
Russia, Belarus Squarely In ‘Default Territory’ On Billions In Debt -World Bank
Russia and Belarus are edging close to default given the massive sanctions imposed against their economies by the United States and its allies over the war in Ukraine, the World Bank’s chief economist, Carmen Reinhart, told Reuters.
The specter of Russia defaulting on $40 billion of external bonds – its first major such default since the years following the 1917 Bolshevik revolution – has loomed large over markets since a raft of sanctions and countermeasures by Moscow have largely cut the country out of global financial markets.
“Both Russia and Belarus are in square default territory,” Reinhart said in an interview. “They’re not rated by the agencies as a selective default yet, but mighty close.”
Fitch on Tuesday downgraded Russia’s sovereign rating by six notches further into junk territory to “C” from “B,” saying a default is imminent as sanctions and trade restrictions have undermined its willingness to service debt.
Reinhart said financial sector repercussions had been limited thus far, but risks could emerge if European financial institutions were more exposed to Russian debt than assumed.
Around half of Russia’s sovereign hard-currency bonds are held by foreign investors and Moscow must make $107 million in coupon payments on two bonds on March 16. Russian corporates have just under $100 billion in international bonds outstanding.
Foreign banks have exposure of just over $121 billion to Russia with much of that concentrated in European lenders, according to data from the Bank of International Settlements.
“I worry about what I do not see,” Reinhart said. “Financial institutions are well-capitalized, but balance sheets are often opaque … There is the issue of Russian private sector defaults. One cannot be complacent.”
China also rapidly expanded its lending to Russia after its 2014 annexation of Crimea, she said.
Full coverage: REUTERS
Oil Jumps After UAE Says It Is Committed To OPEC+ Supply Pact
Oil prices rebounded on Thursday after the United Arab Emirates said it is committed to major producers’ pact to add 400,000 barrels per day of supply monthly, hours after UAE’s ambassador to Washington said his country favoured a bigger increase.
U.S. West Texas Intermediate (WTI) crude futures jumped more than $3 shortly after opening and were trading up $1.53, or 1.4%, at $110.23 at 2324 GMT. The contract had tumbled 12.5% in the previous session in the biggest daily decline since November.
UAE Energy Minister Suhail al-Mazrouei said on Twitter late on Wednesday his country is committed to the agreement by the Organization of the Petroleum Exporting Countries and allies, together called OPEC+, to ramp up oil supply gradually following sharp cuts in 2020.
“The UAE believes in the value OPEC+ brings to the oil market,” al-Mazrouei said.
His comments came just hours after prices slumped on comments by UAE’s ambassador to Washington that his country will be encouraging OPEC to consider higher output to fill the supply gap due to sanctions on Russia after it invaded Ukraine. Russia calls its incursion a “special operation” to disarm its neighbour.
While UAE and Saudi Arabia have spare capacity, some other OPEC+ producers are struggling to meet their output targets due to underinvestment in infrastructure over the past few years, which will limit their ability to lift output further.
“We think it will be challenging for OPEC+ to boost production in this environment,” Commonwealth Bank commodities analyst Vivek Dhar said.
Full coverage: REUTERS
WORLDWIDE: FINANCE/BUSINESS
Asian Shares Surge As Russia-Ukraine Talks Buoy Sentiment
Asian shares surged on Thursday, tracking Wall Street’s gains as planned diplomatic talks between Russia and Ukraine buoyed sentiment, although analysts warned the rally could be susceptible to a sharp reversal as risks remain.
Oil prices also regained some footing, having fallen more than 12% on the previous session as United Arab Emirates pledged to support hiking oil output to ease mayhem in energy markets.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) gained 1.6% in early trade. Japan’s Nikkei (.N225) surged 3.4% while Australian shares (.AXJO) were up 1%.
Chinese blue chips (.CSI300) rose 1.96% while Hong Kong’s Hang Seng index (.HSI) rallied 1.8%.
“Comments out of Russia and Ukraine are leading to some hope that compromise is possible,” said Ray Attrill, Head of FX Strategy at National Australia Bank in a note on Thursday.
Russia’s foreign minister Sergei Lavrov arrived in Turkey ahead of planned talks on Thursday with his Ukrainian counterpart Dmytro Kuleba for what will be the first meeting between the two since Russia invaded Ukraine two weeks ago.
Attrill added Ukraine’s accusation of Russia bombing a hospital in the city of Mariupol and fears of radiation leaks at Ukraine nuclear sites could risk further retaliation from Western nations.
U.S. crude ticked up 1.37% to $110.19 a barrel, while Brent crude rose 2% to $113.2 per barrel.
European Union leaders will phase out buying Russian oil, gas and coal, a draft declaration showed on Thursday, as the bloc seeks to reduce its reliance on Russian sources of energy.
The United States banned oil and gas imports from Russia on Tuesday, while Britain said it would phase out Russian oil imports by the end of the year.
Higher energy prices will reinforce expectations that the U.S. Federal Reserve will raise interest rates by 25 basis points at its policy meeting next week to tame runaway inflation.
Full coverage: REUTERS
Euro Stands Tall As Investors Cheer Ukraine Talks
The euro held most of its overnight gains on Thursday, having posted its steepest daily jump in nearly six years after a meeting between Ukraine’s and Russia’s foreign ministers and easing oil prices took some of the recent panic out of markets.
Traders now await a meeting of the European Central Bank later in the day for any signs of how Russia’s invasion of Ukraine will affect monetary policy. U.S. inflation figures are also due, which could further guide expectations for the Federal Reserve’s meeting next week.
The euro was trading at $1.1047 after jumping 1.6% on Wednesday, its best day since June 2016, along with gains in European stocks and a sell off in bonds.
The common currency had dropped to a 22-month low of $1.0804 earlier in the week, weighed down by the impact of Russia’s invasion of Ukraine on European growth.
“A glance across market, in all things euro zone especially, could leave any casual observer forgiven for assuming that the war in Ukraine might have ended overnight. Not so, sadly,” said NAB analysts in a morning note.
They attributed the euro’s gains to some optimism ahead of a meeting between Russia and Ukraine’s foreign ministers – the first meeting between the two since Russia invaded Ukraine two weeks ago – and reports that the European Union was discussing bond issuance to finance energy and defence spending.
Other factors NAB highlighted were “suspicions the ECB might not fully reverse its early February ‘hawkish tilt’ when it meets later today, given that inflation is destined to push still higher given the latest energy price shock.”
Russia calls its actions in Ukraine a “special operation”.
Elsewhere, sterling was steady at $1.3163 having jumped 0.65% overnight along with the euro, while the safe-haven yen was at 116.09 per dollar, its lowest in a month.
Full coverage: REUTERS
