Stock futures bounce Thursday as investors shake off Russia-Ukraine, Fed concerns

Stock futures rose early Thursday morning as investors tried to recover from declines in Wednesday’s regular trading session.

Dow Jones Industrial Average futures rose about 120 points, or 0.3%. S&P 500 added 0.5% and Nasdaq 100 futures rose 0.5%.

Investors are continuing to monitor the war in Ukraine and weigh the Federal Reserve’s rate hikes amid persistent inflation.

NATO leaders met in Brussels Thursday to discuss increasing pressure on Russia, as Ukraine appears to be retaking ground in the war.

Last week, the Fed raised interest rates for the first time since 2018. Chair Jerome Powell on Monday vowed to be tough on inflation and opened the door for more aggressive half-percentage-point rate hikes.

“The idea of having a soft landing was always going to be really challenging, and when you think about the additional wrinkle of a complication of Russia invasion of the past month, and the surge in commodity prices, it makes it super difficult for Fed to calibrate,” Michael Schumacher, head of macro strategy at Wells Fargo Securities, said on CNBC’s “Fast Money” on Wednesday.

The S&P 500 fell into correction territory late February, but is now 7.5% off its highs. The Dow is also 7% from its intraday record and the Nasdaq Composite is off by 14%.

The indexes posted a big rally last week, notching their best weekly performance since 2020.

Stocks have seesawed this week, alternating between up and down days. The Dow is about 1% lower on the week while the S&P 500 and Nasdaq Composite are little changed.

All three major averages are on track to close the month at least 1% higher.

On Thursday, Spotify rose 3.7% in early morning trading, as Google said it will allow the streaming platform to offer its own billing on Android devices.

Uber gained more than 5% after the company reached a deal to list all New York City taxis on its app, the Wall Street Journal reported.

Olive Garden parent company Darden Restaurants saw shares dip 2% in premarket trading after a weaker-than-expected earnings report before the bell Thursday. KB Home dropped 3.8% after an earnings miss Wednesday.

On the data front, initial jobless claims last week totaled 187,000, the lowest level since 1969, the Labor Department reported Thursday.

India is in a sweet spot, courted by the Quad, China and Russia

https://www.cnbc.com/2022/03/24/india-is-in-a-sweet-spot-courted-by-the-quad-china-and-russia.html

Can a hot stock get hotter? The bullish case for Nutrien

Many analysts are convinced that the blistering rally in the share price of Saskatoon-based Nutrien Ltd., NTR-T +0.88%increase the world’s largest potash producer, has further to run – even if there is a resolution to Russia’s invasion of Ukraine.

Jacob Bout, at CIBC World Markets, is the latest analyst to ratchet up his enthusiasm for the stock.

He raised his target price (or where he sees the stock trading within 12 months) by 35 per cent this week, to US$120, which lines up with targets from analysts at RBC Dominion Securities and BMO Capital Markets.

The rationale: The typical threats to commodity rallies – supply rises as producers ramp-up output; and demand falls as consumers recoil from soaring prices – will not hurt the fundamentally bullish underpinnings for the fertilizer market.

“North American producers should benefit from strong pricing, while incrementally ramping up production levels to the extent possible,” Mr. Bout said in a note.

It’s a persuasive take for anyone who missed the rally in fertilizer stocks or is wondering whether the impressive gains will hold, given the volatile nature of most commodities.

Nutrien’s share price has soared 38 per cent over the past month, making it one of the top performers within the S&P/TSX Composite Index.

The gains come as Western sanctions against Russia have driven skyward a huge array of commodity prices, from crude oil and natural gas, to wheat and copper.

Russia and Belarus, which is also subject to sanctions, together control about 40 per cent of the global supply of potash, Nutrien’s mainstay. Uncertainty over exports from these two countries has driven global fertilizer prices, in some cases, to record highs.

The decision to stick with a hot stock comes with risks, of course. In particular, Western fertilizer producers can increase production and a resolution to the war in Ukraine could relax sanctions, potentially easing supply concerns and pushing down fertilizer prices.

But analysts expect that these risks aren’t enough to hold back Nutrien’s share price, even over the longer term, for a number of reasons.

For one, the supply of fertilizer will likely remain diminished regardless of the geopolitical backdrop.

