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Biden-Xi Talks, Russia Debt Payment, GameStop Loss


© Reuters.

Geoffrey Smith — U.S. president Joe Biden warns China’s Xi Jinping about the U.S.’s retaliation against it if it supports Russia’s invasion in Ukraine. Xi indicated a subtle change in China’s Covid-19 strategy to ease the economic stress. Russia does not default, at least temporarily. However, oil prices rise on the rumours that Russia intends to intensify its war. GameStop’s shares fall after the unexpected holiday quarter loss. What you need to know about Friday 18th March in the financial markets

1. Biden – Xi / China loosens Shenzhen restrictions

U.S. President Joe Biden will talk with his Chinese counterpart Xi Jinping, and will warn him that China will face “costs” if its verbal support of Russia over Ukraine morphs into more substantial help, according to Secretary of State Anthony Blinken.

Reports indicate that the U.S. wants to prevent China from violating Western sanctions and deter China sending military aid it claims it has requested. Russia claims it did not ask for assistance.

China – like India – abstained from the UN motion two weeks ago condemning Russia’s invasion, and official media have largely followed the Russian line in blaming U.S.-led expansion of NATO for triggering the conflict.

2. Russia avoids default for now

It is possible that the sanctions against Russia are not as severe as they seem. There are reports that Russia is using its central bank reserves to service international debt payments. These reserve were meant to be frozen as part of the sanctions announced just two weeks ago.

Newswire reported that bondsholders began receiving payments for interest amounts totaling $117 million. It was a way to avoid a shock-wave default in the emerging market debt space.

Bloomberg stated that many Russian firms, like Norilsk Nickel or Severstal, also paid their foreign debt obligations. Russia’s central bank will hold a regular policy meeting later, and Governor Elvira Nabiullina, who was earlier re-nominated for another term by President Vladimir Putin, is likely to be asked about both this week’s payments and future ones.

3. Stocks set to open lower; Boeing-Delta deal in focus

After two days of strong gains, the U.S. stock exchanges will open slightly lower than usual but remain in the green for this week.

At 6:15 AM ET (1115 GMT), the indices were 0.5% down and down 0.6% respectively. All three indices rose more than 1 percent on Thursday after bigger gains after Wednesday’s Fed decision.

Boeing (NYSE ) will be in the spotlight later. Reuters reports that Boeing is in advanced discussions with Delta Air Lines NYSE, over a 100-unit order for its 737 MAX 10 aircraft. FedEx (NYSE:) will be in the spotlight after its earnings spoke of increasing cost pressures, while GameStop’s turnaround again looks in doubt after it posted a surprise loss during the holiday quarter.

4. Xi signalizes a shift in Covid policies 

Chinese President signalled a shift in the country’s ‘zero-tolerance’ policy to Covid, bolstering hopes that the country will come to terms with a virus that has become too hard to suppress entirely.

China will “strive to achieve the maximum prevention and control effect at the least cost and minimize the impact of the epidemic on economic and social development,” Bloomberg reported Xi as telling a Politburo standing committee meeting on Thursday.  

Although not as severe than those in 2020’s lockdowns, the two week-long closures of factories in Jilin (Shenzhen) and Jilin have caused widespread disruptions.  Local authorities announced on Thursday that Shenzhen is poised to ease its restrictions within the next few days. However, they did not give a precise timeline. 

Hong Kong continues to experience one of the worst death rates in the world. This is due to a combination low vaccination rates with high populations.

5. Ukraine fears escalate as oil moves higher

Fears of a further escalated conflict in Ukraine led to crude oil prices moving higher on Friday. U.S. officials warned Russia that it may have chemical weapons in mind after suffering numerous battlefield setbacks. This would increase pressure on President Volodymyr Zilensky to agree to its demands.

Futures rose 1.3% to $104.35 per barrel by 6:30 AM ET. They were 1.3% higher at $107.97 per barrel at the same time.

But, the fear that Western sanctions will cause a stoppage in Russian oil export seems to be ill-founded. According to Kpler data, the Financial Times reported that India’s imports of Russian oil have quadrupled to 360,000 barrels per day.

Baker Hughes’ rig count and the CFTC’s positioning data round off the week later.