Normally, the first rate hike in more than four years meant to spark a "shallow" recession and destroy commodity demand would not be viewed positively by markets (unless it leads to another mega QE, which it will), but today is an exception with global stocks and US futures surging after the Kremlin hinted at progress in peace talks with Ukraine, adding to positive sentiment stoked by China’s vow to stabilize its battered markets which sent Hong Kong stocks soaring by the most on record.

At 730am, S&P futures are up 1.3%, with Nasdaq futs +1.8% outperforming amid overnight tech action, influencing European sectors, on the back of China's jawboning stocks higher and constructive commentary from Ukraine's Zelensky and Russia's Lavrov. European bourses are also firmer across the board, Euro Stoxx 50 +3.3%, after a firmer handover from the Asia session and on geopolitical optimism.  Treasuries were steady and the dollar slipped ahead of the Federal Reserve rates decision. In FX, DXY reels amid support for EUR on yield action ahead of noted EUR/USD option interest at the NY cut. Core debt is depressed, with yields continuing to climb and the German 10yr through 38bps. WTI and Brent are consolidating and have most recently dipped into negative territory as premia unwinds.

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Tech companies led the US premarket gains, with Tesla rising 3.3% while U.S.-listed Chinese stocks rebounded from a steep selloff after China’s promise to boost financial markets and stimulate economic growth. ADRs of Alibaba and Baidu were both up at least 20% in premarket trading, while Didi Global Inc. jumped more than 40%. Other notable premarket movers:

• Electric vehicle stocks climb in premarket trading as Chinese automaker BYD follows Tesla in hiking car prices due to surging raw material costs. Lucid +3.3% (LCID); Rivian +3.1% (RIVN); Tesla +2.5% (TSLA); Nikola +2.3% (NKLA).
• U.S.-listed casino operators with exposure to Macau jump in premarket trading as Asian and European stocks rally after a pledge from China to keep capital markets stable. Las Vegas Sands (LVS) +7.5%.
• Smartsheet (SMAR) shares dropped 5.3% in U.S. post market trading on Tuesday after the software company reported its fourth-quarter results, with analysts flagging that the firm’s plans to increase investments weighed despite a robust set of earnings.
• CarParts.com (LOTZ) fell 14% in extended trading Tuesday after the company said Lev Pekerwill step down as CEO and director effective on April 15.

In addition to closely watching progress in talks between Ukraine and Russia, which are set to resume, all eyes today will be on the Federal Reserve’s meeting, where policy makers are widely expected to kick off a rate-hiking cycle to tackle red-hot inflation (see our preview here),

“We will be closely watching the Fed’s dot plot, which we expect to signal five or six interest-rate hikes this year, more than December’s projections but in line with market expectations,” wrote Lauren Goodwin, portfolio strategist at New York Life Investments. “A dot plot projecting more hiking would likely be a hawkish signal and could result in an earlier yield curve inversion.”

John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, said he expected five to six quarter-point increases this year. “The equity market is likely to digest a 25-basis point hike easily with enough market participants expecting it to temper the consumer demand that has been fueling higher prices for many goods,” he wrote in a note. “The risk of additional commodity price inflation notwithstanding, we expect the Fed to remain sensitive to the implications for U.S. economic health.”

“The market was indeed oversold, irrational, in the dramatic rout, so real money is back doing bottom fishing,” said Castor Pang, head of research at Core Pacific Yamaichi.

Here is a snapshot of some of the latest Russia headlines:

• Ukrainian President Zelensky stated that the positions of Ukraine and Russia at negotiations sound more realistic, but more time is still needed and noted that Ukraine must recognise it will not join NATO.
• Russian Foreign Minister Lavrov says peace talks with Ukraine are not easy but there is some hope for a compromise. Ukraine's neutral status is being seriously discussed and some formulations of agreements with Ukraine are nearing being agreed.
• Subsequently, Russian negotiator says that negotiations with Ukraine are slow and difficult, Russia sincerely wishes for peace soon, according to Interfax.
• Russia's Kremlin says the idea of creating a demilitarised Ukraine, like an Austria/Sweden model, could be seen as a compromise.

