The global rally stalled on Wednesday, and U.S. index futures were flat, treading water after a quiet overnight session, ahead of today's FOMC minutes which some hope will unveil more detail on the Fed's upcoming rate hike and QT, while also weighing the risks from the Ukraine tensions against inflation and tighter monetary policy. S&P 500 futures were flat and Nasdaq futures were little changed by 7:15 a.m. in New York, trimming earlier gains after NATO Sec. Stoltenberg pushed back on claims of Russian troop withdrawals, adding he is yet to see signs of a de-escalation. Treasury yields, bitcoin, gold and the dollar were also all flat. Oil recovered after the biggest one-day loss this year as worries about potential disruptions to commodity supplies eased.
Making a mockery of the Deep State/CIA/CNN which predicted that a Russian invasion would take place today, the Russian defense ministry announced more troops were returning to their bases after maneuvers ended in Crimea, while western officials remained cautious. Fed tightening bets were trimmed as traders speculated the size of the Fed’s interest-rate hike in March and tightening plans. And while the world is mocking US intelligence agencies, traders are awaiting the latest Federal Reserve minutes later Wednesday that may shape views on how fast the Fed will raise interest rates and shrink its bond holdings in coming months.
Airbnb advanced in premarket trading as analysts hiked price targets after its revenue for the fourth quarter beat estimates, while Roblox sumpled 16% after reporting bookings for the fourth quarter that missed estimates. Daily active users came in slightly below expectations too, and analysts were disappointed by the video game maker’s monetization metrics. Here are some other notable movers:
- Upstart (UPST US) shares are up 26% in U.S. premarket, after the cloud-based artificial intelligence lending platform reported “impressive” 4Q results and FY22 outlook, according to analysts.
- Toast (TOST US) shares slump 16% in premarket trading after the restaurant software company’s projection for 2022 adjusted Ebitda loss was wider than the average analyst estimate.
- Pinduoduo (PDD US) shares are attractively valued following decline since 3Q21 results and on global tech selloff, Citi writes in note upgrading to buy from neutral. Stock up 2.4% in premarket trading.
- Old National Bancorp shares dropped 1.7% postmarket despite an announcement from S&P Dow Jones Indices it will move to replace Urban Edge Properties in the S&P MidCap 400.
- Navitas Semiconductor (NVTS US) shares fall 6.1% in extended trading after the company gave a full-year revenue forecast that trailed analysts’ projections.
- Mirati Therapeutics (MRTX US) slipped 8.7% in postmarket trading after its application for approval of its lung cancer drug targeting a mutation known as KRAS was assigned a Dec. 14 date by U.S. regulators.
- Pacific Biosciences of California (PACB US) shares slumped 12% in postmarket trading after the company reported a net loss that was more than analysts estimated.
- Akamai Technologies (AKAM US) shares dropped 5% postmarket after the tech company reported adjusted earnings per share for the fourth quarter that beat the average analyst estimate.
The standoff between Russia and the West over Ukraine is continuing to vex markets as investors struggle to assess Moscow’s claim that some forces are being withdrawn. They’re also considering escalating costs and the likelihood of tightening monetary policy in places like the U.S. and the U.K., where inflation posted a surprise jump. While Russian stocks rose to the highest level in a week, volatility gauges for the S&P 500 and the Treasury market are sitting significantly above 12-month averages, a sign that traders remain on edge.
“Geopolitical tensions should not mask the fact that rates are in an uptrend,” ING Bank NV analysts led by Padhraic Garvey wrote in a note to investors. “This is a global trend if there ever was one.”
In Europe, the Stoxx 600 Index fluctuated after earlier extending Tuesday’s gains. The Euro Stoxx 600 was fractionally higher with the FTSE 100 lags dropping 0.2%. Sectors in Europe are a mixed bag with Basic Resources and Energy top of the leaderboard amid strength in underlying commodity prices, while personal care, telecoms and banks are the worst performing sectors. Here are some of the biggest European movers today:
- Air Liquide gains as much as 4% in Paris trading, the most intraday since Dec. 7, after the French company reported what Morgan Stanley describes as a strong set of results, with pricing and underlying margins both ahead of expectations.
