Thursday Morning Reads

Morning Reads










It's war

Conditions in Ukraine are rapidly deteriorating. Russia has confirmed it was conducting a "special operation" to protect the eastern Donbas region (which it recognized as its own just days ago), citing the need to "demilitarize" Ukraine and accusing the U.S. of crossing its "red line" by expanding NATO. Military facilities have been targeted across the country, including airfields and anti-aircraft systems, and while the developments are hard to confirm, there are already reports of casualties. Airstrikes and explosions have hit the capital of Kyiv, as well as more than a dozen other cities.

Land, air and sea: Ukraine's border service said its soldiers came under attack along the country's frontiers with Russia and neighboring Belarus, while tanks have crossed the border with Crimea. Reports additionally suggest that Russian Navy troops have landed in Odessa and are also crossing the border in the city of Kharkiv. Russian cyberattacks are meanwhile hitting the country, with Ukrainian officials citing an intensifying hacking wave of destructive software.

The government in Kyiv is calling it a "full-scale invasion," with Ukraine's ambassador to the UN saying "it's too late for de-escalation." That's prompted Ukraine to declare martial law and close its airspace to civilian flights. The military also announced that it shot down five Russian warplanes and one helicopter, though Moscow denied any of its aircraft were hit.

Commentary: "What we've seen since the election of President Zelenskyy, is that Russia had its hopes raised that this was someone they could work with and that could unblock the Minsk II peace process that governed the conflict in eastern Ukraine," said Zach Witlin, senior analyst at Eurasia Group. "Instead, Zelenskyy has gone from what was thought in Russia, as a Russian-speaking, perhaps even Russian-tolerant president, to a vehemently anti-Russian president. Putin is calculating that he is at risk of losing Ukraine and does not want that to be part of his legacy." (26 comments)

Take cover

The conflict in Ukraine is roiling many sectors across the globe, with investors fearing contagion in all parts of the market. Stock index futures in the U.S. dropped precipitously overnight, with contracts linked to the Dow and S&P 500 off 2.5%, while the Nasdaq slid over 3%. Equities in Europe are doing worse, with the Euro Stoxx 50 plunging 5% after bourses posted earlier losses across Asia.

Commodities: Ukraine and Russia are also big exporters of precious/industrial metals, as well as grain, but a military blockade could risk significant shipments from Black Sea ports. Aluminum topped its 2008 peak by climbing nearly 3% to $3,388 a ton in London, while gold hit its highest level in more than a year, rising 3.3% to $1971.30. Nickel also advanced 2.4% to $25,085 a metric ton on the news, palladium climbed 4.4% to $2,547 a troy ounce in New York, while wheat futures soared 5.7% to $9.35 a bushel in Chicago and corn prices rose 5.1% to $7.16 (see energy implications below).

Over in Ukraine: The National Bank of Ukraine limited cash withdrawals to 100K hryvnia a day, equivalent to about $3,339.13, and will fix the official exchange rate for Thursday. Activity on Ukraine's PFTS Stock Exchange was postponed, while the yield on a Ukrainian dollar bond maturing in September 2027 doubled over the last 24 hours to 32.060%.

Over in Russia: The ruble was trading at 89.8903, down more than 10% versus the dollar, prompting Moscow to announce a currency intervention. Meanwhile, yields on Russian benchmark 10-year OFZ ruble bonds hit 10.93%, their highest since early 2016. Russia's central bank also ordered brokers to ban short-selling as Russian shares plunged, with the benchmark MOEX index losing as much as 45% in early trade.

Elsewhere: The greenback, which could be viewed as a safe-haven during times of geopolitical unrest, was up 0.4% to 96.538, per the U.S. Dollar Index. In the crypto space, Bitcoin (BTC-USD) plunged 9.1% to $35,313, while Ethereum (ETH-USD) is down 13% to $2,374 and XRP (XRP-USD) is off 12% to $0.641629. Bonds caught a flight-to-safety bid, however, with the yield on the 10-year Treasury falling 10 basis points to 1.88%. (71 comments)

Broader sanctions

For now, the western reaction to the unfolding situation in Ukraine will likely be limited to economic sanctions. U.S. and European diplomats have been working for weeks on a coordinated package that is set to be rolled out in the coming days, though initial measures will be announced today as President Biden delivers remarks from the White House.

On the menu: The sanctions will target the families of Putin's inner circle, prohibiting them from traveling to the west and freezing their assets in western banks. Russian institutions and retail banks will also be cut off from Western finance, while export controls will be imposed on advanced technology like semiconductors and aircraft parts. Meanwhile, the Biden administration slapped sanctions on the Nord Stream 2 AG company and its corporate officers, but that was after Germany halted the pipeline which was designed to double the amount of its gas imports.