In Europe, the technology, consumer and travel industries led the Stoxx Europe 600 Index up 2%. Prosus jumped a record 20% in Amsterdam. By contrast, Avast slumped 14% in London, its biggest drop in more than two years.  European tech shares lead a rebound in the broader market Wednesday, as a pledge from Beijing to stabilize financial markets and support overseas listings helps boost appetite for risk; the Stoxx Tech Index rose as much as 5%. Food delivery stocks also soared, with Just Eat +7.4%, Deliveroo +6.1%, Delivery Hero +7%, HelloFresh +6.3%. Semiconductor stocks were also higher with Soitec +6%, BE Semi +5.6%, ASM International +4.9%, ASML +4.3%.

Asian stocks climbed, headed for their first gain in four sessions, as Chinese shares staged a strong rebound after the nation vowed to keep its equity market stable and support overseas share listings. The MSCI Asia Pacific Index rallied as much as 3.3%, poised for its biggest increase since 2020. A gauge of Chinese firms listed in Hong Kong jumped by the most since 2008,  while the Hang Seng Tech index added a record 20%. 

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Tencent, Alibaba Group and Meituan were the biggest contributors to the regional gauge’s advance, each rising at least 23%. The sharp rebound came after Chinese shares were mired in a deep selloff amid worries related to Beijing’s ties with Russia and delisting risks for Chinese stocks traded in the U.S. A comprehensive statement by the State Council addressing investors’ concerns over Beijing’s tech crackdown and property woes lifted sentiment significantly (more here).

The market believes “this is a solid bottom, so many are buying back shares rapidly” following the positive signal by the regulators, said Castor Pang, head of research at Core Pacific Yamaichi. “The market was indeed oversold and irrational in the dramatic rout, so real money is back doing bottom fishing.” Asian investors also awaited the Federal Reserve’s statement after its two-day meeting, which is expected to raise interest rates for the first time in three years to cool surging prices, despite growth risks stemming from the Russia-Ukraine war. The outcome from diplomatic talks between Russia and Ukraine on Wednesday is also on the watch list

In rates, treasuries beyond the front end remain slightly cheaper after paring declines during European session. Yields are higher by 1.7bp in 7-year sector, where underperformance further cheapens the 2s7s30s fly; it exceeded 0bp for first time since March 1. Thirty-year Treasury yields climbed to the highest level since mid-2019 before paring.  10-year yield, higher by 1.8bp at ~2.16%, outperforms bunds by 4bp with Euro Stoxx 50 higher by 3.6% vs 1.2% for S&P 500 futures. Focal points of U.S. session include FOMC rate decision and Chair Powell’s press conference 30 minutes later.

In FX, the Bloomberg Dollar Spot Index fell a second day as the greenback weakened against all of its Group-of-10 peers apart from the yen. The euro rose above $1.10 and European benchmark yields rose, with Bunds underperforming euro- area peers. Sweden’s krona soared to more than a one-month high versus the euro after Riksbank Governor Stefan Ingves said the Swedish central bank will probably have to raise interest rates earlier than its previous timeline of 2024. The Norwegian krone, the Australian and Canadian dollars were also among the best G-10 performers, supported by China’s vows to stabilize the stock market. Hedging sterling overnight comes at the highest cost since late 2020 as war premiums meet event risks stemming from the upcoming Federal Reserve and Bank of England meetings. Australia’s bonds gained after weak second-tier data, while New Zealand’s notes fell after data showed the current- account deficit to be at its widest since 2009. The yen was little changed following a seven-day slide. Japan ran a trade deficit for a seventh month in February at 668.3 billion yen ($5.8 billion) after recording the second-largest deficit on record in January. Oil prices surged about 8.6% last month.

In commodities, crude futures drift higher, WTI adds ~2%, regaining a $98-handle, Brent holds near $102.50. LME nickel dropped by the new 5% exchange limit on the resumption of trade, most other base metals trade in positive territory. Spot gold trades a narrow range near $1,920/oz. In crypto, bitcoin has recouped from overnight pressure and is holding onto the USD 40k mark once more. Japan's crypto authority could announce a relaxation of coin listing rules next week.

Looking ahead at today’s data releases, retail sales, business inventories and the NAHB Housing Market Index will be due in the US. Elsewhere, CPI and wholesale trade sales will be released in Canada. Earnings include Lennar, E.ON and Inditex. But all eyes on the Fed.