Belarus lost access to Lithuanian ports on Feb. 1 – weeks before Russia invaded Ukraine – hampering the landlocked country’s ability to export 90 per cent of its potash. Access to the ports is unlikely to be reinstated if Russia calls off its invasion, given that sanctions against Belarus relate to its crackdown on protesters following a disputed presidential election last year.

What’s more, Mr. Bout expects that the geopolitical turmoil will push global buyers to shy away from Eastern Europe and embrace more stable North American producers, suggesting that exports from Belarus and Russia will remain diminished regardless of whether the war ends.

Can Nutrien fill the gap? The company announced last week that it will increase its potash production by nearly one million tonnes in the second half of the year, bringing output to a total of 15 million tonnes.

But analysts said that the increase can’t make up for the 13 million tonnes at risk from curtailed exports from Russia and Belarus, even if some of this potash makes its way to India or China.

“The scale of these potential losses is almost unfathomable, in our view, with little-to-no ability to backfill this cavernous gap,” Steve Hansen, an analyst at Raymond James, said in a note last week.

Strong demand for fertilizer should also support Nutrien’s share price.

Robust crop prices give farmers an incentive to use fertilizer to increase yields – and crop prices are soaring. U.S. corn futures are near 10-year highs and wheat futures have risen more than 40 per cent since the start of February.

In some parts of the world, such as Brazil, higher fertilizer prices are pushing farmers to cut back on use. However, Ben Isaacson, an analyst at Bank of Nova Scotia, noted this week that Nutrien’s chief executive officer has seen no so-called demand destruction yet.

And Mr. Bout said that profits generated by North American fertilizer producers get a bigger lift from higher prices than from greater sales volume. In any case, he added, supply lost from Eastern Europe producers is more important than volume lost to demand destruction.

That, he believes, makes Nutrien look like a solid bet in an uncertain world.

Asian shares fall as Ukraine war stokes inflation fears, oil ticks higher

Asian shares fell on Thursday, while the sell-off in U.S. Treasuries paused and oil prices rose, as investors and traders weighed the latest developments in the Ukraine war and more hawkish comments from U.S. Federal Reserve officials.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.6 per cent. Japan’s Nikkei fell by more than 1 per cent on Thursday morning, after touching a two-month high in the previous session.

China’s markets opened lower, with Hong Kong’s Hang Seng Index down 0.9 per cent and the mainland’s bluechip index off 0.7 per cent. Shares of Tencent Holdings dropped 4.6 per cent after it posted its slowest-ever sales rise.

U.S. President Joe Biden arrived in Brussels for a series of summit meetings on the Ukraine War, with Biden set to announce a U.S. package of Russia-related sanctions on political figures and oligarchs on Thursday.

Oil prices held firm. Russia President Vladimir Putin said on Wednesday that Moscow, which calls its actions in Ukraine a “special operation”, will seek payment in rubles for gas sold to “unfriendly” countries.

Brent futures were up about 45 cents, or 0.4 per cent, at $122.05 a barrel and U.S. West Texas Intermediate futures were up about 15 cents, or 0.2 per cent, at $115.07 a barrel. [OR/]

The bond market, meanwhile, paused for breath with the yield on benchmark 10-year Treasury notes last at 2.3098 per cent in Tokyo trading, after retreating from a nearly three-year peak of 2.4170 per cent overnight.

The two-year yield, which is more sensitive to traders’ expectations for the Fed funds rate, stood at 2.1233 per cent, down from an almost three-year high of 2.2020 per cent reached Tuesday.

Federal Reserve policy-makers on Wednesday signalled they stand ready to take more aggressive action to bring down unacceptably high inflation, including a possible half-percentage-point interest rate hike at the next policy meeting in May.

Major U.S. equities indexes declined more than 1 per cent on Wednesday. The Dow Jones Industrial Average fell 448.96 points, or 1.3 per cent, to 34,358.5; the S&P 500 slid 55.41 points, or 1.2 per cent, to 4,456.2; and the Nasdaq Composite dropped 186.21 points, or 1.3 per cent, to 13,922.60.

“Equities reversed part of their recent rally as bond yields declined, in a move that might be just a simple pull-back after a ripping rally over the past 10 days,” said Kyle Rodda, market analyst at IG.

“It is still though a relatively volatile market, [which] suggests that these ripping moves in stocks ought to be treated with caution.”

