After a jerky, stop and go session that saw several sharp moves in both directions only to reverse into a relatively narrow trend, S&P futures were near session highs, up 0.3% or 14 points to 4,526 around the time US traders got to their desks as investors evaluated economic risks from Federal Reserve monetary-policy tightening and Russia’s war in Ukraine. Sentiment was boosted by WTI crude futures sliding 1.6% after the US and EU announced an agreement to wean European countries off Russian natural-gas supplies. . Asia stocks were mixed, with losses led by Hang Seng which closed down 2.5%, while Europe's Stoxx Europe 600 index rose, led by the tech and real-estate sectors. President Joe Biden will travel to Poland for a visit focused on refugees as his European trip continues. The dollar dropped, bitcoin jumped near $45,000 while Treasuries were flat, remaining on course for one of their worst quarterly routs since at least the early 1970s.

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“In the near term, we believe that outcomes for markets will focus primarily on the question of when we will reach -- or if we have already reached -- peak sanctions and oil prices,” said UBS Wealth Management CIO Mark Haefele.

Major U.S. technology and internet stocks are slightly higher in premarket trading on Friday, suggesting the group will close out a second straight week with solid gains.  Cannabis shares soared in premarket trading after a House panel said that it would consider a bill to decriminalize marijuana. Here are all the notable premarket movers:

• Cannabis stocks surge in U.S. premarket trading after a House panel said that it would consider a bill to decriminalize marijuana. Tilray (TLRY)  +19% premarket, Sundial (SNDL) +23%.
• Shares in Chinese ADRs dropped in U.S. premarket trading, mirroring losses for their Hong Kong-listed counterparts, as peer Meituan dropped 8.6% ahead of its results. Alibaba (BABA) -4.8%, JD.com (JD) -4.7%.
• Bed Bath & Beyond Inc. (BBBY) jumped in premarket as activist investor Ryan Cohen is nearing a settlement at Bed Bath & Beyond Inc. that would see three new directors appointed to the retailer’s board, according to people familiar with the matter.
• MEI Pharma (MEIP) shares drop 45% in U.S. premarket after the company and Kyowa Kirin said the FDA discouraged an accelerated approval filing for zandelisib based on Phase 2 Tidal study data.
• Honest Co. (HNST) falls 21% in U.S. premarket trading after earnings missed analysts’ estimates. Jefferies analysts downgrade the stock to hold, saying they’re disappointed by the personal-care company’s growth and consider its promise and potential to be in conflict with its performance.
• CuriosityStream (CURI) tumbled 13% in extended trading after the streaming platform focused on factual programming gave a revenue forecast for the first half of the year that trailed analysts’ projections.
• Maxeon Solar (MAXN) shares fell 8% in extended trading on Thursday, after the maker of renewable energy equipment reported fourth-quarter revenue that was slightly below expectations. It also gave a first- quarter revenue forecast that is below the average analyst estimate.

Investors continue to grapple with the ramifications of Russia’s invasion and isolation, including elevated raw-material costs that have stoked expectationsof higher inflation and more aggressive Fed interest-rate hikes. Key parts of the U.S. Treasury yield curve continue to flatten or are inverted. That’s stirring debate as to whether the bond market is flagging a steep economic slowdown or even a recession ahead.

Meanwhile, the Biden administration is increasingly worried that Russian President Vladimir Putin may lash out dangerously, pressured by the struggles of his military campaign and far-reaching sanctions. The U.S. and its allies warned Putin against using biological, chemical or nuclear weapons.

The Fed’s steps to contain inflation are “what ultimately will drive a more aggressive inversion of the curve, which we think is coming quite quickly,” Gene Tannuzzo, global head of fixed income at Columbia Threadneedle Investments, said on Bloomberg Television. That doesn’t necessarily signal a recession, he added, since “this is a very different cycle and the first one in over 30 years where the Fed is playing catch-up to inflation.”

