US EARLY MORNING: Stocks lower as geopolitical tensions linger; Biden to speak with leader today ahead of Europe visit later in the week; Fed Chair Powell to deliver remarks to NABE

EQUITIES: Apac equities were choppy at the start of the week, while European indices were mixed after the open. US index futures are lower by 0.2-0.5%, but off lows (ES -0.2%, RTY -0.3%, YM – 0.3%, NQ -0.5%). Geopolitics and higher oil prices are once again causing angst; on the former, there is not very much progress being made. Reports suggest that Russia has severed Ukraine’s access to the Sea of Azov over the weekend, with the region of Mariupol–a strategic area between Russian-annexed Crimea and Donetsk–on the brink of being lost to Russia. President Putin is apparently not yet ready to meet with Ukraine President Zelenskiy, with the latter warning that a failed peace process could lead to WW3. President Biden will today hold a call with leaders from the UK, France, Germany, Italy to further discuss Russia today ahead of his visit to the continent later in the week. Oil prices have risen by USD 4.60-4.80/bbl as Europe mulls an oil embargo, while Saudi Aramco CEO noted tightness in markets. Meanwhile, amid increasing risks of an economic slowdown and higher consumer prices are leading to stagflation fears; Bill Gross was the latest high profile commentator on the weekend to warn that tighter Fed policy would 'crack' the US economy. For equity investors, Goldman Sachs notes that stagflation risks present the prospect of lower real returns and higher risks from 60/40 equity/bond portfolios. Its strategists have noted that "while there is pressure for higher equity allocations, given the prospect of poor returns and less diversification from bonds, this increases the risk of large and fast drawdowns in the near term." The bank presents its clients with strategies to help achieve acceptable real returns without unacceptable risk: "a combination of allocations to commodities, real estate, infrastructure, more international diversification as well as value, high dividend yield stocks and convertibles could help to reduce the risk of another 60/40 'lost decade'." Full Day Ahead here. 

TREASURIES: Yields are higher by 3-6bps across the curve, with underperformance in the belly; major curve spreads are flattening by 1-3bps. As has been noted heavily recently, some Treasury curve spreads are inverting, which has historically been a harbinger of slower growth and recessions. Morgan Stanley writes that "with the Fed raising rates this past week and communicating a very hawkish tightening path over the next year, our rates strategists are looking for an inversion of the yield curve in 2Q," but add that "curve inversion does not guarantee a recession, and our economists don’t expect one," But it still supports its view for sharply decelerating earnings growth, and is further evidence that we are in a late cycle stage. Today (and again later in the week), Fed Chair Powell is scheduled to deliver remarks, where he will likely copy/paste the commentary he provided after last Wednesday’s FOMC, where he was keen to emphasise that the US economy can tolerate tighter monetary policy at this stage, and although the Fed marked-down its assessment of growth in 2022, it still sees above trend rate growth this year. Full Day Ahead here. 

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21 Mar 2022 - 09:26- EnergyGeopolitical- Source: Newsquawk

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