Market Snapshot

• S&P 500 futures up 0.9% to 4,302.00
• STOXX Europe 600 up 2.2% to 444.48
• MXAP up 3.3% to 171.08
• MXAPJ up 4.2% to 554.77
• Nikkei up 1.6% to 25,762.01
• Topix up 1.5% to 1,853.25
• Hang Seng Index up 9.1% to 20,087.50
• Shanghai Composite up 3.5% to 3,170.71
• Sensex up 1.4% to 56,541.13
• Australia S&P/ASX 200 up 1.1% to 7,175.24
• Kospi up 1.4% to 2,659.23
• German 10Y yield little changed at 0.40%
• Euro up 0.4% to $1.1002
• Brent Futures up 3.2% to $103.14/bbl
• Gold spot down 0.1% to $1,915.81
• U.S. Dollar Index down 0.43% to 98.67

Top Overnight News from Bloomberg

• Ukrainian President Volodymyr Zelenskiy said Russia’s “positions in the negotiations sound more realistic” as the two sides are scheduled for another round of talks on Wednesday. Russian Foreign Minister Sergei Lavrov also said there is some hope for compromise, but progress remains difficult
• The Federal Reserve is poised to raise interest rates Wednesday for the first time since 2018, with investors focused on how aggressive central bankers plan to be in tackling the hottest inflation in four decades
• Currency speculators are looking less convinced that recent dollar strength, which has been spurred by war-related haven flows and expectations for Federal Reserve policy tightening, can run much further. Leveraged funds have cut their overall long positions against major-currency peers by more than two-thirds so far this year
• In the years following the financial crisis, the Bank of England stuck resolutely to easy money while fiscal policy got tough when Chancellor of the Exchequer George Osborne imposed swingeing budget cuts. But as the economy grapples with the highest inflation level in three decades and the fallout from the war in Ukraine, it’s BOE Governor Andrew Bailey who’s playing the bogeyman
• Russia spent years building a giant stash of gold, an asset that central banks can turn to during a crisis. But any attempt to sell it will now be a challenge just when it’s needed most
• The London Metal Exchange halted electronic trading in nickel minutes after it restarted, citing a technical issue with its new daily limit, as prices plunged when the market opened after a week-long suspension.

APAC stocks gained after Wall St closed at session highs amid a rally in growth stocks and retreat in oil prices below USD 100/bbl. ASX 200 was underpinned with all sectors in the green and the index led by tech following the duration bias stateside.
Nikkei 225 gained amid expectations for Japanese PM Kishida to order the compilation of additional stimulus. Hang Seng and Shanghai Comp. were positive amid a rebound from the tech rout and as local press suggested continued possibility of a rate cut with gains exacerbated after China's State Council vowed to keep stock markets stable.

Top Asian News

• Foxconn Partly Restarts Shenzhen iPhone Hub Hit by Lockdown
• IPhone Assembler Hon Hai Beats Estimates on Holiday Demand
• China CBIRC to Unveil Policies to Bolster Capital Markets
• China’s Strong Growth Data Questioned, Mocked on Social Media

European bourses are firmer across the board, Euro Stoxx 50 +3.3%, after a firmer Wall St/APAC handover amid some constructive Russia-Ukraine commentary. In-fitting with this, sectors are all in the green with cyclicals outperforming and defensives lagging, but still positive, influenced by Tech amid APAC performance. Stateside, US futures are firmer across the board, NQ +1.9% outperforms, in-fitting with sectors, but attention does turn to the sessions' FOMC announcement. Tesla (TSLA) is suspending production at its Shanghai factory for two days, amid COVID related restrictions via Reuters citing an internal notice

Top European News

• EQT Inks Private Equity’s Boldest Asia Move With Baring Deal
• MFE Bid for Mediaset Espana Is Just the Beginning: Analysts
• Germany’s Coalition at Odds Over Response to Energy Crisis
• Shell Is Said to Vie With Adani, Greenko for Actis’s Sprng

