Futures Flat As Yen Discombobulation Extends To Record 13th Day

After some jerky rollercoaster moves in Monday's illiquid trading session, which jerked both higher and lower before closing modestly in the green, US futures resumed their volatility and at last check were trading flat after earlier in the session rising and falling; Nasdaq futures retreated 0.1%. as investors weighed the risks to economic growth from hawkish Federal Reserve comments. Stocks in Europe dropped as markets reopened after the Easter holiday, while bonds around the globe slumped as investors weighed the prospect of aggressive policy action to curb inflation. Asian stocks also dropped as did oil, while the dollar extended its gains .  Treasuries extended declines, with the 10-year yield hitting a fresh three-year peak north of 2.90%. German and U.K. 10-year yields climbed to the highest since 2015 as bonds across Europe plunged.

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The grotesque farce that is MMT came one step closer to total collapse as the yen dropped for a record 13th day, its longest-losing streak in at least half a century with the credibility of the BOJ - that central bank that launched MMT, QE and NIRP - now hanging by a thread. It wasn't all bad news however, because with the yen losing more of its purchasing power, Japanese stocks gained.

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Disruptions to supply chains from China’s lockdowns and to commodity flows from the war are keeping pressure on central banks to rein in runaway prices at a time when global growth is tipped to slow. The World Bank cut its forecast for global economic expansion this year on Russia’s invasion.

Meanwhile, investors - already betting on an almost half-point Federal Reserve rate increase next month - continue monitoring comments from policy makers as prospects of monetary tightening weigh on the sentiment. St Louis Fed President James Bullard said the central bank needs to move quickly to raise interest rates to around 3.5% this year with multiple half-point hikes and that it shouldn’t rule out rate increases of 75 basis points. The last increase of such magnitude was in 1994.

“The Bullard comments really encapsulate the quandary that many of the world’s central banks have found themselves in,” said Jeffrey Halley, a senior markets analyst at Oanda. “Luckily, they have plenty of excuses in the shape of the pandemic and the Ukraine war. Central banks can now play catchup, hike aggressively and run the risk of recessions. Getting the pain over and done may be the least worst option.”

Over in Ukraine, President Volodymyr Zelenskiy said Monday that Russian forces had begun the campaign to conquer the Donbas region in Ukraine’s east. Here are all the latest news and headlines over Ukraine:

Russia's Belgorod provincial Governor said a village near the Ukrainian border was struck by Ukraine, according to RIA. However, Sputnik noted that no casualties were reported.
Russian Foreign Minister Lavrov says another stage of its operation is beginning
Russian Defence Ministry is calling on Ukrainian and foreign fighters to leave the metallurgical plant in Mauripol without arms and ammunition today, via Reuters; adding, the US and other Western countries do everything to drag out the Ukrainian military operation.
White House said US President Biden will hold a call with allies and partners on Tuesday to discuss continued support for Ukraine and efforts to hold Russia accountable, according to Reuters.
French Finance Minister Le Maire says an embargo on Russian oil is being worked on, adds that we have always said with President Macron that we want such an embargo, via Reuters; aims to convince the EU on such an embargo in the coming weeks.
Russia's Gazprom has not booked gas transit capacity via Yamal-Europe pipeline for May.
In premarket trading, Zendesk rose 4.1% in premarket trading after a report about the software company hiring a new adviser to explore a potential sale. NXP Semiconductors dropped 2.5% in premarket trading after Citi cut the stock to neutral from buy, saying in note that its thesis on margin expansion has played out. Other notable premarket movers include:

