After initially trading sharply higher around the European open, US stock futures dropped to session lows as traders digested the latest developments in the Ukraine war, including a EU proposal to ban Russian coal imports, the same coal which we profiled yesterday as hitting record highs on lack of Russian supplies and where Russia accounts for nearly half of all European coal imports... it makes one wonder if Europe can't stop, won't stop until it commits energy suicide.

In any case, S&P500, Nasdaq 100, and Dow Jones futures all fell 0.3% each, with Bloomberg adding that the European Commission is also expected to propose banning most Russian trucks and ships from entering the bloc, although the EU isn't planning to sanction oil or gas for now.

Market moves are continuing to be shaped by the ramifications of the war in Ukraine and tightening monetary policy as raw-material costs stoke inflation. The Federal Reserve minutes Wednesday will guide expectations for how rapidly the U.S. central bank will increase rates and reduce its bond holdings. The Covid-19 resurgence in Europe and Asia and renewed lockdowns in China are also clouding the outlook for global growth.

In the latest step to punish Russia, the EU is planning to propose a mandatory phaseout on coal imports from Russia in a direct response to reports that Russian forces committed apparent war crimes in Ukraine. The action on coal would be added to a package of steps aimed at strengthening existing measures and correcting loopholes that was already set to be debated this week by EU ambassadors. And since fading Ukraine ceasefire hopes and more sanctions means even higher inflation (thanks to lower Russian energy exports) inflation reared its ugly head again and the 10-year Treasury yield rose for a third day to near a three-year high, with the spotlight remaining on inverted yield curves that signal a recession is coming should the Federal Reserve tighten aggressively to quell price increases.

“Between now and June we’re going to get a lot of information the market has to price in,” SocGen rates strategist Subadra Rajappa, told Bloomberg Television. “In that sort of context the bias is potentially towards higher yields and flatter curves.”

Back to stacks, and looking at premarket trading, Sphere 3D jumped 9% after it agreed to terminate its merger agreement with its crypto-currency mining peer, Gryphon Digital, while U.S.-listed shares of Teva Pharmaceutical Industries gained after Barclays upgraded its rating on the stock to overweight. Here are some other notable premarket movers:

• Twitter (TWTR) shares gained Tuesday in premarket trading for a second day after Monday’s 27% jump following Elon Musk’s investment. Jefferies analyst Brent Thill said the rally was potentially an overreaction given the unclear rationale behind the investment.
• Teva (TEVA) was 1% higher in premarket as Barclays upgraded the pharma firm’s ADRs to overweight from equal-weight.
• Lilium (LILM) gains as much as 39% in premarket after jumping 25% Monday as the electrically powered air vehicle maker said it began the next phase of its flight testing in Spain with the Phoenix 2 demonstrator aircraft.
• Xponential (XPOF) declined in postmarket trading after holdings including Snapdragon offered the stake via BofA, Jefferies.

After a glum start to the year, US stocks have rebounded in the past few weeks on optimistic signals from the Federal Reserve about the strength of the economy. Technology-heavy stocks, which tend to underperform when interest rates are high, have also shrugged off surging bond yields and signs of a looming recession.

“While risks have increased and we advise investors to add hedges to their portfolios, our base case remains that the U.S. economy can avoid a recession,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note. “Recent market volatility can be used to add exposure to industries backed by long-term structural trends, such as 5G, robotics, smart mobility, and consumer experience.”

Citigroup strategists said investor positioning in stock futures was largely unchanged last week, although net positioning flows ended increasingly negative as new shorts were incrementally added later in the week. “Overall changes in positioning were less indicative of any clear shift in direction, perhaps reflecting mixed opinions across the investor community,” strategist Chris Montagu wrote in a note. Amundi said it prefers U.S. equities over other developed markets on the back of strong nominal gross domestic product, resilient earnings and ability of many companies to pass through cost increases. 