In FX, Aussie regroups on multiple props including recovery in iron ore and renewed risk appetite to probe technical resistance ahead of 0.7250 vs its US rival where the 21 DMA resides. Euro retests 1.1000 against the Dollar amidst reversion to pronounced bear-steepening in EGBs, but decent option expiry interest at the round number may thwart again (1.23bln for NY cut). Loonie rebounds in advance of Canadian CPI that comes alongside US retail sales and before FOMC, USD/CAD pivoting 1.2750 and DXY drifting down from 99.000. Yen undermined by risk on flows and wider than forecast Japanese trade deficit, USD/JPY back up in proximity of circa 118.45 peak. Yuan pares recent losses as China’s State Council promises to stabilise stocks and Vice Premier pledges measures to support the economy; USD/CNH around 6.3650 vs 6.4100+ at one stage yesterday.

In commodities, WTI and Brent are consolidating and have most recently dipped into negative territory amid the latest Russia- Ukraine updates removing further geopolitical-premia. A move that has seen the benchmarks dip further below USD 95.00/bbl and USD 99.00/bbl respectively. US Energy Inventory Data Expectations (bbls): Crude +3.8mln (exp. -1.4mln), Cushing +2.3mln, Gasoline -3.8mln (exp. -1.6mln), Distillate +0.9mln exp. -1.8mln) IEA OMR: lowers 2022 demand growth forecast by 950k BPD to 2.1mln BPD for an average of 99.7mln BPD, details available here. LME says that amid a system error, a small number of trades were executed below the lower daily price limit for Nickel, such trades executed on LMESelect will be cancelled; after LME Nickel resumed and hit limit down

US Event Calendar

• 7am: March MBA Mortgage Applications, prior 8.5%
• 8:30am: Feb. Import Price Index YoY, est. 11.3%, prior 10.8%
• 8:30am: Feb. Import Price Index ex Petroleu, est. 0.8%, prior 1.4%
• 8:30am: Feb. Import Price Index MoM, est. 1.6%, prior 2.0%
• 8:30am: Feb. Retail Sales Control Group, est. 0.3%, prior 4.8%
• 8:30am: Feb. Retail Sales Ex Auto and Gas, est. 0.4%, prior 3.8%
• 8:30am: Feb. Retail Sales Ex Auto MoM, est. 0.9%, prior 3.3%
• 8:30am: Feb. Export Price Index YoY, est. 14.4%, prior 15.1%
• 8:30am: Feb. Export Price Index MoM, est. 1.2%, prior 2.9%
• 8:30am: Feb. Retail Sales Advance MoM, est. 0.4%, prior 3.8%
• 10am: Jan. Business Inventories, est. 1.1%, prior 2.1%
• 10am: March NAHB Housing Market Index, est. 81, prior 82
• 2pm: March FOMC Rate Decision

DB 's Jim Reid concludes the overnight wrap

I’ve been working in financial markets for 27 years and I’ve really only seen three Fed hiking cycles so today is a big day as the Fed will likely kick off my fourth with a 25bps move. Ironically I’ll also be picking up my first pair of varifocal glasses today which means at least I’ll be able to read the small print in the release. Another sign of age to go alongside the two bad knees and bad back.

Our economists expect (full preview here) the Fed to raise rates by 25bps, taking a first step in what they anticipate will be a series of rate hikes which will raise the fed funds rate by +175bps by the end of the year. On the dot plot, the team expects the median dot to show six rate hikes this year, with policy rates reaching and perhaps passing estimates of neutral by 2024. Despite the uncertainty garnered by the war in Europe, they expect Chair Powell to maintain a hawkish tone and reiterate the Fed’s commitment to fighting inflation this year.

On the balance sheet, our US econ team believes the Fed will release their plans for QT at today’s meeting, which they dive into detail on with Tim Wessel from my team here). In short, they expect the Fed will start QT in June, with the balance sheet shrinking by around $3 trillion until early 2025.

The Fed will be attempting to wrestle the narrative back from geopolitics, which has been and will likely be the predominant market story for a time. On that front, DB has compiled a research compendium on all things Russia-Ukraine conflict related as it enters its fourth week, link here. The piece has links to numerous DB publications on the implications and what it means for economics and various asset prices.

Turning to yesterday’s news from the conflict, western countries and Russia exchanged a new set of sanctions. In particular, the EU approved its fourth package of sanctions, which notably features a ban on new investments in the energy sector in Russia and limits exports of various equipment and technology goods. Russia also submitted a request to leave the Council of Europe.