  • Amazon (AMZN) could be active as Barclays analyst Ross Sandler is upbeat on it heading into 1Q results and sees gross merchandise value (GMV) accelerating on a 1-yr basis in 2Q.
  • Netgear (NTGR) dropped 11% in extended trading Monday after reporting preliminary net revenue for the first quarter that trailed the average analyst estimate.
  • Super Micro Computer (SMCI) climbed 15% after the maker of server and storage systems reported fiscal 3Q preliminary profit and sales that beat the average analyst estimate.
  • Acadia (ACAD) shares declined in postmarket after it said Phase 2 clinical trial of the efficacy and safety of ACP-044 for acute pain following bunion removal surgery didn’t meet the primary endpoint.
  • WeWork (WE) advanced in postmarket trading Monday as coverage starts with an overweight rating and $10 price target at Piper Sandler, which highlights that the co-working company is on track to achieve profitability by late 2023 or early 2024.
  • European stocks slumped with the Stoxx 600 dropping 1.1% led lower by healthcare and media shares as traders returned from a lengthy Easter holiday, with technology stocks also underperforming; the energy sub-index the only sector gaining in Europe in Tuesday trading as investors digest the recent rally in crude prices. Meanwhile in Russia equities fell for a second day with the benchmark MOEX Index dropping as Russia’s military pressed on with its offensive in southern and eastern Ukraine, with President Volodymyr Zelenskiy saying Moscow had launched a new campaign focused on conquering the Donbas region. The MOEX dropped as much as 3.2%, adding to declines of 3.4% on Monday with Lukoil, Sberbank and Gazprom leading losses.

Here are some of Europe's biggest movers:

TotalEnergies rises as much as 3.6% to the highest level since the end of last month after reporting higher refining margins, as well as better liquids and gas prices
Spectris gains as much as 6.3% after the firm said it will sell its Omega Engineering business to Arcline Investment Management for $525m, and also announced a GBP300m buyback program
Carrefour climbs as much as 3% as Berenberg upgrades to buy from hold, saying that higher inflation is making the food retail sector more challenging, but will also reveal outperformers
Virbac advances as much as 11% after the French maker of veterinary products raised the top end of its sales growth forecast. Oddo upgraded the stock to outperform.
Food delivery shares lead European tech lower as U.S. Treasury yields touch new highs following a hawkish comment from a Federal Reserve President, Just Eat Takeaway -4.5%; Delivery Hero -2.5%
European consumer staples and luxury stocks fall as markets reopen after a 4-day break, with higher inflation and looming interest-rate hikes at the forefront of investor worries
L’Oreal, which reports 1Q sales after the market close today, slumps as much as 4.1%; LVMH decreases as much as 1.9%, Hermes down as much as 4%
Wizz Air drops as much as 6.1% after being downgraded to reduce at HSBC, with the broker saying the low-cost airline’s decision to not hedge its fuel prior to the outbreak of the Ukraine war could bite
Adevinta falls as much as 9.8% after Bank of America downgraded to underperform from neutral on Thursday, due to the classifieds business’s large exposure to the automotive sector
Elior and SSP Group shares retreat after both are downgraded to hold from buy at Deutsche Bank on downside risks; Elior down as much as 3.7%, SSP as much as 6.1%
Earlier in the session, Hong Kong technology names declined on ongoing concerns over regulation. China dropped as investors assessed measures to tackle economic headwinds from Covid-led lockdowns.

Asian stocks declined for a third day, as continued concerns over China’s regulatory crackdowns and the prospect of aggressive monetary-policy tightening by the Federal Reserve weighed on sentiment. The MSCI Asia Pacific Index fell as much as 0.6%, with Chinese technology shares including Tencent and Alibaba the biggest drags after Beijing announced a “clean-up” of the video industry. Hong Kong stocks were the worst performers around the region as trading resumed after Easter holidays, while equities rose in Japan and South Korea. The People’s Bank of China on Monday announced measures to help businesses hit by Covid-19, as the latest economic data started to show the impact of extended lockdowns.

Investors are awaiting further easing with the release of China’s loan prime rates on Wednesday, after the central bank last week announced a smaller-than-expected cut in the reserve requirement for banks. Whether policy support measures will “flow significantly into the economy will be on watch,” and market participants may “want to see signs of recovery before taking on more risks in that aspect,” said Jun Rong Yeap, a strategist at IG Asia Pte. Hawkish Fed member James Bullard raised the possibility of a 75 basis-point hike in interest rates. Concerns of inflation and moves by the Fed and other central banks to fight it have driven the recent global equity selloff, with the Asian benchmark down about 11% this year.