Currency markets steadied on Thursday with the Japanese yen nursing heavy losses. It had hit a six-year low of 121.41 on Wednesday as rising U.S. yields and a deteriorating trade balance sucked cash out of Japan.

The euro hovered at $1.0988 and the Australian dollar took a breather after several days of large gains. The Aussie was little changed at $0.74955, sticking close to an almost five-month high of $0.75070 touched on Wednesday.

Gold was slightly lower, trading at $1942.9 per ounce. [GOL/]

BMO Public Offering To Raise At Least $2.7 Billion For U.S. Bank Acquisition

TORONTO — Bank of Montreal is expecting to generate at least $2.7 billion in gross proceeds from a public offering to help fund the US$16.3-billion acquisition of Bank of the West in the United States.

The Toronto-based bank says it will issue 18.1 million shares at a price of $149 per common share, below Tuesday’s closing price of $153.72.

The offering is being underwritten on a bought-deal basis by a syndicate of underwriters led by BMO Capital Markets.

BMO has granted the underwriters an option to purchase up to an additional 2.7 million shares for $402 million, exercisable at any time up to 30 days after closing of the offering, expected March 29.

The offering is not conditional on the closing of the acquisition and shares sold will remain outstanding whether or not the deal is completed.

The bank says it expects to fund the acquisition primarily with excess capital.

This report by The Canadian Press was first published March 22, 2022.

Companies in this story: (TSX:BMO)

Oil jumps 5% as Caspian pipeline disruption adds to supply fears

Oil prices jumped 5 per cent to over $121 a barrel on Wednesday as a weather-related disruption to Russian and Kazakh crude exports via the Caspian Pipeline Consortium (CPC) pipeline added to worries over tight global supplies.

Brent crude futures were up $5.95, or 5.1 per cent, at $121.43 a barrel as of 12:01 p.m. EDT (1501 GMT). U.S. West Texas Intermediate (WTI) crude futures rose $5.24, or 4.8 per cent, to $114.51 a barrel.

The CPC pipeline has been in the spotlight as the market is on edge over the ripple effect of heavy sanctions on Russia, the world’s second-largest crude exporter, after its invasion of Ukraine, which Moscow calls a “special military operation.”

Crude oil exports from Kazakhstan’s CPC terminal on Russia’s Black Sea coast stopped fully on Wednesday after damage caused by a major storm and continued bad weather, a port ship agent and the head of CPC said.

Russian Deputy Prime Minister Alexander Novak later said that oil supplies by the CPC may be completely stopped for up to two months.

The CPC pipeline carries around 1.2 million barrels per day of Kazakhstan’s main crude grade, which accounts for 1.2 per cent of global demand.

“Prices are primarily rising on the loss of CPC Blend crude exports out of Novorossiisk … adding further bullish fuel to the fire as the drop in Russian crude exports finally appears under way,” said Matt Smith, lead oil analyst for the Americas at Kpler.

U.S. President Joe Biden is set to announce more Russian sanctions when he meets with European leaders on Thursday in Brussels, including an emergency meeting of NATO. Russia refers to the invasion, which is now a month old, as a “special operation.”

European Union member countries remain split on whether to ban imports of Russian crude and oil products, but this might change once short-term contracts run out.

“You’ll know at the end of April what the total loss of Russian oil is,” said Trafigura’s Ben Luckock, at the FT Commodities Global Summit. He said it was possible that oil could reach $200 a barrel.

Russia to seek payment in rubles for gas sales from ‘unfriendly’ countries, Putin says

Russia will seek payment in rubles for gas sales from “unfriendly” countries, President Vladimir Putin said on Wednesday, sending European gas prices soaring on concerns the move would exacerbate the region’s energy crunch.

European countries’ dependence on Russian gas and other exports has been thrown into the spotlight since Moscow’s Feb. 24 invasion of Ukraine and the subsequent imposition of Western sanctions aimed at isolating Russia economically.

“Russia will continue, of course, to supply natural gas in accordance with volumes and prices … fixed in previously concluded contracts,” Putin said at a televised meeting with top government ministers.

“The changes will only affect the currency of payment, which will be changed to Russian rubles,” he said.

