US equity futures - which on Tuesday tumbled into a technical correction, down 10% from January's all time highs - rebounded led by tech companies as investor fears over the standoff in Ukraine eased following the limited initial Western sanctions against Russia. As of 7:15am, eminis pared some gains but were still up 0.7% or 28 points on the day; Nasdaq futures were up 0.9% and Dow futures were up 0.54%. The VIX remained elevated, last seen around 28 after trading above 30 yesterday. Treasuries extended declines after the yield curve flattened in the Wall Street session, with the 10Y yield rising to 1.97% after tumbling as low as 1.85% on Tuesday. Crude oil fluctuated, while gold dipped as haven demand eased. The dollar slipped and cryptos reversed some of their recent losses.

(Click on image to enlarge)

Susannah Streeter, senior analyst at Hargreaves Lansdown, said there were “signs of bargain hunting among traders, keen to snap up shares sensitive to the situation.” But she warned the geopolitical tension could still escalate, while elevated oil and gas prices were boosting inflationary risks. “The volatility which has hit stocks is set to remain as traders assess this latest attempt to slow down the march toward a full invasion,” said Streeter. And while it has been a generally quiet session for once, here are some of the biggest premarket movers today:

• Palo Alto (PANW) shares rise 7.3% in U.S. premarket trading after 2Q results impressed analysts, with the cybersecurity company beating most expectations and consensus. Stock has been raised to neutral at JPMorgan.
• Stellantis (STLA) jumps 6.6% in premarket after the carmaker reported FY21 results and said it is targeting double-digit adj. operating income margin and positive industrial free cash flow this year. Oddo BHF said the results were “much above” expectations, “even the most bullish ones like us.”
• Rackspace Technology (RXT) shares decline 22% in U.S. premarket as analysts highlight weaker-than-expected 1Q guidance and the absence of FY22 outlook. At least 2 analysts cut their price targets, while Deutsche Bank and BMO Capital Markets downgrade the stock.
• Marinus Pharmaceuticals (MRNS) slumped 12% in postmarket trading after reporting a delay in the phase 3 trial of Raise, a placebo-controlled trial for the treatment of status epilepticus.
• Cadence Design (CDNS) climbed 5.8% in postmarket trading after forecasting adjusted earnings per share and revenue for 2022 that beat the average analyst estimates. Fourth-quarter adjusted EPS and revenue also beat expectations.
• Piper Sandler upgrades Marathon Oil (MRO) to overweight in note on exploration and production sector, while reiterating overweight ratings on “favorite ideas” Devon Energy and Pioneer Natural.

U.S. President Joe Biden said Russia had started to invade Ukraine and announced steps targeting Russia’s sale of sovereign debt abroad, its elites and a pair of banks. The sanctions, as well as others by U.S. allies, however stopped short of actually being seen as painful - as Reuters put it, they only "scratch surface of Fortress Russia" - and led to a surge in Russian assets.

“The softer-than-feared sanctions somewhat help lifting the mood,” Ipek Ozkardeskaya, senior analyst at Swissquote, wrote in a note. “The risk appetite is limited, of course, except in some key assets including oil and commodities.”

Meanwhile, Vladimir Putin has denied Russia intends to invade Ukraine, but lawmakers have given him the green light to deploy troops to separatist-held regions. Top U.S. diplomat Antony Blinken later announced that a summit due this week with Russian Foreign Minister Sergei Lavrov had been canceled.

And while there were no draconian sanctions imposed in response to Putin's decision, German officials did halt certification of the Nord Stream 2 pipeline, an $11 billion project that would have solidified Russia’s grip on Europe’s energy sector. Fears that the Ukraine tension could snarl commodity supplies has bolstered everything from energy to wheat and nickel. Oil paused a blistering rally after the measures against Russia were announced, with Brent crude trading at $96 a barrel after a jump on Tuesday that saw it climb to a 15-year high, just shy of $100.

A key question now is whether the jump in raw material costs stirred by the standoff will spur more aggressive central bank policy. Bets on the number of rate increases by the Federal Reserve in 2022 have settled at about six 25-basis-point hikes, down from seven on Feb. 11. For the European Central Bank, swaps suggest the first quarter-point move will take place by October, compared with September earlier in the month.