In Europe, the Stoxx 600 slipped, weighed down by banks and carmakers as chemical and utilities stocks outperformed. Societe Generale and other French stocks dropped, underperforming the wider European market, after latest polls showed a potential tight runoff between Emmanuel Macron and Marine Le Pen (BNP -1.5% and SocGen -3.4%, Airbus -1.8%, ArcelorMittal -2.9%, Vinci -2.3%). Bond market also shows volatility, with French OAT - German Bund spread at highest since pandemic. The energy sector outperformed, with Vestas Wind Systems A/S leading gains for renewable-energy companies amid an uncertain outlook for oil and gas supplies. Here are some of the biggest European movers today:

• Vestas Wind Systems surges as much as 11% after Credit Suisse double-upgrades the shares to outperform after 6 1/2 years with an underperform rating
• Other wind-energy stocks jump too with Nordex +10% and Siemens Gamesa up 8.3%, with renewable names Orsted, EDPR, EDP outperforming in the Stoxx 600 Utilities index
• Storskogen rises as much as 13% after initially dropping as much as 8.7% following the expiry of the 180-day lock-up period after the investment company’s Oct. 6 IPO
• Sixt climbs as much as 8.2% in a third day of gains after preliminary first-quarter sales beat analyst estimates, with analysts noting favorable pricing for the car rental firm.
• Ambu rises as much as 8.8%, extending Monday’s 9% advance, after the U.S. FDA issued new and simplified sterilization guidance for a rival’s urological endoscopes.
• Aareal Bank gains as much as 4.2% as major shareholders Petrus Advisers, Teleios Capital, Vesa Equity Investment and Talomon Capital agreed to accept a tender offer.
• Moonpig climbs as much as 3.4% after the online greeting- card company increased its sales outlook for the year. Analysts called the update “solid” and “strong.”
• Moneysupermarket sinks as much as 7.4% after the price comparison firm was downgraded to equal-weight at Barclays. While the broker still likes the stock, it sees more upside elsewhere.

Earlier in the session, Asian stocks were mixed as investors assessed the impact of additional measures taken against Russia and the outlook for China’s economic growth, where financial hub Shanghai remained in lockdown. The MSCI Asia Pacific Index was up 0.1% as of 5:38 p.m. in Singapore, reversing an earlier loss of a similar magnitude. Technology shares rose, following their U.S. peers higher, while industrials and financials fell. Stocks in Australia ended higher despite a hawkish signal by the central bank, which left its cash rate unchanged. Indexes in Singapore and New Zealand also gained, while benchmarks in India and Vietnam slipped. Meanwhile, South Korea’s Kospi clung onto gains after the Bank of Korea warned that decade-high inflation will probably persist for the foreseeable future. Trading in the region was muted as markets in China and Hong Kong were shut for a holiday.

Investors will be keenly watching the reopen on Wednesday after Shanghai reported more than 13,000 daily Covid cases. Russia tensions continue to be in focus, with the U.S. Treasury halting dollar-debt payments from Russian government accounts at American financial institutions. Asian equities have had a positive start to April as investors look ahead to economic reopenings and commodity prices remain below recent highs. While the MSCI Asia gauge is up about 10% from a trough, geopolitical tensions, higher interest rates and China’s Covid-zero policy pose headwinds. “Our base case is that we have a much better second half than a first half,” said Sean Taylor, Asia Pacific chief investment officer at DWS. “This is driven by three factors: one is opening up more, better growth in China, and the third is the relativity of Asia in the second half of the year should look better than the developed markets” because economic growth will normalize, he added.

In FX, Bloomberg dollar spot index is slightly in the red. AUD/USD rallies over 1.2% after the RBA signaled a hawkish policy tack. The yen strengthened following comments from Bank of Japan Governor Haruhiko Kuroda, who said its current moves are somewhat rapid. The yen is this year’s weakest performer in the Group-of-10 currency basket.

In rates, Treasuries bear-steepened, following European bond selloff led by Italian and French markets after ECB PEPP purchases ended in March. Treasury yields cheaper by up to 7.5bp from intermediates out to long-end of the curve, steepening 2s10s spread by 2.2bp; 10-year yields around 2.47% with Italian bonds lagging by 4bp in the sector. IG dollar issuance slate includes IADB 5Y SOFR; six names priced $7.4b Monday, with $20b-$25b projected for the week. Bond yields across Europe also climbed as a report Tuesday showed input costs for French services firms accelerated to a record.

In commodities, crude oil advanced but traded off Asia’s best levels. WTI remains in the green, but back on a $103-handle. Most base metals trade well with LME nickel outperforming. Spot gold is steady near $1,930/oz. JPMorgan Chase is reviewing its business with some commodity clients after last month’s nickel short squeeze, a move that threatens to drain more liquidity out of the sector.