However, risk sentiment was buoyed later in the New York session when a senior aide to President Zelenksy noted that Russia had softened their negotiation stance, and that talks between representatives have become “more constructive”. President Zelensky for his part noted the negotiations were difficult but signalled there was room for compromise. Meanwhile, President Biden will travel to Europe next week to meet with NATO allies at a summit of European Union leaders. The US also announced another tranche of aid for Ukraine.

On commodities, Sergei Lavrov, Russian Foreign Minister, said that sanctions imposed on Russia will not prevent it from cooperating with Iran, and the US confirmed it would not sanction activity covered under a renewed nuclear deal, which was an important hurdle for progress on a deal, potentially enabling Iranian oil supply to return to market. This drove crude futures lower with WTI (-6.38%) and Brent (-6.54%) both closing below $100 even if the later has edge back above that landmark this morning. Since hitting their intraday peak last Tuesday, WTI and Brent futures are now both down -25%.

In Europe, equities posted modest losses, with the STOXX 600 dropping -0.28%. Though in the US, risk sentiment pushed indices into the green, with the S&P 500 gaining +2.14% on a broad-based gain that saw 446 companies finish the day in positive territory, the third highest reading this year. Mega-cap shares did particularly well, as the FANG+ index climbed +3.13%. Only the energy sector declined in the S&P 500, falling -3.73%, on the back of falling oil prices and a recent run of outperformance. The broad rally coincided with the VIX falling below 30ppts, dropping -1.94ppts to 29.83ppts, for the first time since the last week of February.

Sovereign bond yields were also less volatile than in recent sessions. European yields dropped across the board, with 10yr bund, OAT, and BTP yields falling -3.5bps, -2.8bps, and -6.5bps, respectively. Falling breakevens led the move with the large drop in oil, with 10yr German breakevens sliding -8.7bps. Treasury yields posted modest increases ahead of today’s FOMC meeting, with 10yr yields climbing +1.1bps. They are fairly flat overnight.

Another story that hit the wires yesterday suggested that Saudi Arabia was considering accepting payments denominated in renminbi instead of US dollars for its oil exports to China. The news led to a renminbi appreciation against the dollar but it is still unclear what the long-term implications may be. It comes at a time when Saudi-US relations are strained, so it is not clear how much the headlines are political maneuvering versus legitimate signs of international trade and finance trying to wean itself of dollar dependence in light of the historic economic sanctions the US and allies brought to bear against Russia. After all, stories of the dollar’s demise as the pre-eminent global reserve currency have been around almost as long as the dollar has been the pre-eminent global reserve currency. More directly, Saudi Arabia maintains a dollar peg, so some level of dollar dependence will persist in the kingdom. Nevertheless, one to watch over the medium term.

Overnight in Asia, equities are up after strong gains on Wall Street with the Hang Seng (+3.21%) leading the way across the region as beaten up Chinese tech stocks have rebounded. Elsewhere, the Nikkei (+1.48%) and Kospi (+0.95%) are both up while gains in mainland Chinese stocks are more muted with the Shanghai Composite (+0.04%) and CSI (+0.49%) slightly higher as the nation grapples with its most severe Covid outbreak. Shanghai state officials yesterday downplayed the possibility of implementing a full lockdown for now but urged its financial and business district workers to work from home. Moving ahead, US equity futures indicate a steady start with contracts on the S&P 500 (-0.05%) Nasdaq (+0.13%) close to unchanged. US bond yields are steady.

Elsewhere, President Biden’s nomination for the Vice Chair of Supervision at the Fed, Sarah Bloom Raskin, withdrew her nomination as it became clear that she would not receive the necessary Senate votes to be confirmed.

In data, US PPI that came at +0.8% vs expectations of +0.9%, while the numbers ex-food and energy increased +0.2% versus expectations of +0.6% increase.

Looking ahead at today’s data releases, retail sales, business inventories and the NAHB Housing Market Index will be due in the US. Elsewhere, CPI and wholesale trade sales will be released in Canada. Earnings include Lennar, E.ON and Inditex. But all eyes on the Fed.