“Inflationary pressures will mechanically intensify with higher commodity prices, increasing the risk of stagflation and challenging ECB actions,” according to Amundi SA money managers including Chief Investment Officer Vincent Mortier. “Europe is clearly more vulnerable regarding this geopolitical clash.”

In Europe, the Stoxx 50 rallies 1.2%. CAC 40 outperforms, adding 1.3%, FTSE 100 lags, adding 0.4%. Carmakers and chemical companies led gains in the Stoxx Europe 600 Index, which advanced 0.8%. Stellantis, Danone and Iberdrola all jumped after posting better-than-expected earnings and outlook. Here are some of the other prominent European movers today:

• JDE Peet’s shares surge as much as 13% after the company reported full-year revenue that beat estimates. The results showed the business model is “stronger than feared,” according to Citi.
• Stellantis gains as much as 6.2% in Milan after the carmaker reported FY21 results. Oddo BHF said the results were “much above” expectations, even for the most bullish analysts.
• Danone climbs as much as 4.9% after the yogurt maker reported 4Q figures that beat expectations while reassuring on measures taken to mitigate risk from Russia/Ukraine tensions.
• Henkel jumps as much as 5% after the German consumer- goods group reported 4Q results that indicate “significant” demand recovery in most of its business units, Raiffeisen says.
• Unite Group jumps as much as 9.3%, the most since Nov. 2020, after reporting full-year results, with Liberum noting the student accommodation developer’s return to growth.
• Iberdrola rises after the Spanish power company reported its latest earnings. Jefferies says reaffirmed net income guidance for FY22 was a positive.
• Storskogen drops as much as 18% after the Swedish investment company reported earnings which Kepler says missed consensus expectations. The shares are now down 55% this year.
• Samhallsbyggnadsbolaget i Norden (SBB) falls as much as 9.4% after a two-day rally. Pareto Securities says the company’s earnings show it’s “outperforming all expectations.”
• Campari slumps as much as 7.3% after the Aperol maker reported FY results, with CEO Bob Kunze-Concewitz flagging that input-cost pressure will intensify further, postponing gross margin accretion.
• Uniper falls as much as 5.3% to a five-month low after the German utility warned of a potential impairment to its stake in Nord Stream 2, which is was put on hold amid escalating tensions over Ukraine.
• Tomra Systems declines as much as 6.4% after the Norwegian recycling firm reported profitability that was “a bit shy of consensus,” Handelsbanken says.
• CNH Industrial falls as much as 4.8% in Milan and is the worst-performer on the FTSE MIB benchmark after the company presented its updated 2024 strategic business plan.

Earlier in the session, Asian stocks were poised to snap a three-day decline, as the U.S. unveiled sanctions against Russia that avoided the harshest restrictions and China’s tech shares posted modest gains. The MSCI Asia Pacific Index climbed as much as 0.4%, with consumer discretionary and tech shares driving gains. Meituan and JD.com were among the biggest contributors to the Asian gauge’s advance, as some traders eyed cheaper valuations following a brutal three-day slide in Chinese tech stocks amid regulatory concerns.  “It’s just a breather as markets absorb the ongoing flow of news from Ukraine,” said Gary Dugan, chief executive officer at the Global CIO Office. “Asian equities are a defensive play given limited direct exposure to Ukraine and the ongoing positives of still easy monetary conditions and reopening of economies.” Shares in mainland China and Indonesia were among the top performers regionally on Wednesday, while U.S. futures signaled a positive open on Wall Street. Asia stocks have remained resilient this month due to the limited impact from Russia-Ukraine tensions, although concerns around fresh regulatory scrutiny of China’s tech industry -- and the exposure of state-owned firms to the likes of Alibaba -- is denting sentiment. The MSCI Asia Pacific Index is up about 0.5% in February compared with a 3% decline in its global counterpart