Bitcoin is slightly firmer, residing near the top end of a slim USD 46,188-46,889 range.

Looking the day ahead now, we get data releases include the services and composite PMIs for March from around the world, as well as the ISM services index. In addition, there’s French industrial production and the US trade balance for February. Finally we’ll hear from the Fed’s influential doves, Vice Chair in waiting Brainard and Presidents Daly and Williams, ahead of tomorrow’s FOMC minutes release.

Market Snapshot

• S&P 500 futures down 0.2% at 4,568
• STOXX Europe 600 up 0.3% to 463.51
• MXAP up 0.1% to 182.09
• MXAPJ up 0.4% to 602.59
• Nikkei up 0.2% to 27,787.98
• Topix down 0.2% to 1,949.12
• Hang Seng Index up 2.1% to 22,502.31
• Shanghai Composite up 0.9% to 3,282.72
• Sensex down 0.3% to 60,400.49
• Australia S&P/ASX 200 up 0.2% to 7,527.86
• Kospi little changed at 2,759.20
• Brent Futures up 0.7% to $108.30/bbl
• Gold spot down 0.3% to $1,927.83
• U.S. Dollar Index little changed at 98.99
• German 10Y yield little changed at 0.54%
• Euro little changed at $1.0967
• Brent Futures up 0.7% to $108.29/bbl

Top Overnight News from Bloomberg

• The U.S. Treasury has halted dollar debt payments from Russian government accounts at U.S. financial institutions as the country’s troops stand accused of committing war crimes in Ukraine
• A call between top diplomats from China and Ukraine sends a fresh signal that President Xi Jinping could soon speak with Volodymyr Zelenskiy for the first time since Russia’s invasion more than a month ago.
• Recent moves in Japan’s currency have been “somewhat rapid,” though a weak yen is still positive for the economy overall, Bank of Japan Governor Haruhiko Kuroda said during a regular policy update in parliament Tuesday
• JPMorgan Chase & Co. is reviewing its business with some commodity clients after last month’s nickel short squeeze, a move that threatens to drain more liquidity out of the sector
• Oil rose as the U.S. and Europe prepared to impose a fresh wave of sanctions on Russia for alleged atrocities committed by its forces against civilians in Ukraine
• P. Nandalal Weerasinghe, a career central banker, was appointed to head Sri Lanka’s monetary authority as the government seeks to pull the South Asian nation out of an economic tailspin, avoid a bond default and start aid talks with the International Monetary Fund
• Shanghai reported more than 13,000 daily Covid cases for the first time, as a sweeping lockdown of its 25 million residents and mass testing uncovered extensive spread of the highly infectious omicron variant

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded mixed as the region also observed mass closures. Mainland China, Hong Kong, and Taiwan were all closed today due to domestic holidays. ASX 200 traded in the green in the run-up to the RBA release but trimmed those gains following the RBA's hawkish hold. Nikkei 225 reversed the gains seen at the open amid unfavourable currency dynamics after verbal jawboning from Japanese officials. KOSPI traded lacklustre as South Korean March CPI rose at its fastest pace since 2011

Top Asian News

• U.S. Isn’t Seeking a ‘Divorce’ From China, Trade Chief Says
• UBS, Haitong Are Leading Hong Kong’s SPAC Rush: ECM Watch
• Vietnam Police Detain Ex-Bamboo Air Chairman’s Aide in Probe
• Asia’s $350 Billion Gas Buildout Intensifies Clean Energy Debate

European bourses began the session lacklustre before seeing a marginal pick up amid broader risk-on moves as Ukraine's Zelensky spoke. However, this upside was fleeting and bourses are now softer, Euro Stoxx 50 -0.5%; note, the pullback began before, but has been exacerbated by, the latest sanctions updates. Sectors, has Energy Names outperforming amid benchmark action while Basic Resources lag awaiting the touted next set of EU sanctions. Stateside, US futures have moved directionally in tandem with EZ peers but magnitudes were more contained initially, but have slipped further amid the latest sanctions reports.

