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Ukraine Diplomacy, Chinese Lockdowns, Iranian Strikes – What’s Moving Markets

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By Geoffrey Smith — Peace talks between Russia and Ukraine continue, but the more important meeting is arguably in Rome, where U.S. officials will try to warn China off undermining western sanctions and sending military aid to Russia. Chinese stocks tumble as the manufacturing hub of Shenzhen is forced into a Covid-19 lockdown. And Iran lashes out at U.S. and Israeli targets in Iraq, complicating efforts to restart talks on its nuclear program. Here’s what you need to know in financial markets on Monday, 14th March.

1. Frantic diplomacy

European markets traded positively on fresh hopes of progress in peace talks between Russia and Ukraine, despite signs of conflict escalation over the weekend.

There will be a number of important meetings in the course of the day. The most important of them may be between U.S. National Security Advisor Jake Sullivan and China’s top diplomat Yang Jiechi in Rome. The U.S. warned at the weekend that Russia has asked China for military aid to sustain its offensive.  Russia intensified its air and artillery campaign at the weekend, hitting targets further west, near the border with NATO member Poland.

Elsewhere, Eurozone finance ministers is meeting to discuss, among other things, the tightening of sanctions on Russia, including its energy exports.

2. Chinese stocks tumble as Shenzhen, Jilin lock down due to Covid

China’s zero-Covid policy is showing ever bigger cracks. The high-tech manufacturing hub of Shenzhen, which is home to two factories owned by iPhone contract manufacturer Foxconn, has locked down in response to growing numbers of new infections. Businesses will be shut for a full week.

The north-eastern region of Jilin, on the border with North Korea and Russia, is also locking down business and social life for a week. The moves come as Hong Kong continues to suffer among the highest rate of deaths and new infections in the world, after the highly-transmissible Omicron variant broke through the city’s cordon sanitaire.

Covid wasn’t the only thing troubling Chinese markets on Monday though. Tencent (OTC:TCEHY) stock plunged on reports that the central bank will levy the country’s biggest ever anti-money-laundering fine, leading the Hang Seng TECH index to fall as much as 11% intraday, before closing down 4.3%. Fears of U.S. delistings continue to dog Chinese tech stocks ahead of the Sullivan-Yang talks.

3. Stocks set to open higher

U.S. stock markets are set to open higher, with trading algorithms at least buying into the narrative peace hopes.

Trading is likely to stay subdued ahead of the Federal Reserve’s policy meeting that concludes on Wednesday. Neither the data calendar nor the earnings calendar contain any major market movers.

By 6:15 AM ET, Dow Jones futures were up 331 points, or 1.0%, while S&P 500 futures were up 0.9% and Nasdaq 100 futures were up 0.7%. The benchmark 10-year U.S. Treasury yield however rose 9 basis points, to 2.09%, against a backdrop of ongoing concern about inflation. It’s now at its highest since July 2019.

Stocks in focus may include all those who have suspended or abandoned operations in Russia in the last three weeks, after warnings from Moscow that those assets are likely to be put under state administration, a big step toward expropriation.

4. India moves to relieve the pressure on Russia

China isn’t alone in its support for Russia. Indian officials said on Monday that they are looking at ways to ensure India can continue to trade with the country despite Western sanctions. 

“Russia is offering oil and other commodities at a heavy discount. We will be happy to take that,” Reuters quoted one Indian government official as saying adding that issues surrounding tankers and insurance still need to be agreed.

Critics of the sanctions have argued that they will hasten the development of alternative international payment systems, ultimately eroding the dollar’s hegemon status in international trade.

India’s conduct is likely to have a strong influence on many less developed countries which depend on Russia in particular not just for their energy but also their grain imports.

Other countries, however, continued to add to the international pressure on Russia’s economy. Bermudan regulators, who oversee much of the world’s reinsurance market, said they will withdraw all the airworthiness certificates of Russian-operated aircraft due to an inability to enforce checks. The move will effectively end international flights by Russian airlines.

5. Oil falls on Chinese, Indian factors

Crude oil prices fell sharply, as the above-mentioned factors all forced a reappraisal of the global supply-demand balance.

By 6:25 AM ET, U.S. crude futures were down 5.4% at $103.47 a barrel, while Brent futures were down 4.2% at $107.98 a barrel.

Chinese lockdowns, in particular, are likely to have a noticeable impact on global demand, but any effort by China and India to ensure continued energy flows out of Russia are also likely to weigh on prices.

Those factors are outweighing developments in Iraq at the weekend, where strikes on U.S. and Israeli-operated sites by Iran and its proxies have dealt a blow to hopes of any swift resumption of talks on lifting sanctions on the Islamic Republic.

Ukraine Diplomacy, Chinese Lockdowns, Iranian Strikes – What’s Moving Markets

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