- La Francaise des Jeux rises as much as 7.7%, the biggest one-day gain in a year, after the French lottery firm reported FY21 results that beat expectations and FY22 guidance that was also ahead of expectations, according to Citi (neutral).
- Umicore climbs as much as 8.6%, the most intraday since April, after net debt fell by more than analysts estimated.
- Swedish Match rises as much as 7%, the stock’s best day since December, after results. Handelsbanken notes strong volume for co.’s Zyn brand in the U.S. driving Ebit in the Smokefree product segment.
- Ericsson falls as much as 12% after the company’s CEO told Dagens Industri that the firm may have made payments to the ISIS terror organization in order to gain access to certain transport routes in Iraq.
- Vitrolife falls as much as 14% after the Swedish fertility company’s 4Q Ebitda missed estimates. ABG Sundal Collier notes organic growth also came in below expectations, but says acquisitions lessened the impact.
- Delivery Hero slides as much as 8.5% after Deutsche Bank analyst Silvia Cuneo downgraded the stock to hold from buy.
U.K. inflation unexpectedly accelerated for a fourth straight month in January, a surprise that highlights a brutal cost-of-living crisis that’s only set to worsen this year. Separately, the European Union won the right to use tough new powers to deny Poland and Hungary billions of euros of EU funding for allegedly failing to abide by the bloc’s democratic standards.
Earlier in the session, Asian stocks rallied, set to snap a three-day decline, as investors bet that geopolitical tensions over Ukraine may be easing. The MSCI Asia Pacific Index jumped as much as 1.6%, after falling more than 2% over the past three sessions. Information-technology firms provided the most support after Russia announced a partial pullback of some troops near Ukraine, easing concerns over the supply of key chip materials such as palladium. Chip supply chain companies outperformed after the Philadelphia Stock Exchange Semiconductor Index surged 5.5%, the most since March 2021. Benchmark gauges in Japan, South Korea and Taiwan were among the region’s best performers, with the latter two benefiting from tech gains. “The market is going up one day and falling the next depending on how things are unfolding with regards to Ukraine,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management in Tokyo. “The overall trend is for stocks to recover, but market anxiety will continue to linger.” Biden Says Threat to Ukraine Remains, Awaits Russia Pullback Worries over potential U.S. rate hikes and the situation in Ukraine have kept Asian stocks from achieving a sustainable rally. The regional benchmark is down by about 1.5% so far this year after dropping 3.4% in 2021.
Japanese equities rose for the first time in three sessions, joining a global rally amid speculation over easing Russia-Ukraine tensions. Electronics and chemical makers were the biggest boosts to the Topix, which rose 1.7%. Tokyo Electron and Fast Retailing were the largest contributors to a 2.2% rise in the Nikkei 225, its biggest gain since Nov. 1. Travel-related stocks rose after reports that Japan will waive quarantine for some travellers.
“The Nikkei 225 is basically in a recovery trend,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management. The easing of border controls “is a plus for reopening plays. But the local market now is dominated by overseas factors than domestic ones, like the Ukraine situation, the pace of U.S. rate hikes and their monetary-policy direction.”
Australian stocks also advanced, with the S&P/ASX 200 index rising 1.1% to close at 7,284.90 as most sectors gained. CSL contributed the most to the gauge’s climb after the biotechnology company effectively raised its guidance and posted first-half results that beat expectations. Liontown was the top performer after entering a lithium supply pact with Tesla. Netwealth was the biggest laggard after its 1H profit fell. In New Zealand, the S&P/NZX 50 index rose 1.5% to 12,121.89.