In rates, treasuries sold off, with yields rising by up to 4 basis points, led by the front end of the curve as the market assesses the impact of Western sanctions on Russia as well as Ukraine seeks to declare a nationwide state of emergency. Yields were cheaper by 2bp-3bp across the curve, with switch to new 2-year helping flatten 2s10s spread by more than 2bp to lowest level since March 2020; 10-year yield at about 1.97% is cheaper by 2.8bp vs Tuesday’s close, with comparable gilts and bunds little changed. Gilts curve bull flatten while BOE’s Bailey and other policymakers speak. Bund and Treasuries curves bear flatten. Cash USTs cheapen ~7bps across the short end. Meanwhile the dollar, oil and gold slip.

In FX, the Bloomberg Dollar Spot Index slumped as the greenback weakened or was steady against all of its Group-of-10 peers while JPY, CHF and GBP are the weakest performers in G-10 FX; NZD, NOK and AUD outperform. Risk-sensitive currencies, led by the New Zealand dollar, were the best G-10 performers. The Kiwi advanced as much as 1% to $0.6799, while 2-year sovereign bonds underperformed their Aussie peers as the RBNZ said it now expects the policy rate to rise to at least 2.5% by early next year, versus a forecast in November for it to reach that level by the third quarter of 2023; it also lifted the official cash rate by 25 basis points to 1%, in line with estimates. The Australian dollar reached its highest level in a month even as weak Australian wage and construction data backed the case for the RBA to be patient in tightening policy. Russian ruble lags EMFX, down 0.7% against the dollar.

The euro advanced a second day, but failed to rise above $1.1350; European sovereign bond yield curves bear flattened and money markets rose tightening wagers after ECB’s Holzmann said the ECB should decide on a first rate increase in the summer, before the end of asset purchases, followed by a second move at the end of the year. The pound held modest gains against the dollar and drifted versus the euro as BOE’s Andrew Bailey, Ben Broadbent, Jonathan Haskel and Silvana Tenreyro testified to parliament’s Treasury Committee. Options pricing suggests there’s a 50% chance the ruble will sink to a record low against the dollar within the next two months -- dipping below levels from 2016 when the economy was mired in a recession. Technical analysts are also eyeing the same move, with a trendline of the currency pair on the verge of giving way.

In commodities, crude futures declined. WTI drifts 0.9% lower to trade near $91. Brent falls 0.7% to around $96.  Spot gold falls roughly $5 to trade around $1,894/oz. Most base metals trade in the red; LME aluminum falls 0.9%, underperforming peers. LME copper outperforms.

Looking to the day ahead now, and central bank speakers include BoE Governor Bailey, Deputy Governor Broadbent, and the BoE’s Haskel and Tenreyro, in addition to ECB Vice President de Guindos, and the ECB’s de Cos, and San Francisco Fed President Daly. Otherwise, earnings releases include Lowe’s, Booking Holdings and TJX.

Market Snapshot

• S&P 500 futures up 1.0% to 4,344.25
• STOXX Europe 600 up 1.1% to 459.96
• MXAP up 0.3% to 185.63
• MXAPJ up 0.4% to 612.54
• Nikkei down 1.7% to 26,449.61
• Topix down 1.5% to 1,881.08
• Hang Seng Index up 0.6% to 23,660.28
• Shanghai Composite up 0.9% to 3,489.15
• Sensex little changed at 57,343.24
• Australia S&P/ASX 200 up 0.6% to 7,205.69
• Kospi up 0.5% to 2,719.53
• German 10Y yield little changed at 0.25%
• Euro up 0.2% to $1.1343
• Brent Futures down 0.5% to $96.34/bbl
• Gold spot down 0.4% to $1,891.03
• U.S. Dollar Index little changed at 95.94