On the strategy front, Bank of America Corp.’s Bull & Bear Indicator is flashing green for the first time since the onset of the pandemic in March 2020, potentially signaling gains for global equities in the weeks ahead.  U.S. data on Friday include pending home sales and Michigan sentiment, while no major earnings release is scheduled.

In Europe, the Stoxx 600 index rose, led by the tech and real-estate sectors. The FTSE 100 underperformed, dropping as much as 0.3%. Banks, insurance and energy are the worst-performing sectors as crude oil retreated and the U.S. and European Union announced an agreement to wean European countries off Russian natural-gas supplies. Here are some of the biggest European movers today:

• Trelleborg shares jump as much as 26% in Stockholm after agreeing to sell the tires business on which the Swedish industrial group was founded more than a century ago.
• HomeServe shares rise as much as 16%, extending yesterday’s gains, after Brookfield said one of its private infrastructure funds is in the early stages of considering a possible offer for the home emergency and repair services provider. Analysts think the M&A interest is not surprising given HomeServe’s low valuation and attractiveness.
• Adyen shares rise as much as 3.9% after Morgan Stanley recommends SAP and Sage as two safe havens to own amid market uncertainty, along with Adyen, Capgemini and Trustpilot as picks for when risk appetite returns.
• Hibernia REIT shares rise as much as 38% after a unit of Brookfield Asset Management agreed to buy the real estate company for EU1.09b in cash.
• Antofagasta shares drop as much as 4.7% after UBS cut the recommendation to sell from neutral as possible higher taxation in Chile is no longer discounted and copper prices aren’t sustainable.
• Husqvarna shares fall as much as 8.8% after the firm said it can’t keep up with demand for its products because Russia’s invasion in Ukraine has exacerbated the global shortage of components and prolonged lead times.
• Rational shares fall as much as 9.4% as some analysts cut price targets following Thursday’s earnings report. Separately, RBC analysts said in a note they are concerned about the cost outlook after Rational reported “fine” fourth-quarter earnings.

Russian equities fell during the second day of limited trading after a record long shutdown of the country’s stock market.

Earlier in the session, Asian stocks fell, paring a weekly gain, as traders assessed interest-rate hike prospects and delisting risks for Chinese companies in the U.S. The MSCI Asia Pacific Index declined as much as 0.7%, with Chinese internet giants Alibaba and Tencent the biggest drags. The Hang Seng Tech Index fell 5% after the U.S. said it’s “premature” to speculate about a deal to keep Chinese stocks from being kicked off American exchanges, and investors sold Meituan shares ahead of its earnings release that came in after market close. Meituan’s Revenue Slows in Latest Sign of China Crackdown Toll Stock traders also continue to grapple with hawkish signals from the Federal Reserve amid a surge in food and energy prices, worsened by supply disruptions caused by the Russia-Ukraine war.

Still, the Asian stock measure was on track for its second-straight weekly rise, up 0.8% since the March 18 close. “We expect the equity markets to eventually be range-bound,” said Ray Sharma-Ong, investment director for multi-asset solutions at abrdn. Concerns on soaring prices, softer global demand and tightening global liquidity conditions still exist while the U.S. monetary policy path is “yet to be determined,” he added. Benchmarks in Hong Kong and China led losses Friday. Japan’s Nikkei 225 rose for a ninth straight day, while the country’s central bank governor said a weaker currency is a plus for the Japanese economy

The Hang Seng Tech Index slides as much as 4.5%, with Meituan’s 8.2% loss making it one of the worst performers on the gauge; NetEase and Alibaba are other big losers, down about 5% each. “Some risk averse behavior of selling Meituan shares ahead of earnings is understandable, given most of the tech names in China reported weak results and their shares drop post result, with the exception of Xiaomi,” says Willer Chen, an analyst at Forsyth Barr Asia Ltd. “It’s a sign of panic selling as new guidelines will increase costs to the company on improved standards for food delivery workers, says Rebecca Lim, founder of AutoML Capital, referring to actions on Meituan, adding investors are looking for more “fundamentally solid” companies”