India’s benchmark equities index fell, after swinging between gains and losses several times through the day, as traders took a pause to evaluate the prospect of diminishing tension over Ukraine and easing crude oil prices. The S&P BSE Sensex slipped 0.3% to 57,996.68 in Mumbai, after moving between gains of as much as 0.7% and a loses of 0.6% in the session. The NSE Nifty 50 Index fell 0.2%. ICICI Bank Ltd. contributed the most to the Sensex decline, falling 1.6%. Out of the 30 shares in the Sensex index, 20 fell. The key indexes had climbed the most in over an year on Tuesday, erasing a similar magnitude of loss a day before. Prices of Brent crude, a major import for India, rose 0.9%, after plunging 3.3% in the previous session. Western officials remained cautious saying they have yet to verify Moscow’s claims that it started to pull back tens of thousands of soldiers massed along Ukraine’s borders. “Markets are currently dancing to the global tunes and we don’t see this changing anytime soon,” said Ajit Mishra, vice president research at Religare Broking Ltd. “The US Fed meeting minutes and lingering tension over the Russia-Ukraine crisis will remain on the radar.”
In rates, Treasuries were slightly richer across the curve into early U.S. session, with futures having erased declines. Short-dated gilts outperformed following the latest red-hot U.K. January CPI data. Yields richer by 1bp-2bp in parallel shift across the curve, 10- year 2.03%; U.K. 2- and 5-year yields are richer by 6.5bp and 5bp on the day, outperforming core euro-zone. Focal points of U.S. session include 20-year new-issue bond auction and release of minutes of FOMC’s Jan. 26 meeting, which conveyed the potential for a faster pace of rate hikes if needed to curb inflation. Gilts curve bull steepen with 2s10s widening 4.5bps. Bunds little changed. Peripheral spreads are mixed to Germany; Italy widens, Spain tightens and Portugal tightens.
In Fx,the dollar traded below 96 low as markets continue to weigh up conciliation from Russia against caution from the West and scepticism from NATO. Loonie bounces pre-Canadian CPI and Sterling bid post-firmer than forecast UK inflation data with Cable hovering above the 50% Fib of its 2022 range so far at 1.3554, while EUR/GBP respects resistance circa 0.8400. Aussie and Euro inch closer to round numbers at 0.7200 and 1.1400 respective after breaching upside chart levels, but Eur/Usd faces decent 1.5 bn or so option expiry interest between 1.1395-1.1405. Safe haven Yen and Franc lag, but latter yet to close below a key technical pivot at 115.67.
In commodities, oil recovered after the biggest one-day loss this year as worries about potential disruptions to commodity supplies eased. WTI trades within Tuesday’s range, adding 1% to trade near $93. Most base metals trade in the green; LME zinc rises 1%, outperforming peers. Spot gold is little changed at $1,855/oz. Bitcoin is modestly softer on the session and continues to consolidate around Tuesday's parameters.
Looking at the day ahead, data releases include the UK and Canada’s CPI for January, whilst from the US there’s January’s retail sales, industrial production, capacity utilisation, and February’s NAHB housing market index. From central banks, we’ll get the minutes of the FOMC’s January meeting, and Minneapolis Fed President Kashkari is speaking. Finally, earnings releases include Nvidia, Cisco Systems, Applied Materials and AIG.
- S&P 500 futures dropped to 4,452.00
- MXAP up 1.5% to 190.11
- MXAPJ up 1.3% to 625.51
- Nikkei up 2.2% to 27,460.40
- Topix up 1.7% to 1,946.63
- Hang Seng Index up 1.5% to 24,718.90
- Shanghai Composite up 0.6% to 3,465.83
- Sensex little changed at 58,094.82
- Australia S&P/ASX 200 up 1.1% to 7,284.93
- Kospi up 2.0% to 2,729.68
- STOXX Europe 600 up 0.3% to 469.11
- German 10Y yield little changed at 0.32%
- Euro up 0.2% to $1.1384
- Brent Futures up 1.0% to $94.17/bbl
- Brent Futures up 1.0% to $94.17/bbl
- Gold spot up 0.2% to $1,856.88
- U.S. Dollar Index down 0.20% to 95.80
Top Overnight News from Bloomberg
- Stocks climbed, while bonds fell with the dollar as speculation that geopolitical tensions could be easing overshadowed data showing inflation is still running hot.