In China, markets are also awaiting the release of banks’ benchmark lending rates on Wednesday after the People’s Bank of China reduced the reserve requirement ratio for most banks Friday but refrained from cutting interest rates. The latest policy measures “have really highlighted easing is required,” Gareth Nicholson, Nomura chief investment officer and head of discretionary portfolio management, said on Bloomberg Television. “The markets don’t believe enough has been done and they’re going to have to step it up.”

Japanese equities gained, rebounding after two days of losses as the continued weakening of the yen bolstered exporters. Electronics and auto makers were the biggest boosts to the Topix, which rose 0.8%. Tokyo Electron and Advantest were the largest contributors to a 0.7% rise in the Nikkei 225. The yen extended declines to a 13th straight day, its longest losing streak on record, falling through 128 per dollar.

Australian stocks also advanced, with the S&P/ASX 200 index rising 0.6% to close at 7,565.20 as trading resumed following Easter holidays. The energy and materials sectors gained the most.  Cleanaway was among the biggest gainers, climbing the most since April 2021 after a media report said KKR has been preparing an offer for the Australian waste management company. City Chic Collective was the biggest decliner, falling to its lowest since December 2020. In New Zealand, the S&P/NZX 50 index fell 0.5% to 11,835.88.

In rates, Treasuries slipped, with yields rising by as much as 6bps in the long end of the curv, however they traded off session lows reached during European morning as those markets reopened after a four-day holiday. Yields beyond the 5-year are higher by 3bp-4bp, 10-year by 3.3bp at 2.89% after rising above 2.90% earlier; U.K. and most euro-zone 10-year yields are higher by at least 5bp, correcting spreads vs U.S. created Monday when those markets were closed. The yield curve continues to steepen; 7- to 30-year yields reached new YTD highs, nearly 3% for 30-year. Japanese government bonds were mixed. Focal points for U.S. session are corporate new-issue calendar expected to include more financial offerings and comments by Chicago Fed President Evans.

In FX, the Bloomberg Dollar Spot Index was little changed, after earlier rising to its highest since July 2020, and the dollar fell against almost all of its Group-of-10 peers. Commodity-related currencies and the Swedish krona were the best performers while the Japanese currency fell versus all of its G-10 peers. The yen extended its longest-losing streak in at least half a century, and touched 128.45 per dollar, its weakest level since May 2002, amid concerns over further widening in yield differentials. The euro reversed an Asia session loss even amid another round of bearish option bets in the front-end due to political risks. Bunds extended a slump, underperforming Treasuries, before a five-year debt sale and as money markets increased ECB tightening wagers. The Australian dollar surged against the yen to levels last seen almost seven year ago. RBA minutes said quicker inflation and a pickup in wage growth have moved up the likely timing of the first interest-rate increase since 2010. The New Zealand dollar also advanced; RBNZ Governor Orr reiterated the central bank’s aggressive rate stance. The pound was little changed and gilts slid, sending the U.K. 10-year yield to the highest since 2015 as money markets bet on a faster BOE policy tightening path.

In commodities, crude futures declined. WTI trades within Monday’s range, falling 1.5% to trade around $106. Brent falls 1.5% to ~$111. Most base metals trade in the green; LME copper rises 1.4%, outperforming peers. Spot gold is down 0.1% to $1,977/oz.

Bitcoin was flat and holding steady at the bottom of the sessions USD 40.6-41.2k parameters.

Looking at the day ahead, data is light with US March building permits, housing starts, and Canada March existing home sales. The IMF will also release their 2022 World Economic Outlook.