Top European News

• U.K. March Composite PMI 60.9 vs Flash Reading 59.7
• European Gas Swings as Traders Weigh Russian Sanctions Outlook
• BofA Securities Overtakes JPM, Joins Top 3 in Euro CLO Sales
• Eurozone March Composite PMI 54.9 vs Flash Reading 54.5

In FX, Aussie rules as RBA removes patience from policy guidance to imply upcoming meetings are live for rate hikes; AUD/USD approaches 0.7650 after round number and Fib resistance (circa 0.7609) breaks. Kiwi tags along after BNZ raised its May call for the RBNZ to a 50 bp tightening move from 25 bp previously, NZD /USD probes 0.7000 as AUD/NZD runs into headwinds above 1.0900.
Dollar underpinned by bear-steepening US Treasury backdrop, but DXY unable to extend much beyond 99.000. Swedish Crown bid as another Riksbank member registers concern over inflation and contends that it’s time to re-evaluate policy at the next meeting, EUR/SEK edges close to 10.3000. Loonie and Nokkie firm as WTI and Brent crude continue to rebound amidst ongoing geopolitical supply risk; USD/CAD near 1.2450 and EUR/NOK around 9.5300 at one stage Japanese Finance Minister Suzuki said they are closely watching FX impact on Japan's economy and must look out for any sharp FX moves. Japanese Vice Finance Minister declined to comment on FX intervention, closely watching FX with a sense of urgency.

In commodities, WTI and Brent reside towards the top-end of another relatively modest range at this point in the session, as fundamentals haven't significantly changed and we await Ukraine-Russia updates. Thus far, talks are ongoing, Ukraine acknowledges they are very difficult but there is no alternative and Russia continues to pushback on Bucha allegations. JP Morgan (JPM) is reportedly mulling its commodity exposure following the nickel episode, according to Bloomberg sources. Russia prevented the movement of a ship loaded with Ukrainian wheat after it was bought by Egypt, according to the Embassy of Ukraine in Cairo cited by Al Jazeera. Russian oil and gas condensate output is down 4% in early April, according to Interfax. Some Japanese aluminium buyers agreed a Q2 premium of USD 172/T, -2.8% QQ, according to Reuters sources. Spot gold/silver eased from best amid the initial risk-on action.

In Fixed Income, bonds back in reverse gear after Monday's bounce, with Bunds around 100 ticks off their 159.42 overnight Eurex peak, Gilts 71 ticks below par circa 121.17 and the 10 year T-note closer to 121-22+ than 122-10. French OATs underperforming and testing 150.00 support in futures as polls predict a tight run-off between Macron and Le Pen for the Presidency. 2026 UK DMO issuance draws decent demand, but tail a tad longer and yield much higher.

US Event Calendar

• 08:30: Feb. Trade Balance, est. -$88.5b, prior -$89.7b
• 09:45: March S&P Global US Composite PMI, est. 58.5, prior 58.5
• 09:45: March S&P Global US Services PMI, est. 58.9, prior 58.9
• 10:00: March ISM Services Index, est. 58.5, prior 56.5

DB concludes the overnight wrap

Reports of Russian atrocities in formerly occupied Ukrainian territories have beckoned a renewed call for sanctions among western allies. Crucially, the prospect of Russia’s energy sector falling within the sanction crosshairs is becoming a more realistic possibility, which drove crude oil futures +3.01% higher to $107.53/bbl to start this week after their worst week in nearly two years. The EU’s High Representative Josep Borrell said in a statement that the EU would “advance, as a matter of urgency, work on further sanctions against Russia”. President Macron echoed those comments, affirming that “what happened in Bucha demands a new round of sanctions”, noting that the EU is set to discuss expanding sanctions to Russian oil and coal. US rhetoric escalated in response to the reported atrocities as well, with President Biden warning President Putin he could face trials for war crimes. The US also prepared a fresh round of sanctions and military aid to Ukraine, as they prepare for a renewed offensive in the east.

Another developing story to keep an eye on, reports (Bloomberg) indicate the US Treasury is preventing US custodian banks from processing Russian sovereign debt coupon payments. It appears that is part of official policy to increase pressure on Russia given the news over the weekend, as such payments were permitted in March. The move would force Russia to further drain dwindling reserves, cut into new revenue, or default, which has heretofore been avoided.

Outside of oil, it was a more subdued day for most markets after a volatile week to end a volatile quarter. Yesterday on Yield Curve Watch: the 2s10s Treasury curve staged another bounce, with 2yr yields falling -3.8bps and 10yr yields gaining +1.5bps, which left the curve inverted (-3.1bps) at the close for the third straight session. As a reminder from Jim’s work, the average time between 2s10s inversion and the start of the next recession has been around 18 months, while equity performance holds up quite well. So if history is any guide, there’s still some room to run.