In Japan, the Nikkei 225 capped its ninth-straight day of gains, its longest win streak since September 2019, after a day of mostly directionless trading. Tokyo Electron and Shionogi were the largest contributors to a 0.1% rise in the blue-chip gauge. The broader Topix closed a few basis points lower, ending its win streak at eight days, as drugmakers gained and telecoms fell. The yen strengthened after dropping 1% Thursday to 122.35 per dollar, its lowest level since 2015

Australia's S&P/ASX 200 index rose 0.3% to close at 7,406.20, gaining for a fourth session. Miners and utilities led sector gains. Brickworks was among the top performers after it was upgraded at Ord Minnett. Telix Pharma was the biggest laggard, dropping the most in about two years. In New Zealand, the S&P/NZX 50 index rose 0.3% to 12,055.00.

In FX, the yen advanced after the Bank of Japan refrained from intervening in the government bond market as yields edged up to a level that previously spurred action. The decision triggered a yen squeeze. USD/JPY fell almost 1% to 121.18 after rallying 1% on Thursday, with a slew of ‘one-cancels-the-other’ orders being triggered and indicating leveraged clients pared risk into the weekend. The BOJ abstained from intervening despite yields rising to the highest level since January 2016, spurring speculation the central bank would offer to buy an unlimited amount of government debt at fixed rates.

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“The yen rose, perhaps as the BOJ didn’t step in, but it’s more due to buying back the currency after yen short positions have accumulated from persistent selling,” said Tohru Sasaki, head of Japan markets research at JPMorgan Chase & Co. in Tokyo

In rates, Treasuries front-end trades heavy, flattening the curve with longer-dated tenors trading rich on the day. S&P 500 futures hold small gains while WTI oil futures are falling for a second day. Front-end Treasury yields cheaper by ~2bp on the day near session highs, flattening 2s10s spread by 2.7bp as 10-year yields around 2.36% are little changed vs Thursday’s close; long-end of the curve is richer by ~2bp on the day, flattening 5s30s by as much as 3bp to 11bp, a new multiyear low. U.S. session includes February pending home sales and March final University of Michigan sentiment, and three scheduled Fed speakers. 

In commodities, WTI futures are down over 2%, natural gas drops over 4%.

Nasdaq contracts lose 0.1%. Bonds push higher, belly of the gilt curve outperforming bunds and USTs by 2-3bps. Peripheral spreads tighten slightly to core. Bloomberg dollar spot index recoups much of Asia’s weakness. CAD and GBP are the weakest performers in G-10 FX, JPY and SEK outperform. Spot gold holds steady near $1,955/oz

Bitcoin holds above 44k with little action seen across the major cryptos

Looking to the day ahead now, and data releases include UK retail sales for February, Germany’s Ifo business climate indicator for March, and the Euro Area M3 money supply for February. Over in the US, there’s also February’s pending home sales, and the final University of Michigan consumer sentiment index for March. Meanwhile from central banks, today’s Fed speakers will include Waller, Williams and Barkin.

Market Snapshot

• S&P 500 futures up 0.2% to 4,523
• STOXX Europe 600 down 0.2% to 452.14
• MXAP down 0.5% to 179.73
• MXAPJ down 0.9% to 583.79
• Nikkei up 0.1% to 28,149.84
• Topix little changed at 1,981.47
• Hang Seng Index down 2.5% to 21,404.88
• Shanghai Composite down 1.2% to 3,212.24
• Sensex down 0.8% to 57,154.90
• Australia S&P/ASX 200 up 0.3% to 7,406.25
• Kospi little changed at 2,729.98
• German 10Y yield little changed at 0.51%
• Euro up 0.2% to $1.1018
• Brent Futures down 2.0% to $116.59/bbl
• Gold spot up 0.1% to $1,958.79
• U.S. Dollar Index down 0.19% to 98.60

