Global equity futures/markets on both sides of the Atlantic and Pacific rose on Tuesday, led by Germany’s Dax, as Russia could allow food/grains and fuel/gas to be shipped to Europe. European stocks jumped, led by German industrials, after a report that Russian gas flows via the Nord Stream 1 pipeline will resume on schedule on Thursday (July 21) after the completion of scheduled maintenance work. The pipeline is now expected to resume operations on time, but at less than its capacity of about 160 mcmpd, but Gazprom will return to pre-July 11 levels. The market and also the EU Commission expected some delaying tactics from Putin to teach the unfriendly European/EU nations some lessons to force Russia to invade Ukraine and subsequent economic sanctions by the West. But Russia also needs free cash flow to continue the war in Ukraine, which now seems deadlocked.
Meanwhile, another report suggests that Russia and Ukraine are close to an agreement in principle to end the Black Sea blockade of grain exports. Despite progress in the talks, the parties, including UN negotiators, are at odds on how to ensure the security of ports and ships along the export route. Moscow and Kyiv have reportedly agreed to monitor vessels en route to and from ports including Odessa at two surveillance sites – one in Istanbul and one in the Black Sea – where ships are inspected.
Elsewhere, Russian President Putin said Tuesday at a meeting with his Turkish counterpart Erdogan that not all difficulties in exporting Ukrainian grain have been resolved. Nonetheless, Putin also insisted that despite certain remaining issues, it is already good that there is movement, adding that he is grateful to Turkey for mediating the negotiations and making it possible to reach this stage.
Meanwhile, Russia said it would be tougher on new Ukraine talks (if any) going forward. A member of Russia’s negotiating team, Slutsky, said on Tuesday that Russia intends to present tougher terms for an agreement with the Ukrainian side if negotiations between the two countries resume, and that the Kremlin will demand more serious measures on both demilitarization and denazification. At the same time, Kremlin spokesman Peskov noted that Moscow is ready to make a full contribution to Ukraine’s grain exports, while reiterating that Russia is not to blame for the food crisis.
There was another report that the EU could free up (make exceptions) Russian bank funds to boost food trade and fertilizers. The EU wants to make it absolutely clear that nothing about the sanctions will slow down the flow of grain from Russia or Ukraine and cause a European or even global food crisis.
Overall, risk trade sentiment has been further boosted by hopes for more Chinese stimulus as China’s Premier Li has indicated China will maintain consistent and focused macroeconomic policies, while China and the EU made good progress on trade talks and bilateral relations overall. The market also expects backdoor QE from the ECB on Thursday, even after it hiked its reverse repo rate to 0% from -0.50%. On Tuesday, final data from EUROSTAT showed that euro-zone annual (y/y) core CPI slipped to +3.7% in June from +3.8% in May, in line with flash estimate core inflation is almost half as high as in the US (core CPI up +6%).
Wall Street futures also jumped on the gains and Bullard boost
Wall Street futures also rose on Tuesday on gains and the Bullard boost. Influential Fed policymaker Bullard pointed out that the ominous inversion of the yield curve may not be a signal of a full recession but may be due to higher inflation. Bullard said the yield curve was skewed by the inflation spike and may not be a recession signal. St. Louis Fed President Bullard said in an event that this time may be different when it comes to the current yield curve inversion. Bullard emphasized that while yield curve inversions tend to indicate recessions, they are likely to be driven by inflation or rather than stagflation, which is a less threatening factor than a full-blown recession.
Wall Street was also buoyed by bullish testimony from banks and financial firms led by Truist Financial and Citizens Financial Group. Halliburton was also up more than 1% after posting more than 40% profit growth in the second quarter on the back of high oil prices. Johnson & Johnson’s results beat estimates, but the company lowered its guidance given the higher USD. IBM also fell after it cut its cash flow forecast despite reporting results that beat analysts’ earnings and revenue estimates. Meanwhile, Twitter jumped to the news that his lawsuit against Musk over his acquisition flip-flops will go to trial in October.
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