Sanctions are not yet planned to touch Russia's energy sector directly, given the EU's dependence on Russian gas, though Moscow could weaponize the flows if things get ugly. Others, like Siemens Energy Chairman Joe Kaeser say things are the other way around, with "Russia depending more on oil and gas exports" than its customers. "The western world, the U.S in particular, but also the Middle East, they have been extremely reliable sources who've always been offering supply - [it] didn't work because of the cost difference. But now we have a different playing field."

Go deeper: Even before the invasion, energy prices were soaring, but WTI crude (CL1:COM) surged 8.7% overnight to $100/bbl - for the first time since 2014 - while Brent crude (CO1:COM) rocketed 9% to touch $105. Energy companies were also among the few winners in the U.S. as premarket trading opened this morning. Marathon Oil (NYSE:MRO) and Continental Resources (NYSE:CLR) are up 6%, Devon Energy (NYSE:DVN) advanced 5%, Chevron (NYSE:CVX) is ahead by 4%, and Exxon Mobil (NYSE:XOM) and ConocoPhillips (NYSE:COP) are 3% higher. (6 comments)

Forceful statements

Russia's Vladimir Putin: "I decided to conduct a special military operation. Its goal is the protection of people who over the past eight years have suffered abuse and genocide from the Kyiv regime. We urge you to lay down arms immediately and go home. I will explain. All servicemen of the Ukrainian army who comply with this requirement can freely leave the area of military action and return to their families. Whoever would try to stop us and further create threats to our country, our people, should know that Russia's response will be immediate and lead you to such consequences as you have never faced in your history. We are ready for any situation that arises. All necessary decisions in this regard have been made. I hope that I will be heard."

Ukraine's Volodymyr Zelenskyy: "Dear Ukrainians, this morning Russian President Putin announced a special military operation in Donbas. Russia carried out strikes on our military infrastructure, on our border guards. Explosions were heard in many cities in Ukraine. We introduced martial law throughout the state. I had a conversation with President Biden... The U.S. is starting to gather international support. Today, we need each of you, each of you to be calm. If possible, stay at home, please. We are working. The army is working. The entire security and defense sector of Ukraine is working. Don't panic. We are strong. We are ready for everything and we will defeat everyone because we are Ukraine. Glory to Ukraine."

President Biden: "President Putin has chosen a premeditated war that will bring a catastrophic loss of life and human suffering. Russia alone is responsible for the death and destruction this attack will bring, and the United States and its Allies and partners will respond in a united and decisive way. The world will hold Russia accountable. I will meet with my G7 counterparts in the morning and then speak to the American people to announce the further consequences the United States and our Allies and partners will impose on Russia for this needless act of aggression against Ukraine and global peace and security. We will also coordinate with our NATO Allies to ensure a strong, united response that deters any aggression against the Alliance."

EU's Ursula von der Leyen: "We will not let President Putin tear down Europe's security architecture. He should not underestimate the resolve and strength of our democracies. The European Union stands with Ukraine and its people. Ukraine will prevail. We condemn this barbaric attack, and the cynical arguments used to justify it. Later today we will present a package of massive, targeted sanctions. The sanctions will target strategic sectors of Russia's economy. We will freeze Russian assets in the EU and stop access of Russian banks to our financial market. This is designed to take a heavy toll on the Kremlin's ability to finance war."

NATO's Jens Stoltenberg: "Once again, despite our repeated warnings and tireless efforts to engage in diplomacy, Russia has chosen the path of aggression against a sovereign and independent country. This is a grave breach of international law, and a serious threat to Euro-Atlantic security. I call on Russia to cease its military action immediately and respect Ukraine’s sovereignty and territorial integrity. NATO Allies will meet to address the consequences of Russia's aggressive actions. We stand with the people of Ukraine at this terrible time. NATO will do all it takes to protect and defend all Allies." (127 comments)

Today's Markets

In Asia, Japan -1.8%. Hong Kong -3.2%. China -1.7%. India -4.7%.
In Europe, at midday, London -2.8%. Paris -4.4%. Frankfurt -4.6%.
Futures at 6:20, Dow -2.5%. S&P -2.5%. Nasdaq -3.1%. Crude +8.7% $100.10. Gold +3.2% to $1971.30. Bitcoin -9.1% to $35,313.
Ten-year Treasury Yield -10 bps to 1.87%

Today's Economic Calendar

8:30 GDP Q4
8:30 Initial Jobless Claims
8:30 Chicago Fed National Activity Index
9:00 Fed's Barkin Speech
10:00 New Home Sales
10:30 EIA Natural Gas Inventory
11:00 EIA Petroleum Inventories
11:00 Kansas City Fed Mfg Survey
11:10 Fed's Bostic: “Banking on Success in a Digital Era”
12:00 PM Fed's Barkin: Economic Outlook
12:00 PM Fed's Mester: U.S. Economic Outlook and Monetary Policy
1:00 PM Results of $50B, 7-Year Note Auction
4:30 PM Fed Balance Sheet
8:00 PM Fed's Waller: U.S. Economic Outlook

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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