US EARLY MORNING: Equity futures are rallying amid more constructive Ukraine/Russia talks, hopes of China policy support; FOMC at 18:00GMT/14:00EDT

EQUITIES: NQ +1.6%, RTY +1.2%, ES +1.0%, YM +0.9%. Asian equities were higher on hopes Chinese authorities would provide economic support amid the resurgence of the pandemic; the European day got off to a solid start, after positive leads from Wall Street and Asia session; gains are being underpinned on apparent progress being made in Russia/Ukraine talks (the latest: Ukraine President said talks had become more 'realistic', though still 'difficult', and more progress was needed, while Ukraine must recognise it will not join NATO; Russia President claimed Kyiv was not serious in wanting to find a solution; Russian Foreign Minister said Ukraine's neutral status was seriously being discussed, and some agreements are near). The main event, however, is the FOMC meeting (note the earlier time in Europe: 18:00GMT/14:00EDT, +25bps rate hike expected, updated projections – how many hikes do the dot plots foresee? We’re not expecting balance sheet specifics. Our preview here), but before then, retail sales for February will be released at 12:30GMT/08:30EDT.

TREASURIES: Treasury yields are bear-steepening, but yields aren’t too far off neutral; the shape of the curve is biased towards small steepening. The complex will be paying more attention to the FOMC than anything else today. And while a 25bps rate hike is the base case, there may be more focus on how many hikes the Committee is projecting for the rest of the year. The previous ‘dots’ pencilled in three rate rises in 2022, but money markets are pricing six/seven rate rises of 25bps through the rest of the year; we’ll also be paying attention to where the Fed sees the eventual terminal rate; inflation projections are likely to be raised, while the growth forecasts will be telling: does the FOMC see a slower pace of growth as it is lifting rates?

DOLLAR: The Dollar Index is lower by around 20bps, amid a more constructive risk dynamic, where there seems to be some limited progress in Russia/Ukraine talks, while risk rallied in Asia on hopes of policymaker support amid a COVID resurgence in China. The Fed will ultimately prove to be the main catalyst for the buck today (preview link above). Activity currencies are rallying, with the favoured risk-proxy SEK up almost 1.0% vs the USD. EUR is also gaining, and is hovering around 1.10, where there are some lumpy option expiries rolling off at the NY cut today. EMFX is higher, with Asia FX (like KRW) rallying. CEE3 FX in Europe is mixed, however.

CRUDE: Oil benchmarks are up USD 1.75-2.50, pausing after the declines recently, which has seen oil shed around one-third of its price since from peaks, as geopolitical risk premium unwinds. ING said that leaves the complex vulnerable to sharp upside in the event of unfriendly geopolitical headlines. Meanwhile, the IEA has cut its view of demand given the Ukraine/Russia war, and sees Russian output slumping next month. The demand side continues to focus on China COVID, where there have been some hopes of policy support.

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16 Mar 2022 - 09:23- EnergyResearch Sheet- Source: Newsquawk

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