Crude races higher and Apple yanks phone sales in Russia

Stocks had a rough session yesterday, unable to erase losses as tension mounted in Ukraine with Russian aggression rising.  According to the latest ISM numbers, manufacturing continues to expand in the US.

You can’t sit with us.  The sanctions are mounting.  One after another, governments around the globe are condemning Russia’s actions following up with a continuous barrage of biting economic sanctions.  The Russian banking system is all but disconnected from the outside world.  Russia’s wealthiest jetsetters have had their foreign assets frozen while their mega yachts have been unceremoniously shown the exit.  Most of the world has now shut down its sovereign airspace to Russian flights. 

The Russian currency has lost some -27% against the US Dollar since it recognized the two self-proclaimed states in Eastern Ukraine. Russia is unable to effectively stabilize its currency as a good portion of its foreign currency reserves have been frozen.  Remember, Russia must use US Dollars, Euros, Yen, or whatever to purchase Rubles in the market in order to push the Ruble value higher, and with none of those accessible, Russian central bankers can only watch the situation unfold.  The Russian bourse has been closed since last Friday, the day after it mounted a full-scale assault on its neighbor, so there is no telling what the damage might be to those stocks when the exchange is able to reopen. 

In the private space, companies from around the world are lining up to apply sanctions of their own as companies like Apple, Boeing, British Petroleum, and Exxon Mobil have cut back, halted, or began to divest interests in Russia.  Venues are cancelling performances of performing artists close to Putin while athletic leagues are pulling events from Russian venues.  Sports organizations are severing ties with Russian sponsors.  Even local liquor stores are removing Russian vodka from shelves to do their parts to voice dismay.  Russia’s other world-famous distillate, Gas and its base commodity Urals crude oil have been surprisingly left off the sanctions lists… so far, and yet most of the fuss around the fallout from sanctions is the potential for already high energy prices to go yet higher, expanding inflation.

I am penning this note as I watch West Texas Intermediate Crude trade just under $110 / barrel!  For reference, crude has not traded at these price levels since 2013, nearly a year before its epic collapse.  In the past 3 decades, crude oil has only peaked above $100/barrel 5 times prior its current excursion.  Yet, there is still no embargo on Russian export of crude.  The reason is that Russian crude exports are under a de facto embargo.  Roughly 2/3 of Russian crude exports are delivered via shipping, and shipping companies are reticent to take Russian cargo.  The ones that are willing have ratcheted shipping costs up to cover the risks.  What risks?  Well, there is an active war going on around the Black Sea.  Additionally, payments for shipping and even the crude itself will prove to be a challenge with all the global currency restrictions.  Russia has plenty of Rubles, but no one seems to want them these days.  Refiners, as a result, have been increasingly turning to alternative crude sources to avoid the risks, and experts estimate that up to 70% of Russian crude is for all intents and purposes, under embargo.  Russian crude producers have been offering record discounts to interested buyers, and not surprisingly, there are none.  Indeed, most of the developed world has decided to shoulder the cost of shunning Russia from international trade.  Those costs are coming, for sure.

WHAT’S SHAKIN’

Salesforce.com Inc. (CRM) shares are higher by +4.03% in the pre-market after it announced that it beat EPS and Revenues by +12.73% and +1.24% respectively.  The company raised Q1 Revenue guidance and provided full-year Revenue guidance that was above analysts’ estimates.  Potential average analysts target upside: +43.1%.

Ford Motor Co (F) is trading higher by +3.17% after is announced that it will reorganize its business and run its EV and combustion engine businesses separately in order to focus on growing its EV business.  Though largely expected, the news is welcome to investors who have bet on Ford’s EV future.  There was early speculation that the company would spin out its EV business altogether, however it became less likely as it was strongly opposed by the Fords family, who still controls a large share of the company.  Dividend yield: 2.4%.  Potential average analysts target upside: +31.0%.

DXC Technology Co (DXC) topped the S&P500 laggers board yesterday, losing -11.58% in yesterday’s session.  BMO lowered its price target for the company citing Russia/Ukraine risks.  The IT company has largest exposure to the Ukraine crisis as many of its employees reside there.  Shares are mostly unchanged in the pre-market.  Potential average analysts target upside: +39.6%.

YESTERDAY’S MARKETS

Stocks closed sharply lower yesterday after Russia stepped up its assault against key Ukrainian cities.  The S&P500 gave up -1.55%, the Dow Jones Industrial Average lost -1.76%, the Nasdaq Composite Index traded lower by -1.59%, the Russell 2000 fell by -1.39%, and the S&P500 ESG Index declined by -1.55%.  Bonds traded higher and 10-year Treasury Note yields were lower by -10 basis points to 1.72%,  Cryptos gained +4.53% and Bitcoin advanced by +5.39%.

NXT UP

• ADP Employment Change (Feb) us expected to show +375k additions compared to last month’s -301k loss.
• Federal Reserve Beige Book, which contains anecdotal information on conditions of the various Fed regions, will be release this afternoon at 2:00PM Wall Street time.
• The Fed:  Chairman Powell will testify before a Senate Panel today.  He is likely to discuss what is on everyone's mind these days:  the Russian invasion’s potential impact on rate hikes.
• Post market earnings: Snowflake, Okta, Veeva, Anaplan, ChargePoint, American Eagle Outfitters, Victoria’s Secret, and Splunk.