Ukraine War Will Continue to Dominate Trading This Week

  • Even if the economic calendar were chock full of first-tier releases, it would be developments in the Ukraine war that would dominate trading. The fact we have a fairly light week of data makes the war influence that much greater.


  • Developments over the weekend haven’t offered much encouragement other than to continue and expose the Russian military as less than the elite fighting force it was billed as. But it has shown a willingness to inflict civilian casualties just as they did in Aleppo, Syria.


  • While the Russians have been less than competent in the execution of the war, the sheer number of soldiers and armament have allowed them to inflict much damage, both to structures and to people. That is likely to continue but gains will continue to be slow and holding any captured land and facilities will be a challenge given the resistance of the Ukrainian people and the limited number of Russian soldiers that can be left behind to occupy and control captured land. The end game for Putin still remains unclear. Installing and running a puppet government against a population that despises them will be a hard job to accomplish.


  • What this means from a global economic perspective is higher inflation. That’s no surprise. We’ve already seen higher gas prices and that is likely to get worse before it gets better. It has also begun to drive agricultural prices like wheat higher and aluminum prices too. These price increases are likely to be stickier because, as mentioned above, the war could drag on for some time to come.


  • It will also lead to slower growth as sanctions, boycotts, etc., continue to bite into global output. The word stagflation comes to mind and that is certainly one possibility.


  • It won’t, however, alter the Fed’s rate-hiking ambitions, at least in the near-term. Expect 75bps of hikes by June, then balance sheet run-off will begin. The magnitude of the initial run-off schedule will most likely be discussed and revealed at the March 16 FOMC meeting.


  • The one report this week that will get some attention will be the February CPI Report to be released on Thursday. Suffice it to say, there will be nothing positive in the report with a 0.8% MoM increase expected pushing the overall to 7.9% YoY, while the core rate is expected up 0.5% MoM and 6.4% YoY. Keep in mind these monthly price increases occurred before the real fighting broke out in Ukraine, so the impact there will be felt more in the March numbers. The only good news for the inflation numbers is that the large monthly increases experienced last spring will start to roll off the yearly calculations so if we can put new monthly numbers on at levels, say less than 0.6%, we could see a plateauing in the YoY numbers, but that’s about the best we can hope for on the inflation picture in the near-term.
Source: Bloomberg


Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 1.61 1.80 1.90 2.05 2.38 2.85
0.50 1.59 1.77 1.84 1.94 2.24 2.74
1.00 1.59 1.74 1.81 1.90 2.15 2.61
2.00 1.73 1.75 1.82 2.03 NA
3.00 1.77 1.97 NA
4.00 1.93 NA
5.00 1.89 NA
10.00 NA

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Published: 03/08/22 Author: Thomas R. Fitzgerald