By Geoffrey Smith
Investing.com -- Markets rally and risk premiums fade as Russia announces that at least some of its troops are returning to base after drills on the Ukrainian border. Stocks are set to open sharply higher, unless the release of U.S. publishes producer price inflation data for January upsets them. The mining industry continues to churn out cash - so much so that Beijing is moving to tamp down iron ore prices. Airbnb and Marriott report earnings, and the American Petroleum Institute puts out its weekly U.S. inventory report. Here's what you need to know in financial markets on Tuesday, 15th February.
1. Markets rally on Russian pull-back
European stocks and U.S. futures rallied along with high-yielding currencies, after Russia’s Defense Ministry said that some of the 100,000+ troops involved in exercises on the border with Ukraine would return to their bases.
The comments were accompanied by video purportedly showing tank formations and heavy equipment moving away from their previous positions on the Ukrainian border. They followed a carefully orchestrated televised meeting between President Vladimir Putin and his Foreign Minister Sergey Lavrov on Monday, at which the two agreed to a continuation of diplomatic engagement.
Elsewhere, however, Russia published a draft of a new law that would recognize the breakaway republics in eastern Ukraine that were set up after Russia invaded in 2014. That would be a natural prelude to incorporating them into the Russian Federation, as it did with Crimea at the time.
2. PPI to test market's nerve
With the threat of war off the table, attention can return to the more prosaic but still concerning issue of inflation. The U.S. will publish its producer price index for January at 8:30 AM ET (1330 GMT), with expectations that the pace of price increases picked up again to 0.5% from 0.3% in December.
December’s print had been the weakest in over a year, prompting hopes that the sequence of strong monthly price increases might be coming to an end. Sustained high energy prices, along with a string of announcements in recent weeks by companies saying they intend to pass on price increases in the coming months, may yet frustrate those hopes.
The annual PPI, a more backward-looking measure, is expected to slow to 9.1% from 9.7% last month. Separately, the New York Empire State Manufacturing index for February - due for release at the same time – is expected to bounce back from January’s Covid-hit low.
3. Stocks set to open sharply higher
U.S. stock markets are set to open sharply higher later in relief at the news out of Russia, but will remain sensitive to the ongoing stream of corporate earnings.
By 6:15 AM ET, Dow Jones futures were up 368 points, or 1.1%, whle S&P 500 futures were up 0.5% and NASDAQ 100 futures were up 1.9%.
It’s a busy day for earnings, with Marriott, Ecolab (NYSE:ECL) and Iqvia all due to report early, alongside Fidelity National Info (NYSE:FIS). The more exciting releases, arguably, come after the close, with Airbnb, Devon Energy (NYSE:DVN), CF Industries (NYSE:CF) and Wynn Resorts (NASDAQ:WYNN) all due to give their take on themes from high oil prices to the recovery in the travel and entertainment industries.
Also in focus will be Intel (NASDAQ:INTC), reported to be chasing Israel-based chipmaker Tower as a consolation prize after missing out on GlobalFoundries.
4. China’s zig-zag policy hits iron ore; miners churn out cash
There were already some interesting reports overnight from the mining sector, with BHP and Glencore (OTC:GLNCY) both churning out cash at near-record rates. BHP (NYSE:BHP) said it will pay out a record $7.6 billion in dividends for the first half of its fiscal year, while Glencore announced dividends and buybacks totaling $4 billion.
Glencore stock rose 1.9% after the mining and commodity trading giant also said it will set aside $1.5 billion to cover litigation costs from a multi-jurisdiction investigation into suspected bribery, drawing something of a line under a long-running problem for the stock. It's also selling a long-held stake in Russian oil producer Russneft.
However, commodity markets eased along with fears of supply disruption from Russia, while Iron ore already tumbled through an important support level after China’s government warned against ‘speculation’ and ‘hoarding’. Iron ore has rallied strongly in recent months since China lifted pollution-related restrictions on steel output and also loosened monetary policy to help its struggling real estate sector.
5. Oil slumps as war fears recede
Crude oil prices fell by nearly $3 a barrel as the geopolitical risk premium that had accumulated over the last week largely evaporated.
By 6:30 AM ET, U.S. crude futures were down 3.0% at $92.61 a barrel, while Brent crude was down 2.8% at $93.81 a barrel.
The slightly more relaxed new state of affairs will allow the market to focus on U.S. supply data when the American Petroleum Institute publishes its weekly inventory report at 4:30 PM ET. Analysts expect a drop of some 1.8 million barrels from last week.