Top Overnight News from Bloomberg

• Bank of Japan Governor Haruhiko Kuroda said stable inflation was needed to trigger policy change at the central bank not yen weakness, in remarks that appeared aimed at cooling speculation of possible stimulus tweaks driven by the sliding currency and signs of heating prices.
• The U.S. and the European Union announced an agreement to try and boost the supply of liquefied natural gas to European countries by the end of 2022 with at least 15 billion cubic meters.
• German business confidence plunged to the lowest level since the early months of the pandemic after Russia’s invasion of Ukraine clouded the outlook and caused energy prices to soar.
• U.K. retail sales unexpectedly fell in February as an end to coronavirus restrictions saw Britons change their spending patterns as they socialized more and returned to the office.
• United Co. Rusal International PJSC, the huge aluminum producer fighting blow-back from Russia’s war in Ukraine, is getting some help from traders in China to keep its smelters running.

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded mixed with the growth and tech-led momentum from the US fading overnight. ASX 200 was led higher by strength in mining stocks but with upside capped by a lack of fresh catalysts. Nikkei 225 was indecisive as JPY nursed recent losses and the 10yr yield neared the BoJ’s cap. Hang Seng and Shanghai Comp. weakened with tech names pressured after the US downplayed speculation of a deal on Chinese stock listings and with the PBoC's liquidity boost only providing brief support.

Top Asian News

• Chinese ADRs Drop Premarket After Recent Rally as Meituan Slides
• China Bond Market Exodus Shows Signs of Gathering Pace in March
• China Crash Mystery Deepens as Evidence Suggests Midair Breakup
• China Talks for South Pacific Security Pact Alarm Australia

European bourses came under pressure in early trade before seeing a mild recovery. The region ultimately remains caged within tight ranges. Sectors are now mostly higher with no overarching theme. US equity futures are flat across the board but off earlier lows. ES June found support at 4,500

Top European News

• Brookfield Agrees to Buy Hibernia REIT for $1.2 Billion in Cash
• Russia High-Wire Act to Avoid Default Leaves Bondholders on Edge
• NortonLifeLock, Avast Deal Faces In-Depth U.K. Probe
• Germany Targets End to Russian Gas Imports by Middle of 2024

FX

• The yen launches another recovery attempt after slumping to new multi year lows as pre-weekend and fy end positioning prompts turnaround - Usd/Jpy circa 121.50 vs almost 122.50 at one stage.
• Greenback mixed otherwise as DXY rotates around 98.500 awaiting more Fed speakers.
• Franc firm post-SNB as safe haven allure returns to an extent - Usd/Chf under 0.9300 and Eur/Chf probing 1.0200.
• Euro underpinned by decent option expiries at 1.1000 strike in wake of a downbeat German Ifo survey, but Pound flagging after weak UK retail sales data and bleak GfK consumer sentiment reading
• Cable under 1.3200 and close to Fib level, Eur/Gbp over 0.8350 and above several upside chart points

Fixed Income

• Gilts and Bunds retain recovery gains after weak UK retail sales data and a bleak German Ifo survey
• US Treasuries remain sub-par and the curve slightly steeper ahead of pending home sales final UoM survey and more Fedspeak
• BTPs firm after top end of the range Italian debt sales

Commodities

• WTI and Brent May contracts lost ground in early European trade with several factors in play for the oil complex, although the front-months are trimming losses.
• EU is to work towards the aim of attaining around 50BCM of additional LNG from the US for EU members until at least 2030, according to a document.
• German Economy Minister hopes that by summer, Germany only imports 24% of gas from Russia; in talks to tap into the Floating Storage Regasification Unit (FSRU) for LNG of 27GW capacity.
• Elsewhere, spot gold manages to hold USD 1,950/oz+ status with its 21 DMA also seen at the psychological mark as the yellow metal waits for the next catalyst.
• LME nickel initially soared at the open and briefly breached USD 40k/t to the upside in the 3M contract before reversing gains in what remains a volatile market

US Event Calendar

• 10:00: Feb. Pending Home Sales (MoM), est. 1.0%, prior -5.7%; YoY, est. -2.2%, prior -9.1%;
• 10:00: March U. of Mich. Sentiment, est. 59.7, prior 59.7
  • Expectations, est. 54.4, prior 54.4
  • Current Conditions, est. 67.5, prior 67.8
  • 1 Yr Inflation, est. 5.4%, prior 5.4%; 5-10 Yr Inflation, prior 3.0%