Top Overnight News from Bloomberg

• President Vladimir Putin said he remains ready to pursue “diplomatic solutions” as long as Russia’s interests and security are guaranteed, after the U.S. and its allies agreed on a “first tranche” of sanctions against Moscow for its actions over separatist-held Ukrainian territory
• Ukrainians should leave Russia immediately and not travel there due to the “increasing Russian aggression,” Ukraine’s Foreign Ministry says in statement
• Ukraine’s worsening crisis means the ECB will put even greater emphasis on its flexibility and options as it exits stimulus measures and shifts toward raising rates, Governing Council member Francois Villeroy de Galhau said
• U.S. President Joe Biden’s debut set of sanctions on Russia for its actions over disputed Ukrainian territory hit markets with a whimper and were quickly criticized as limited in scope
• Prices for natural gas and electricity in Europe advanced after President Joe Biden said Russia had begun to invade neighboring Ukraine and imposed a range of sanctions on Moscow
• Traders expect machines and mobile apps to take over even more of the action in financial markets in 2022. More than 60% of traders predicted an increase in algorithmic trading in the next two years, according to JPMorgan Chase & Co.’s annual FICC e-Trading Survey. That’s expected to lead to an additional 19% of their currency trading being done by algorithmic orders
• The Reserve Bank of New Zealand’s Monetary Policy Committee increased the official cash rate by 25 basis points to 1% Wednesday. New forecasts published by the RBNZ show the cash rate climbing to 2.5% over the next 12 months and peaking at about 3.25% at the end of 2023. In November, it had forecast a peak of about 2.5%
• President Joe Biden said the U.S. would impose a first wave of sanctions on Russia and is shifting American forces already based in Europe, and a meeting between the top U.S. and Russian diplomats was canceled. Biden’s announcement followed earlier sanctions after the European Union and the U.K. set out an initial set of limited penalties targeting Moscow
• Australia’s annual wages growth edged higher last quarter, while remaining short of levels needed to bring forward an interest-rate hike
• Oil stabilized after U.S. President Joe Biden unveiled sanctions against Russia that avoided the harshest penalties, while progress on the Iran nuclear talks offered to bring some relief to a tightening market

A more detailed look at global markets courtesy of Nesquawk

Asia-Pac stocks were positive but with upside capped after the S&P 500 closed in correction territory for the first time in two years and as participants digested the sanctions response to Russia's actions on Ukraine which targeted individuals and banks although the largest Russian banks Sberbank and VTB Bank avoided sanctions. ASX 200 was led higher by outperformance in tech and with focus also on a slew or earnings results. Nikkei 225 remained closed for the Emperor’s Birthday holiday. KOSPI gained but was restricted after daily COVID-19 cases surpassed 150k for the first time on Tuesday. Hang Seng and Shanghai Comp. rebounded from the prior day’s losses after the PBoC boosted its liquidity efforts heading into month-end and with tech stocks finding reprieve from yesterday’s crackdown fears, while Hong Kong's budget included counter cyclical measures of over HKD 170bln and HKD 54bln of anti-epidemic measures.

Top Asian News

• Hong Kong’s CLP Said to Mull Sale of $2 Billion EnergyAustralia
• Rio Tinto to Pay $7.7 Billion Dividend as Profit Hits Record
• Asian Stocks Advance as Traders Eye Russia Sanctions, China Tech
• Chinese Tech Stocks Rebound as Traders Weigh Crackdown Risks

European bourses are firmer, Euro Stoxx 50 +1.0%, with gains relatively broad based though the oil-exposed FTSE 100 lags given benchmark pricing. US futures, ES +0.6%, are also firmer as newsflow is comparably slower and as participants also take impetus from sanctions being less-stringent than some feared. European sectors are predominantly in the green, though Energy lags given benchmark pricing while Autos and Food, Beverage & Tobacco outperforms on earnings.