- U.K. inflation unexpectedly accelerated for a fourth straight month in January, a surprise that highlights a cost-of-living crisis that’s only set to worsen this year.
- The Russian defense ministry on Wednesday announced more troops were returning to their bases after maneuvers ended in Crimea, which Russia annexed in 2014. But western officials said they remain cautious.
A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded higher following the optimism seen in European and US peers yesterday. ASX 200 was kept afloat by its Healthcare sector, although gains were capped by losses in Energy and Metal names. Nikkei 225 and KOSPI both benefitted from a strong tech sector, whilst the former also benefits from favourable Yen dynamics. Hang Seng and Shanghai Comp. conformed to the regional gains, although the latter lacks momentum after a daily PBoC drain and following yesterday’s maintained MLF rate – which likely means the February LPRs will also be held.
Top Asian News
- Kuroda: BOJ Will Use Fixed-Rate Bond Operation Again If Needed
- China’s Xi Orders Hong Kong to Tackle Covid Surge by All Means
- PBOC Governor Vows More Support for ‘Weak Links’ in Economy
- Shimao Seeks Repayment Extension on $947 Million Trust Products
European bourses (Eurostoxx 50 unch.) trimmed early gains as NATO Sec. Gen. Stoltenberg pushed back on claims of Russian troop withdrawals, adding he is yet to see signs of a de-escalation. US futures (ES -0.1%) sit in minor negative territory amid the pullback in risk sentiment; traders await US retail sales and FOMC minutes. Sectors in Europe are a mixed bag with Basic Resources and Energy top of the leaderboard amid strength in underlying commodity prices
Top European News
- Europe Pushes Easing; Xi’s Order for Hong Kong: Virus Update
- U.K. Inflation Overshoot Adds to Brutal Cost of Living Squeeze
- Europe Heads Back to Normal as Germany Joins End of Covid Curbs
- Deutsche Bahn Said to Prepare $23 Billion Schenker Sale
In FX, DXY down to new sub-96.00 WTD low as markets continue to weigh up conciliation from Russia against caution from the West and scepticism from NATO. Loonie bounces pre-Canadian CPI and Sterling bid post-firmer than forecast UK inflation data with Cable hovering above the 50% Fib of its 2022 range so far at 1.3554, while EUR/GBP respects resistance circa 0.8400. Aussie and Euro inch closer to round numbers at 0.7200 and 1.1400 respective after breaching upside chart levels, but Eur/Usd faces decent 1.5 bn or so option expiry interest between 1.1395-1.1405. Safe haven Yen and Franc lag, but latter yet to close below a key technical pivot at 115.67
In commodities, WTI and Brent remain firmer on the session but reside within overnight ranges, in European hours the benchmarks have been moving on geopolitical updates from Russia & NATO. Currently, Brent is holding above the USD 94.00/bbl mark but remains shy of the USD 94.60/bbl session high. US Private Inventory Data (bbls): Crude -1.1mln (exp. -1.6mln), Cushing -2.4mln, Gasoline -0.9mln (exp. +0. 6mln), Distillates -0.5mln (exp. -1.5mln). Iraqi Kurdistan Regional Government PM says it has discussed possible gas and renewable energy investment with the Qatar Energy Minister, via Reuters. Spot gold/silver are little changed overall as the yellow metal holds onto the USD 1850/oz mark, awaiting fresh drivers and looking to US data/Fed speak & minutes.