Market Snapshot

  • S&P 500 futures up 0.3% to 4,401.75
  • STOXX Europe 600 down 0.8% to 456.07
  • MXAP down 0.4% to 171.55
  • MXAPJ down 0.3% to 570.60
  • Nikkei up 0.7% to 26,985.09
  • Topix up 0.8% to 1,895.70
  • Hang Seng Index down 2.3% to 21,027.76
  • Shanghai Composite little changed at 3,194.03
  • Sensex up 0.5% to 57,438.93
  • Australia S&P/ASX 200 up 0.6% to 7,565.21
  • Kospi up 1.0% to 2,718.89
  • German 10Y yield little changed at 0.91%
  • Euro up 0.2% to $1.0808
  • Brent Futures down 0.7% to $112.40/bbl
  • Brent Futures down 0.7% to $112.40/bbl
  • Gold spot up 0.1% to $1,979.91
  • U.S. Dollar Index little changed at 100.73
  • Top Overnight News from Bloomberg

Record numbers of U.K. business leaders expect operating costs to soar this year as inflation proves more sticky than thought, according to a survey by Deloitte
French President Emmanuel Macron led his rival Marine Le Pen 55.5% to 44.5% ahead of the run-off presidential election set for April 24, according to a polling average calculated by Bloomberg on April 19. The gap between them has widened from the 8.2 percentage points recorded on April 15
Nationalist leader Marine Le Pen never led in the three campaigns she’s run for France’s top job, but a protectionist stance on economic issues in recent years has allowed her to reach some voters who traditionally backed left- wing candidates
China’s central bank announced a spate of measures to help an economy which has been hit by lockdowns to control the current Covid outbreak, but the focus on boosting credit likely means the chances for broad-based easing are shrinking
A more detailed breakdown courtesy of Newsquawk

Asia-Pac stocks saw a mixed performance as more markets reopened and trade picked up from the holiday lull. ASX 200 gained on return from the extended weekend, led by strength in commodity-related sectors and top-weighted financials. Nikkei 225 briefly reclaimed the 27k level as continued currency depreciation underscored the Fed and BoJ policy divergence. Hang Seng was pressured as it took its first opportunity to react to the PBoC’s underwhelming policy decisions and with tech hit after Shanghai's market regulator summoned 12 e-commerce platforms including Meituan on price gouging during COVID outbreaks. Shanghai Comp was choppy as participants mulled over the latest virus-related developments including an increase in Shanghai deaths and the lockdown of five districts in the steel producing hub of Tangshan, although policy support pledges from the PBoC and NDRC ultimately provided a cushion.

Top Asian News

  • Japan’s Stepped-Up Warnings Fail to Stem Yen’s Slide Past 128
  • China’s Promises to Support Covid-Hit Economy Fail to Impress
  • China Tech Stocks Slump on Didi Delisting Plan, Regulation Woes
  • Sri Lanka Officially Requests Rapid IMF Funds Amid Crisis
  • European bourses are negative on the session but were choppy and rangebound for much of the morning before dropping further amid renewed yield upside, Euro Stoxx 50 -1.4%. Stateside, US futures have given up their initial positive performance and are now lower across the board, ES -0.3%, and the NQ -0.4% lags given yield action; session is focused on Fed speak and earnings with NFLX due. Truist Financial Corp (TFC) Q1 2022 (USD): Adj. EPS 1.23 (exp. 1.10), Revenue 5.32bln (exp. 5.47bln)

Top European News

  • Stellantis Idles One of Russia’s Last Auto Plants Left Running
  • Commodities Trader Gunvor Doubled Profits on Hot Gas Market
  • European Gas Falls to Lowest Since Russian Invasion of Ukraine
  • Credit Suisse’s Top China Banker Tu Steps Aside for New Role


  • USD/JPY breezes through more option barriers and disregards more chat from Japanese officials about demerits of Yen weakness; pair pulls up just pips shy of 128.50.
  • DXY tops 101.000 in response before pulling back as Europeans return from long Easter break.
  • Aussie outperforms as RBA minutes highlight more recognition about inflationary environment externally and internally.
  • Kiwi next best G10 currency as RBNZ Governor Orr underlines that policy is being weighted towards anchoring inflation expectations; AUD/USD hovers under 0.7400 and NZD/USD around 0.6750
  • Euro trying to hold near 1.0800 where 1.3bln option expiry interest rolls off at the NY cut, Pound regains 1.3000 plus status and Loonie pivots 1.2600 on the eve of Canadian CPI.
  • Yuan close to 6.4000 ahead of Chinese LPR rate verdict on Wednesday amidst heightened easing expectations.

