By Peter Nurse
Investing.com — Russian troops continued to advance on Kyiv, Ukraine’s capital, as Moscow defied the new sanctions levied by Western powers. European stocks rebounded, but Wall Street is set to open lower ahead of a deluge of economic data that could guide the Federal Reserve at next week’s policy-setting meeting. Crude prices stabilized as traders digested the new measures. Here’s what you need to know in financial markets on Friday, 25th February.
1. Russia defies new sanctions, advances on Kyiv
Russia’s invasion of Ukraine continued Friday, with its troops advancing on the capital Kyiv, following Thursday’s declaration of war by President Vladimir Putin.
U.S. President Joe Biden responded late Thursday by announcing wider sanctions aimed at impeding Russia’s ability to do business in the world’s major currencies, along with sanctions against banks and state-owned enterprises.
“This is going to impose severe cost on the Russian economy, both immediately and over time,” Biden stated.
The EU joined in by freezing Russian assets in the bloc and halting its banks’ access to the region’s financial markets, measures EU foreign policy chief Josep Borrell described as “the harshest package of sanctions we have ever implemented”.
However, Ukrainian President Volodymyr Zelenskiy said on Friday that the continued Russian aggression showed that sanctions were not enough.
He’s probably right, but it’s difficult to see what could be done that would generate an immediate response from Moscow.
Russia has built up over $600 billion in currency reserves, rising more than 75% since Putin’s 2014 Crimea annexation, helped by surging oil and gas prices. Its current account surplus of 5% of annual GDP and a 20% debt-to-GDP ratio are among the lowest in the world, while just half of the Russian liabilities are in dollars, down from 80% two decades ago.
2. European stocks higher; Goldman cuts Stoxx 600 year-end target
European stock markets are showing some resilience Friday, trading higher after the sharp losses of the previous sector.
Investors pumped money into cash and stocks in the week to Wednesday as equity positioning showed “zero signs of capitulation,” according to Bank of America’s weekly flow report, released Friday.
Global equities saw $7 billion move into cash and $6.2 billion of inflows into equities while investors pulled $3.5 billion from bonds, according to the bank, analyzing EPFR data.
That said, the data collection ended on Wednesday, the day before Putin ordered Russian troops into its southern neighbor.
Goldman Sachs has taken a more cautious view, cutting its year-end target for Europe’s major stock index, the pan-European Stoxx 600, saying equities in the region are likely to face risks for some time.
The influential U.S. investment bank now expects the index to hit 490, down from the earlier 12-month target of 530.
At 6:10 AM ET (1110 GMT), the STOXX 600 traded 1.8% higher at 446.64, having closed at 438.96 on Thursday, falling to nine-month lows after Russia invaded Ukraine.
3. Stocks set to open lower; Beyond Meat (NASDAQ:BYND) stock plunges
U.S. stock markets are set to open lower, handing back some of Thursday’s gains as Russian troops move closer towards Ukraine’s capital Kyiv.
By 6:10 AM ET, Dow Jones futures were down 300 points, or 0.9%, while S&P 500 futures were down 0.9% and Nasdaq 100 futures were down 0.8%.
The major indices on Wall Street staged a stunning comeback on Thursday, plunging at the open after Russia invaded Ukraine before closing strongly higher after President Joe Biden announced new sanctions.
The blue chip Dow Jones Industrial Average ended almost 100 points, or 0.3%, higher after dropping over 850 points at its session low. The broad-based S&P 500 rebounded to close 1.5% higher, while the tech-heavy Nasdaq Composite rallied 3.3% after dropping nearly 3.5% at the lowest level of the day.
Earnings season has mostly wound down, but there are still a few late reporting companies to claim the spotlight.
Beyond Meat Inc (NASDAQ:BYND) stock plunged in premarket trading after the maker of faux meat posted disappointing numbers for the fourth quarter, while Coinbase (NASDAQ:COIN) stock is seen lower after the crypto trading platform reported lower volumes and monthly users despite the volatile trading climate.
4. Economic data deluge
The Federal Reserve holds its next policy-setting meeting next week, and data releases later in the session could provide more clues as to whether it will raise short-term rates, and by how much.
Personal spending and income data for January, the month after the holiday season, are due at 8:30 AM ET (1330 GMT). Analysts are forecasting personal spending to grow 1.6% from the prior month, beating December’s reading of negative 0.6%, while personal income is predicted to be down 0.3%, below the previously reported +0.3%.
Durable goods orders for January are also due at the same time, and are expected to rise by 0.8%, after falling 0.7% the previous month, while the core PCE price index, a gauge of inflation the Federal Reserve uses in its deliberations on interest rates, is expected to rise to 5.1% on the year in January.
Many now expect the central bank to hike by 50 basis points, given the elevated levels of consumer prices and the strength of the U.S. recovery, but the outbreak of war in Ukraine could prompt the Fed to take a less aggressive stance toward raising rates.
5. Crude stabilizes near $100 a barrel
Crude oil prices stabilized Friday after Thursday’s volatile trading after Western powers levied new sanctions on Russia as a punishment for its invasion of Ukraine.
Although a U.S. official was quoted as saying the new measures “are not targeting and will not target oil and gas flows,” the sanctions on Russia’s banks and state-owned enterprises are likely to impede the country’s ability to do business in major currencies.
Brent crude prices surged above $100 a barrel for the first time since 2014 on Thursday but sold off later in the session after U.S. President Joe Biden raised the prospect of a U.S. oil release from its strategic reserves in coordination with other nations.
Also limiting Friday’s gains, was Thursday’s U.S. crude oil supply data from the Energy Information Administration. Released a day later than usual because of Monday’s holiday, this showed a build of around 4.5 million barrels in the week to Feb. 18, suggesting a slowdown in demand from the world’s largest energy consumer.
By 6:15 AM ET, U.S. crude futures were down 0.4% at $92.44 a barrel, while Brent Oil Futures were down 0.5% at $94.90 a barrel.
Gasoline RBOB Futures were down 0.1% at $2.9130 a gallon.