In fixed income, solid demand for 10 year German issuance helps Bunds consolidate recovery gains off new cycle low. Gilts also off worst levels as NATO raises more doubt about Russia recalling troops from the border with Ukraine. US Treasuries lag ahead of busy agenda including primary data, 20 year note supply and January's FOMC minutes
- PBOC Governor Yi Gang expects China's economic growth to return to potential this year; China will keep accommodative monetary policy flexible, according to Reuters.
- Chinese press suggests the PBoC LPR will be maintained in February.
- BoJ Governor Kuroda says fixed-rate bond purchase offer was made amid the "unusual" market situation, via Reuters; if situation become unusual again could use such tools.
- Russia is preparing to withdraw additional military columns from Crimea following military drills, via Reuters citing Ifx
- NATO Secretary General Stoltenberg says they are yet to see any Russian de-escalation, Russia is continuing with its military buildup. Continue to convey message that we are prepared to talk. Messages on diplomacy from Moscow, Russia are proving some grounds for cautious optimism. Russia has always moved forces back and forth, movement is not confirmation of a withdrawal.
- Russia does not plan to move its embassy in Ukraine from Kiev, a source told Sputnik.
- Russia's EU representative says he can confirm that there will be no invasion today, no escalation, neither next week nor next month.
- Russia will not partake in the special-OSCE meeting regarding Belarus military exercises, via Reuters citing Tass.
- NATO frigates tried to conduct electronic reconnaissance of Russian ships in the Mediterranean, according to Sputnik
- Ukraine Defence Ministry says the unprecedented DDoS attack is still ongoing, attackers succeeded in locating code vulnerabilities
DB's Jim Reid concludes the overnight wrap
Geopolitics remained the dominant theme in markets yesterday, with risk assets recovering thanks to signs of easing tensions between Russia and the West over Ukraine. In fact the first market reaction of the day came not long after we went to press, when the news came through that Russia would be returning thousands of troops to bases following drills, raising hopes that a diplomatic solution could be found and boosting investor sentiment relative to the more downbeat tone on Monday.
The more positive newsflow helped numerous assets, and the decline in energy prices demonstrated how markets were taking the news positively. Brent crude oil prices (-3.32%) had their biggest daily decline of 2022 so far, whilst European natural gas futures were down -12.20% to €70.92/MWh, marking their lowest closing level since New Year’s Eve. Gold (-0.94%) also took a sharp turn lower as the news dampened demand for safer haven assets, and equities got the day off to a strong start from the get-go.
Even with that partial bounceback however, the situation remains volatile. In response to the news of a Russian withdrawal, NATO Secretary General Stoltenberg commented that this was “reason for cautious optimism”, but said “So far, we haven’t seen any sign of de-escalation on the ground”. President Biden struck a similar tone in public comments just before the US close yesterday, where he noted an attack was very much still a possibility and urged US citizens to leave the country, and also said that the US had not verified Russia’s claims about troop withdrawals. He reaffirmed sanctions would be severe in response to any invasion. Furthermore, Russian President Putin is calling for security guarantees that are still being rejected, including a commitment that Ukraine will not join NATO, which has been a non-starter for NATO, so many of the causes behind recent tensions are still in place. Nevertheless, sentiment incrementally improved, and the caveats from western leaders to the earlier news of Russian withdrawals weren’t enough to dampen risk appetite.
The relief in risk assets was evident across the board, with the S&P 500 (+1.58%) bouncing back alongside Europe’s STOXX 600 (+1.43%). Both saw a broad-based advance, with energy stocks one of the few underperformers in both jurisdictions due to the sharp decline in energy prices as mentioned at the top. Otherwise there was a very strong performance, and the small-cap Russell 2000 (+2.76%) posted even larger gains, as did the FANG+ index (+3.23%) of megacap tech stocks.