Fixed income:

  • EU bonds correct lower after long Easter holiday weekend then pick up the baton to push US Treasuries even lower; Bunds giving up 154.00 and dropping to a 153.58 trough in short order and USTs lower to the tune of 7 ticks.
  • Decent demand for German Bobls, but high price in terms of yield and a larger retention - limited relief seen in the benchmark, given broader action.
  • Benchmark 10 year cash rates approaching new psychological marks of 1.0%, 2.0% and 3.0% in Bunds, Gilts and T-notes respectively.
  • Commodities
  • Crude benchmarks are softer after yesterday's firmer session, which was driven by Libya supply concerns, currently moving in tandem with broader equity performance awaiting fresh geopolitical developments.
  • Currently, WTI and Brent are modestly above session lows which reside sub USD 106/bbl and USD 111/bbl respectively.
  • OPEC+ produced 1.45mln BPD below targets during March, via Reuters citing a report; compliance 157% (132% in February).
  • Spot gold and silver are contained with the yellow metal pivoting USD 1975/oz while copper derives further impetus from Peru protest activity.
  • MMG said protesters at the Las Bambas copper mine alleged a failure to comply with social investment commitments, while it rejected the allegations and noted that Las Bambas will be unable to continue copper output as of April 20th.

US Event Calendar

  • 08:30: March Building Permits MoM, est. -2.4%, prior -1.9%, revised -1.6%
  • 08:30: March Housing Starts MoM, est. -1.6%, prior 6.8%
  • 08:30: March Building Permits, est. 1.82m, prior 1.86m, revised 1.87m
  • 08:30: March Housing Starts, est. 1.74m, prior 1.77m
  • Central Bank Speakers
  • 12:05: Fed’s Evans Speaks to Economic Club of New York

DB's Tim Wessel concludes the overnight wrap

Welcome back to another holiday-shortened week for many markets. What it lacks in tier one data releases, it makes up for with heavy hitting central bank speakers and a core European Presidential election. We’re also wading into the thick of earnings season, while the on-running war in Ukraine has the potential to tip markets in any direction at the speed of a headline.

Starting with the central bankers, President Lagarde and Chair Powell will sit on an IMF panel to discuss the global economy in the last Fed communications before their May meeting blackout period. The Fed has primed markets for a +50bp hike in May, and pricing has obliged, with futures placing a 98.1% probability of a +50bp rise, along with +246bps of tightening for the entire year. Governor Bailey won’t miss out on the action and is also delivering an address Thursday. Other Fed regional Presidents will speak throughout the week, with the Fed’s Beige Book due Wednesday. The IMF, meanwhile, will release their global outlook later today. As a reminder, DB Research updated our World Outlook earlier this month, where we are calling for recessions in the US and the euro area within the next two years. Plenty more in the link here.

US earnings season will diversify beyond the financials-heavy slate from last week. Today is a nice microcosm of the change up, showcasing earnings from Johnson & Johnson, Halliburton, Hasbro, Lockheed Martin, Netflix, and IBM.

On data the rest of the week, we’ll receive German PPI and Canadian CPI Wednesday, along with global PMIs Friday. US housing data dot the rest of the week, as we unravel the competing threads of tight inventories, heightened demand, and supply constraints, against higher mortgage rates on housing activity.

Finally, the second round of the French Presidential election is this coming Sunday. Politico’s latest polling aggregates still have incumbent President Macron outpacing Marine Le Pen by around 9% in Sunday’s runoff. Our Europe team has their takeaways from the first round here.