Russian gas accounts for some 40 per cent of Europe’s total consumption and EU gas imports from Russia have fluctuated between 200 million to €800-million ($880-million) a day so far this year. The possibility a change of currency could throw that trade into disarray sent some European and British wholesale gas prices up around 15-20 per cent on Wednesday.

The Russian ruble briefly leapt to a three-week high past 95 against the dollar before settling close to 100 after the shock announcement.

Putin said the government and central bank had one week to come up with a solution on how to move these operations into the Russian currency and that gas giant Gazprom would be ordered to make the corresponding changes to gas contracts.

With major banks reluctant to trade in Russian assets, some big Russian gas buyers in the European Union were not immediately able to clarify how they might pay for gas going forward.

“At the moment, we do not yet wish to comment. We will be in touch once we have formed an opinion,” said a spokesman at Germany’s Uniper.

Moscow calls its actions in Ukraine a “special military operation” to disarm and “denazify” its neighbour. Ukraine and Western allies call this a baseless pretext for a war of choice that has raised fears of wider conflict in Europe.

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According to Gazprom, 58 per cent of its sales of natural gas to Europe and other countries as of Jan. 27 were settled in euros. U.S. dollars accounted for about 39 per cent of gross sales and sterling around 3 per cent.

The European Commission has said it plans to cut EU dependency on Russian gas by two-thirds this year and end its reliance on Russian supplies of the fuel “well before 2030.”

But unlike the United States and Britain, EU states have not agreed to sanction Russia’s energy sector, given their dependency.

The Commission, the 27-country EU’s executive, did not immediately respond to request for comment.

There are questions over whether Russia’s decision constitutes a breach of contract rules.

“This would constitute a breach to payment rules included in the current contracts,” said a senior Polish government source, adding that Poland has no intention of signing new contracts with Gazprom after their current long-term agreement expires at the end of this year.

Russia drew up a list of “unfriendly” countries, which corresponds to those that imposed sanctions. Among other things, deals with companies and individuals from those countries have to be approved by a government commission.

The list of countries includes the United States, European Union member states, Britain, Japan, Canada, Norway, Singapore, South Korea, Switzerland and Ukraine.

Some of these countries, including the United States and Norway, do not purchase Russian gas.

Stocks bounce as investors raise rate hike expectations

U.S. stocks rebounded Tuesday as traders digested Federal Reserve Chair Jerome Powell’s latest rate hike comments.

The Dow Jones Industrial Average rose about 255 points, or 0.7%. The S&P 500 added 1.1%, and the Nasdaq Composite rallied nearly 2%.

Stocks were coming off a volatile session Monday, as Powell said “inflation is much too high” and vowed to take “necessary steps” to curb inflation. The comments came less than a week after the Fed raised rates for the first time since 2018.

“The anticipation turned out to be worse than the actual event and now the messaging that we heard yesterday … sets us up to be prepared for the worst, but hope for the best,” Liz Young, head of investment strategy at SoFi, told CNBC’s “Fast Money Halftime” on Tuesday.

Some market participants raised their expectations for rate hikes as Powell said the Fed could move the benchmark rate by a greater magnitude than previously forecast.

“If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” said Powell on Monday to the National Association for Business Economics. One basis point equals 0.01%.

Goldman Sachs on Monday upped its forecast to 50 basis point hikes at the May and June Fed meetings. UBS chief U.S. economist Jonathan Pingle in a note Monday said, “We think odds of a 50 bp rate hike are rising.”

The benchmark 10-year U.S. Treasury yield on Tuesday hit 2.392% at the highs of the session, its highest level since May 2019.

Bank stocks rose Tuesday along with interest rates. JPMorgan gained about 2%, and Bank of America rose around 3%.

Technology stocks, which struggled Monday after Powell’s comments, rebounded Tuesday. Big Tech names Alphabet, Meta and Amazon all gained more than 2%, providing support to the indexes.

Nike shares moved up more than 2% after the retailer reported a beat on the top and bottom lines for its fiscal third quarter, buoyed by strong demand in North America.

Investors on Tuesday continued to watch the situation in Eastern Europe, with President Joe Biden saying Russian President Vladimir Putin’s back is “against the wall” as the war with Ukraine nears a stalemate.

The three major averages are on pace to finish the month positive. The S&P 500 is up about 3% in March, while the Dow and Nasdaq are each more than 2% higher on the month.