For those after further detail on what recent tensions mean for different economies, the European economics team published a note last night (link here) assessing the risks to the European economy from an escalation. They look at two shock scenarios: one that sees a 50% increase in gas prices and a 20% increase in oil prices, and a more severe one that has a 100% increase in gas prices and a 50% increase in oil prices. Both would see a notable rise in inflation relative to the non-conflict baseline, alongside a reduction in growth. In turn, this could see the ECB put its step-by-step exit on hold initially and maintain APP net asset purchases at €40bn per month, as well as a rise in deficits as the economy deteriorates and governments seek to shield their economies from the growing cost-of living crisis. There’s plenty of detail on those, as well as the ways in which a conflict would affect the European economy through numerous channels.
Whilst geopolitical events were the main driver in markets yesterday, there was another familiar theme too as we got a further upside surprise from US inflation, this time with the PPI reading for January. The monthly reading came in at +1.0% (vs. +0.5% expected), which was above every economist’s estimate on Bloomberg and the fastest monthly pace in 8 months. In turn that left the year-on-year figure at +9.7% (vs. +9.1% expected), only seeing a slight decline from the +9.8% figure in December. Elsewhere, the Empire State manufacturing survey’s prices received index reached a record high of 54.1 in February, and prices paid also held roughly steady at 76.6 (vs. 76.7 in January).
Yields on US Treasuries moved higher against that backdrop, with the 10yr yield up +5.6bps to 2.04%, which is their highest closing level since July 2019. That move was entirely driven by higher real yields, with the 10yr real yield up +8.2bps to -0.44%, and on top of that the 2s10s curve actually steepened yesterday after a run of 5 consecutive moves flatter, shifting up +5.5bps to 46.2bps. Continental Europe saw a similar move higher in yields, with those on 10yr bunds up +2.5bps to 0.30%, which is their own highest level since November 2018.
Overnight in Asia, equity markets across the region are witnessing a broad rally in line with that seen in the US and Europe. The Nikkei (+2.25%) is one of the strongest performers this morning, with the Kospi (+1.94%) and the Hang Seng (+1.18%) also moving higher, whilst the Shanghai Composite (+0.53%) and the CSI (+0.50%) have posted somewhat weaker gains. Overnight we’ve also had the latest inflation data from China which came in beneath expectations. That saw CPI fall to +0.9% in January on a year-on-year basis (vs. +1.0% expected), whilst PPI fell to +9.1% (vs. +9.5% expected). In turn, with the below-expected inflation numbers giving the PBOC more room to ease, Iron ore futures in Singapore rose +1.1% to $137.35/ton, reversing its earlier losses after declining around -11.0% in last three trading sessions. Outside of Asia, 10yr USTs are down -1.4bps to 2.029%, and equity futures are pointing to a slightly negative start in the US, with those on the S&P 500 down -0.17%.
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In other news yesterday, President Biden’s nominees for various Federal Reserve positions will have to wait to have their candidacies put to the full Senate for a confirmation vote. It came as some Republicans on the Senate Banking Committee disapproved of certain nominees. Committee Chair Senator Brown, a Democrat, said he would reschedule the votes, which also include those on Fed Chair Powell’s nomination for a second term, Governor Brainard’s nomination as vice chair, and three additional nominees for Governor.
On the data front, the latest numbers continued to point to very tight labour markets in the UK, with vacancies hitting a record high of 1.298m in the 3 months ending January. The number of payrolled employees in January was also up by +108k, and unemployment came in at 4.1% in the three months ending December, in line with expectations. That’ll be followed by the CPI release this morning as well. Over in Germany, the ZEW survey for February came in a bit below expectations, but saw an improvement on January’s numbers. The expectations component rose to a 7-month high of 54.3 (vs. 55.0 expected), and the current situation ended a run of 4 consecutive declines to rise to -8.1 (vs. -6.5 expected).
To the day ahead now, and data releases include the UK and Canada’s CPI for January, whilst from the US there’s January’s retail sales, industrial production, capacity utilisation, and February’s NAHB housing market index. From central banks, we’ll get the minutes of the FOMC’s January meeting, and Minneapolis Fed President Kashkari is speaking. Finally, earnings releases include Nvidia, Cisco Systems, Applied Materials and AIG.