The ECB’s April meeting garnered top billing during the EMR’s long weekend (our Euro econ team’s full review here). Overlaid on an inflationary backdrop, the Governing Council is weighing the downside risk to growth against the upside risk to inflation stemming from the recent conflict. While uncertainty pervades, the latter risks are more pressing, which drove their decision to signal net APP purchases would end in Q3, paving the way for policy rate liftoff later this year. Our economists expect the last APP net purchases will occur in July, with the risk skewed toward June, with a +25bp liftoff in September. Markets have +11.8bps of hikes priced by July, +35.6bps by September, and +64.4bps of hikes through 2022.

There was no new tool to address market fragmentation, though the ECB signaled imperfect policy transmission would not stand in the way of lifting rates and a new tool would be created if need be. 10yr BTP spreads were -5.0bps tighter to bunds over the week, and +3.3bps wider the day of the meeting.

Elsewhere, as mentioned, a suite of US financials reported. Looking through the releases, it seems most FICC trading desks benefitted from the quarter of volatility and higher rates are set to improve margins. However, the prospect of an economic slowdown or potential exposures to war fallout cloud the outlook. S&P 500 financials were -2.65% lower on the week.

Taking a longer view of last week, sovereign yields marched higher on the back of tighter expected monetary policy, and the yield curve’s recent sharp steepening continued. 10yr Treasury and bund yields respectively increased +12.8bps (+12.9bps Thursday, +2.5bps yesterday) and +13.5bps (+7.6bps Thursday) with continued heightened volatility. Real yields drove most of the gains in the US (+10.2bps for the week, +4.6bps Thursday, -1.0bps yesterday), ending the week at -0.09%, the highest level since early 2020. 10yr real yields are now +101.7bps higher this year, having had their climb only briefly interrupted by Russia’s invasion of Ukraine. The 2s10s Treasury curve steepened +19.1bps (+2.5bps Friday, +2.9bps yesterday).

There were not many positives to hang onto in Ukraine last week. Negotiation progress turned sour, President Biden labeled Russia’s invasion a ‘genocide’, and the US upped the provision of heavy weaponry to Ukraine, which was met with a diplomatic warning from Russia. The EU also pledged additional aid, while Finland began the process of applying for NATO membership and Sweden is reportedly considering the same. On the ground, Russian forces continued their eastern offensive, surrounding Ukrainian defenders of the port city Mariupol.

Along with the drag on sentiment, the International Energy Agency warned the full disruption to Russian oil supply had yet to bind, with as much as 3 million barrels of oil per day coming offline starting in May. Brent crude futures therefore climbed +8.7% (+2.68% Thursday, +1.31% yesterday), and closed yesterday at $113.16/bbl, their highest level in three weeks.

The S&P 500 fell -2.13% (-1.21% Thursday, -0.02% yesterday in a very quiet session) while the STOXX 600 managed to lose just -0.2% after a +0.7% rally Thursday into the holiday. In the S&P, energy (+3.53%) outperformed given the oil spike, while large cap stocks underperformed on the valuation hit wrought by rising yields, with FANG+ falling -4.81% (-3.16% Thursday, +0.25% yesterday).

Asian equity markets are ambivalent about returning after a long holiday, with the Hang Seng (-2.80%) leading regional losses. Mainland Chinese stocks are faring better, with the CSI dipping -0.38% while the Shanghai Composite is -0.03% lower. This, following the PBOC announcing yesterday increased financial support for industries, businesses, and people affected by Covid-19. Elsewhere, the Nikkei (+0.12%) and the Kospi (+0.90%) are up. Outside of Asia, S&P 500 (+0.20%) and Nasdaq (+0.28%) futures are both trading higher.

The RBA minutes overnight signaled they are not too far from joining the global tightening cycle, as they expect inflation to further increase above target.

The yen extended its depreciation streak against the US dollar, falling -0.58% to 127.73 per dollar, the weakest level since May 2002, as diverging monetary policy paths take their toll.

Oil prices and 10yr Treasury yields are little changed overnight; brent futures are +0.19% higher, while 10yr Treasury yields are -1.5bps lower.

To the day ahead, data is light on top of the aforementioned earnings, with US March building permits, housing starts, and Canada March existing home sales. The IMF will also release their 2022 World Economic Outlook.

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