Top European News

• Germany Says It Can Do Without Russian Gas. That’s a Tall Order
• Telecom Italia Weighs $1.5 Billion Tower Unit Stake Sale
• Barclays Hits Record Annual Profit as Dealmakers Outperform
• HSBC Bankers Grounded as Pandemic Cut Business Travel by 96%

In FX, the DXY is still hugging 96.000, as firmer US Treasury yields compensate for loss of safe haven premium. Kiwi outperforms following hawkish guidance from RBNZ in wake of latest OCR hike that was finely balanced between the 25 bp delivered and 50 bp deliberated - Nzd/Usd eyes 0.6800. Aussie up due to ongoing improvement in risk appetite evident in commodities and Loonie also benefiting from similar factors, as Aud/Usd clears 0.7250 and Usd/Cad approaches 1.2700. Pound ponders BoE testimony implying more tightening but less hawkish dissent, with Cable cresting 1.3600. Euro holds firmly on the 1.130O handle and well flanked by decent option expiry interest either side of circa 1.1350+ to 1.1280 recent range. Rand awaits SA Budget around the 15.0000 mark and watches Gold attempting to stay within striking distance of Usd 1900/oz

In commodities, crude benchmarks are experiencing a pull-back this morning as newsflow is comparably slower than at this point yesterday and in the context of yesterday's notable upside. Thus far, Brent has moved to a test of yesterday’s low at USD 95.80/bbl, though WTI remains someway from the comparable mark given the lack of settlement earlier in the week. US State Department official said US actions on Russia will not likely disrupt global energy markets and said officials did not discuss increasing oil output during the US trip to Saudi Arabia last week. US is coordinating with oil consuming countries to make sure all are able to respond if necessary and OPEC countries understand US concerns about importance of stability of global oil markets, while the official added that nothing currently happening on the ground in Ukraine risks oil flows. Spot gold remains in relative proximity to USD 1900/oz but with a negative bias while LME Copper retain an underlying bid but remains below the 10k handle

In fixed income, UK bonds and STIR futures regain poise as BoE members signal a tempered tightening pace going forward. Bunds encouraged by a very strong 2036 German debt sale. US Treasuries lag awaiting USD 53bln 5 year issuance.

Geopolitical news:

• EU Ambassadors have approved sanctions on Russia, according to a EU diplomat via Reuters. *Reminder, there is a 14:00GMT/09:0EST deadline for the EU Foreign Affairs Ministers to give their final approval to the full legal text of such sanctions.
• EU to sanction Russian Defense Minister Shoigu, and Russia's internet research agency, as part of first-wave restrictions, via WSJ.
• The UK is finalizing a stronger sanctions package to impose on Russia in the coming days, according to sources via Politico.
• Ukraine Foreign Minister Kuleba said sanctions from the US are specific and painful, while he added that pressure on Russia should be stepped up. Kuleba also stated that President Biden's sanctions announcement looks strong as a first move and they received a promise of more assistance from the US, while they are not seeking US troops on the ground, according to a Fox interview
• Canadian PM Trudeau announced sanctions on Russia in coordination with allies in which Canadians were banned from all dealing with the so-called independent states of Luhansk and Donetsk, while Canadians are also banned from engaging in purchases of Russian sovereign debt. Furthermore, they will apply additional sanctions on two state-backed Russian banks and will sanction Russian parliament members who voted to recognise the so-called republics.
• Australian PM Morrison announced he is to impose sanctions on some Russian individuals, travel bans and targeted financial sanctions, while PM Morrison said expect subsequent tranches of sanctions and that this is only the start of the process.
• Japanese PM Kishida announced a ban of Russian issue of bonds in Japan and said he doesn't see a big impact on energy supply in the short-term from current situation, while he announced a freeze of assets of certain Russian individuals.
• Russia Finance Ministry closely monitoring financial markets after US placed restrictions on Russian debt; OFZ auction to depend on market conditions; could issue with papers carrying lower level of interest rate risk, via Reuters

Central banks:

• RBNZ hiked the OCR by 25bps to 1.00% as expected and said the OCR is expected to peak at a higher level than assumed in the November statement, while the committee affirmed it was willing to move the OCR in larger increments if required over the coming quarters. RBNZ said many members saw this as a finely balanced decision whether to move OCR up by 25bps or 50bps and it noted more tightening is needed, as well as agreed to commence a gradual reduction of holdings under the LSAP programme in which it intends to commence bond sales in July. Furthermore, it said headline CPI is well above RBNZ target range but will return towards 2% mid-point in coming years. and sees the OCR at 2.84% in June 2023 (prev. 2.40%).
• RBNZ Governor Orr said cannot rule out 50bps hikes in the future and that rates do need to rise significantly but they will take their time step by step, while he added the amount of tightening through bond sales is very small and that it is all about the OCR.
• Fed's Bostic (2024 voter, hawk) said the economy is still quite strong as officials try to figure out the economy in real time, while companies and output remain restrained by inability to find workers. Fed's Bostic (2024 voter) says businesses are feeling need to adjust wages but it is not clear how long it will persist, adds have not seen worrisome changes yet in long-term inflation expectations
• ECB's Holzmann said the council should consider two rate hikes this year and sees neutral rate at 1.50% as realistic by 2024.
• ECB's Villeroy says, re. Ukraine, we will assess in March the more indirect consequences on inflation/growth and will be facts driven.
• BoE Governor Bailey says there are two-sided risks to the inflation forecast, important not to suggest there is a difference in the view on the MPC about the level that rates need to reach, as opposed to the pace.
• Second-round effects present an upside risk to inflation. If second-round effects materialise, will need to react with higher interest rates.

US Event Calendar

• 7 a.m.: Feb. MBA Mortgage Applications -13.1%, prior -5.4%
• 3:30 p.m.: Fed’s Daly Speaks At Los Angeles World Affairs Council

DB's Jim Reid concludes the overnight wrap

As we go to press, geopolitical tensions continue to remain the dominant theme in markets, although a number of assets have now begun to stabilise after heavy losses on Monday and early Tuesday. This morning futures on the S&P 500 are up +0.56%, whilst oil has steadied at $97.17/bbl, having come down from a peak of $99.50/bbl over the last 24 hours. Asian equities have also regained ground overnight as risk appetite has recovered, with the Hang Seng (+0.85%), the CSI 300 (+0.88%) and the Shanghai Composite (+0.77%) all posting a decent advance, whilst Japanese markets are closed for a holiday. The coming day could well be pivotal, with Australian Prime Minister Morrison saying overnight that Russia was “at peak readiness to now complete a full-scale invasion of Ukraine, and that is likely to occur within the next 24 hours.”

Those moves follow President Biden’s address last night where he labelled Russia’s moves against Ukraine an invasion and announced a first tranche of sanctions on the country. The sanctions were coordinated with European allies and thus very similar to what European leaders announced. The US will sanction banks connected with the Russian defence industry, certain Russian elites, prevent Russia from issuing debt to western investors, and prevent Russian sovereign debt issued after March 1 from trading on secondary markets in the US. These were not the harshest sanctions the US could impose, and it was noted the sanctions will escalate in severity along with any escalation in Ukraine. Diplomatically, Secretary of State Blinken noted President Putin’s remarks were deeply disturbing and cancelled his upcoming meeting with his Russian counterpart Foreign Minister Lavrov. Blinken described the rationale for cancelling the meeting, “Now that we see the invasion is beginning and Russia has made clear its wholesale rejection of diplomacy, it does not make sense to go forward with that meeting at this time.” While President Biden assured the public that the US had no intention of fighting Russia, they will increase the amount of troops and materiel deployed in eastern Europe.

Meanwhile, the upper house of Russia’s parliament approved the use of troop deployments to the self-proclaimed republics.

Earlier in the day, the EU similarly said that member states had given political agreement for sanctions against Russia, and Commission President von der Leyen said in a statement that they “target banks that finance the Russian military apparatus and contribute to the destabilisation of Ukraine”, and that they were also “limiting the Russian government´s ability to raise capital on the EU's financial markets.” Separately the UK unveiled some measures, including freezes on 5 banks and 3 individuals, along with sanctions on members of the Russian Duma and Federation Council who voted to recognise the independence of the two breakaway provinces.

There was also a notable development from Germany, as it was announced that they’d be putting the Nord Stream 2 certification process on hold in light of President Putin’s move to send troops into eastern Ukraine. The move was welcomed by the White House, although European natural gas futures ended the day up +9.96% at €79.79 per megawatt hour, with a noticeable spike occurring after Chancellor Scholz’s announcement on the issue. President von der Leyen also welcomed this, saying that “Nord Stream 2 has to be assessed in light of the security of energy supply for the whole of Europe. Because this crisis shows that Europe is still too dependent on Russian gas.”