Central Bank Speakers

• 10:00: Fed’s Williams Discusses Monetary Policy, Financial...
• 11:30: Fed’s Barkin Discusses Containing Inflation
• 12:00: Fed’s Waller Discusses Central Bank Digital Currencies

DB's Jim Reid concludes the overnight wrap

I'm supposed to be playing my first round of golf for two months tomorrow but just as my knee is slowly regaining strength so my back has folded into a state of complete agony. On Wednesday night I walked back to the tube after work and had to stop on the stairs as I was in complete agony. A sprightly old lady asked me if I was ok and needed help? I have breathtakingly painful sciatica and a second opinion last week suggested that the MRI scan showed some evidence that on one side of my back the sciatic nerve doesn't have the same room as on the other side. It therefore gets pinched every time I make a step and compounding the matter is now probably very inflamed. So after anti-inflammatories have failed, the next stops are an injection, Pilates, and then if that doesn't work an operation to shave away some of the bone. In the meantime, if anyone has any sciatica relief tips please let me know.

The relief for markets yesterday was that the data remains pretty resilient to strong across the world. In particular, the flash PMIs for March came in on the upside almost everywhere, with the Euro Area composite reading decelerating by less than expected to 54.5 (vs. 53.8 expected), whilst the US composite PMI unexpectedly rose to 58.5 (vs. 54.7 expected).

Against that backdrop, the S&P 500 (+1.43%) bounced back after the previous day’s losses, as part of a broad-based advance that saw almost 90% of the index’s constituents move higher on the day. Tech stocks led the way, with the NASDAQ (+1.93%) outperforming, and in another milestone, the VIX index of volatility fell -1.90pts to 21.7pts, its lowest closing level since February 9, a couple of days before the US warned about an imminent Russian invasion. European equities put in a more subdued performance earlier in the day though, with the STOXX 600 (-0.21%) falling back for a 2nd successive day.

The stronger data went hand-in-hand with a resumption of the bond sell-off, with yields climbing to fresh highs once again in Europe. Those on 10yr bunds (+6.4bps) and OATs (+5.5bps) both hit a post-2018 high, and 10yr BTP yields (+7.0bps) reached their highest levels in nearly a couple of years as well. In fact, as I mentioned in my chart of the day yesterday (link here), it’s recently been one of the worst times to have invested in European sovereign bonds, and if you were investing in 10yr bunds you’d need to have started before December 2013 if you were to still have a positive real return right now. Given annual inflation is currently running above 5% in Germany, it might be a while before investors are able to contemplate a sustainable positive real return again. As a reminder, if you’re not on my chart of the day and want to be then let me know.

For the US there was a similar pattern yesterday, with yields on 10yr Treasuries (+8.0bps) moving higher and closing at 2.37%, albeit not quite hitting their peak from a couple of days earlier. That comes as investors are continuing to ratchet up the implied chances of a 50bp rate hike at the next meeting in early May, with Fed funds futures now putting the odds at 77% as even dovish Fed officials join the chorus considering a +50bp hike in May. In terms of yesterday’s Fed speak, Chicago Fed President Evans, who traditionally skews dovish, said that “given the pressures that I see, I would be comfortable with just each meeting increasing by a quarter-point”, though he said he was “open-minded” about a 50bps hike if required. Despite the continued move toward a +50bp May hike, the yield curve steepened +4.2bps to 23.1bps, its highest level in a week, on the back of the strong underlying economic data.

On energy prices, Brent Crude (-2.11%) and European natural gas prices (-4.61%) fell on the announcement anticipated later today that the US is planning measures to increase exports to the EU, along with an expansion in Canadian exports announced yesterday. However, it’s not clear how impactful those exports can be in relieving supply in the near term, so we have to wait and see for the sustained impact. Elsewhere, the IOC estimated that Iran would be able to ramp up oil production to near local highs of 4mm/bbls a day, while Iranian leaders indicated that a nuclear deal could be reached in the near term, putting some more downward pressure on oil pricing.