European sovereign yields went the other direction, with 10yr bunds, OATs, and BTPs falling -5.0bps, -1.9bps, and -2.3bps, respectively, while all of their yield curves flattened. Those moves occurred as Slovenia’s central bank governor Bostjan Vasle said that there would be “the opportunity to be out of negative territory by the turn of the year”. That’s a slightly tighter path of policy than is currently being priced in by markets, where +53.5 bps of ECB rate hikes are implied, which would put rates at -4.4bps by year’s end. The latter measure got as high as +4.5bps last week, the only time it has closed in positive territory.

Equities on both sides of the Atlantic put in a decent performance, with the STOXX 600 gaining +0.84% and the S&P 500 +0.81% higher. Despite the similar headline figures, the underlying composition was very different. In Europe, the gains were broad-based, as only financials (-0.32%) and energy (-0.07%) ended the day in the red, and only just, while the S&P saw much more narrow leadership, with just over half (254) of the index in the green. Over the last 20 years, there’s only been 5 days where the S&P 500 gained at least +0.80% and had fewer individual stocks advance. Mega-cap growth stocks were the clear outperformers on the top-heavy day. The divergence was clear with the FANG+ picking up +4.15% while the Russell 2000 managed just a +0.21% gain. The proximate driver for mega-cap outperformance were reports that Elon Musk took a 9.2% stake in Twitter to become their largest shareholder, which sent Twitter +27.12% higher yesterday, dragging other growth stocks higher with it.

This morning the RBA kept policy rates on hold, but dropped statement language that they would be ‘patient’ in evaluating the outlook, opening the door to rate hikes in the coming months. 2yr to 5yr Australian sovereign bond yields were as many as +8.0bps higher as we go to press this morning, while the Australian dollar appreciated +0.67% against its US counterpart.

Elsewhere, Asian equity markets are quiet despite the transatlantic equity performance yesterday, with the Nikkei (+0.05%) and Kospi (+0.07%) essentially flat and Hong Kong and Chinese indices closed for holiday. Japanese household spending (+1.1% y/y) rose for the second consecutive month in February but was below market expectations (+2.7% y/y). The reading fell short of January’s +6.9% increase as tighter Covid restrictions slowed activity as soaring food and fuel prices dragged household purchasing power. BOJ Governor Kuroda opined that the recent moves in the Japanese Yen were "somewhat rapid" and bear close policymaker scrutiny. Kuroda reiterated that the central bank will offer to buy an unlimited amount of 10-year JGBs if long-term yields rise rapidly.

S&P 500 (-0.11%) and Nasdaq (-0.11%) futures are pointing toward a slower start in the US. Brent futures are up +1.53% to $109.58/bbl this morning, while Treasury yields are little changed as we head into the European open.

Staying on Asia, our head of EM research Sameer Goel features in our latest DB Research podcast, in which he discusses the impact of the war in Ukraine on Asian markets, including the complex trade relationships that have knock-on effects to the rest of the world. You can listen to that here.

Over in France, there’s just 5 days to go until the first round of the Presidential Election on Sunday, and the polls are continuing to narrow between President Macron and his main challenger Marine Le Pen. Politico’s polling average now puts Macron at 27% and Le Pen at 20% for the first round, which compares to 29%-18% only a couple of weeks earlier. Furthermore, the second round average is at 55%-45%, which is significantly tighter than the 66%-34% victory Macron won against Le Pen back in 2017. Yesterday added to that theme, with polls from both Opinionway and Ifop putting Macron ahead by 53%-47% in the second round, whilst another from Ipsos had Macron 54%-46% ahead, and the tightest from Harris had Macron ahead by just 51.5%-48.5%.

There wasn’t a massive amount of data yesterday, though we did get US factory orders for February, which showed a -0.5% contraction (vs. -0.6% expected). Otherwise, the final reading for durable goods orders in February showed a -2.1% decline (vs. -2.2% in preliminary reading).

To the day ahead now, and data releases include the services and composite PMIs for March from around the world, as well as the ISM services index. In addition, there’s French industrial production and the US trade balance for February. Finally we’ll hear from the Fed’s influential doves, Vice Chair in waiting Brainard and Presidents Daly and Williams, ahead of tomorrow’s FOMC minutes release.