For markets all this meant it was a fairly mixed day yesterday. The S&P 500 fell -1.01% as it caught up following the previous day’s holiday, although the STOXX 600 in Europe actually eked out a +0.07% gain after recovering from its early losses. For a sense of this big turnaround, you only had to look at Russian assets themselves, where the MOEX equity index initially fell -9.23% shortly after we went to press yesterday, before paring back its losses through the day to actually close up +1.42%, so a recovery of almost 12% by the close compared to those initial losses.

The tensions led to further rises in commodity prices, with Brent crude oil closing at a post-2014 high of $96.84/bbl, albeit that was actually more than a couple of dollars beneath its intraday peak of $99.50/bbl in the European morning. Separately, Nickel prices on the London metal exchange rose above $25,000/ton for the first time in over a decade at one point on an intraday basis, and corn futures (+3.03%) hit a 7-month high of their own. These broad-based rises in commodities sent the Bloomberg Commodity Spot Index (+1.71%) up to a fresh record, which won’t be welcome news for central banks who are grappling with how to avoid supply shocks leading to more generalised inflation.

For sovereign bonds, those fears of inflation outweighed the flight to haven assets yesterday, with yields rising across different countries and maturities. Yields on 10yr Treasuries ended the day up +1.0bps at 1.94%, though just before the European open they’d been beneath 1.85%, so again a big turnaround on the day. That rise was entirely driven by higher breakevens, with the 10yr real yield actually down -2.4bps yesterday to -0.54%. And yesterday also saw the 2s10s yield curve flatten by another -7.3bps, bringing it back to 38.4bps, which is the flattest it has been since the initial Covid outbreak in April 2020. Europe saw a similar movement in yields, with those on 10yr bunds (+3.6bps), OATs (+1.7bps) and BTPs (+1.3bps) all moving higher on the day, whilst those on Russian 10yr debt were up a further +30.0bps.

In light of the Ukraine crisis, the main market theme from a couple of weeks back of the potential for more aggressive central bank hiking cycles has moved off the agenda somewhat. Indeed, the amount of ECB hikes priced in by the December meeting fell back to 35bps yesterday, the lowest since their meeting earlier this month. Meanwhile for the BoE, overnight index swaps were only pricing in a 31% chance of a 50bps move in March by the close yesterday, which followed a speech by Deputy Governor Ramsden, who voted for a larger 50bp move in February. Whilst Ramsden said that “some further modest tightening in monetary policy is likely to be appropriate in the coming months”, he emphasised that “The word “modest” is significant here though”.

Staying on central banks, the Reserve Bank of New Zealand hiked its official policy rate by 25bps overnight, taking the Official Cash Rate to 1%. With inflation remaining a threat, the central bank signalled that more tightening is needed going forward, and they didn’t rule out the possibility of hikes in larger increments if the need arose. Following the policy announcement, which signposted a more aggressive pace of tightening relative to November, the New Zealand dollar has strengthened by +0.44% against the US dollar this morning.

On the data front, the US Conference Board’s consumer confidence indicator fell to a 5-month low in February at 110.5 (vs. 110.0 expected), with the expectations measure falling to 87.5. That said, the flash PMIs came in above expectations, echoing what we saw the previous day in Europe, with the composite PMI up to 56.0 (vs. 52.5 expected). And on top of that, house prices continued to show further strength into the end of last year, with the FHFA house price index for December up +1.2% (vs. +1.0% expected), which is its fastest monthly growth since July. Separately in Germany, the Ifo’s business climate indicator for February rose to a 5-month high of 98.9 (vs. 96.5 expected).

To the day ahead now, and central bank speakers include BoE Governor Bailey, Deputy Governor Broadbent, and the BoE’s Haskel and Tenreyro, in addition to ECB Vice President de Guindos, and the ECB’s de Cos, and San Francisco Fed President Daly. Otherwise, earnings releases include Lowe’s, Booking Holdings and TJX.