At the NATO summit, leaders said in their statement that the Russian use of a chemical or biological weapon would “result in severe consequences”. Meanwhile, the alliance also agreed to extend Secretary-General Stoltenberg’s mandate by another year, which will have implications on the central bank side as he was due to take over as Governor of the Norges Bank later in the year. Instead, their current interim governor, Ida Wolden Bache, will take the job permanently. NATO leaders also agreed to double the number of battle groups deployed to the alliance’s eastern reaches.

At the EU summit, EU leaders joined the US in accusing Russia of war crimes in Ukraine and demanding they stop. Further, they agreed to tighten some sanctions and close the loopholes on other sanctions, while the US announced additional sanctions covering more Russian elites, lawmakers, and defense companies. As mentioned, the summit also revealed that the US is also set to announce measures to increase energy exports to the EU today, covering both oil and liquid natural gas, following reports that Canada also plans to increase their exports to nations trying to wean themselves of Russian energy. On the energy front, the EU threw water on the idea that Russia could force payments for energy exports be denominated in rubles, with Chancellor Scholz and Premier Draghi both saying that would constitute a contract default. There were also warnings of imminent food shortages from Presidents Biden and Macron as a result of the war.

The G7 also met, and echoed NATO’s warning to Russia against using biological, chemical, or nuclear weapons. President Zelensky chimed in to encourage the G7 to wrench sanctions another notch tighter as well.

On the war itself, a senior Ukrainian aid noted the situation on the ground was basically frozen, while there were reports of cautious optimism about negotiations sealing a ceasefire deal.

Overnight in Asia, equity markets are struggling to build on an overnight rally on Wall Street with almost all major bourses in negative territory. The Hang Seng (-1.62%) is leading losses across the region after Tencent Holdings reported its slowest ever quarterly revenue growth yesterday. Meanwhile, shares of JD Logistics dropped more than -12% after the company announced that it will raise H$8.53 billion ($1.09 billion) through a share sale. Chinese stocks are trading lower with the Shanghai Composite (-0.47%) and CSI (-0.94%) both down amid some US-China tension over Russia's war against Ukraine while the Kospi (+0.06%) is swinging between gains and losses. Elsewhere, the Nikkei (-0.30%) has lost ground this morning, reversing its earlier gains after stronger inflation data. Tokyo’s core CPI rose +0.8% y/y in March, the fastest pace since December 2019, versus +0.7% expected and a 0.5% gain in February. Additionally, the overall CPI reading in March advanced +1.3% from a year earlier, hitting the highest since April 2019 and against a +1.0% rise in the prior month. The stronger-than-expected data pushed yields on 10-yr JGBs to move higher to 0.24%, close to its upper limit of 0.25% where many expect the BoJ to intervene and buy unlimited amounts of bonds. So watch this space.

Looking forward, stock futures in the US are pointing towards a slightly stronger start with contracts on the S&P 500 (+0.19%), Nasdaq 100 (+0.20%) and Dow Jones (+0.19%) all in positive territory.

Back to yesterday, and while the flash PMIs set the tone on the data side, other releases pointed towards a strong performance into March. One was the weekly initial jobless claims from the US, which fell to 187k in the week through March 19 (vs. 210k expected), which is actually their lowest level since 1969. Continuing claims for the week through March 12 also fell to 1.35m (vs. 1.4m expected), marking their lowest level since 1970. On the other hand, the preliminary February reading for durable goods orders showed a larger-than-expected -2.2% contraction (vs. -0.6% expected), whilst core capital goods orders were down -0.3% (vs. +0.5% expected).

To the day ahead now, and data releases include UK retail sales for February, Germany’s Ifo business climate indicator for March, and the Euro Area M3 money supply for February. Over in the US, there’s also February’s pending home sales, and the final University of Michigan consumer sentiment index for March. Meanwhile from central banks, today’s Fed speakers will include Waller, Williams and Barkin.