US EARLY MORNING: US equities futures are rebounding after four days of losses; yields continue higher

EQUITIES: US equity futures have been rebounding on Wednesday following a run of four days of losses (NQ +1.4%, ES +1.2%, RTY +1.2%, YM +1.1%). APAC equity performance overnight was mixed, but the European morning has been far more constructive, with stocks that have been hammered in recent days seeing a reprieve (Banks rallying as exposure to Russia limited, while the pro-cyclical Travel & Leisure and Autos sectors are also seeing upside). Traders said that gains were underpinned by Tuesday’s announcement of ‘massive’ EU joint debt issuance to finance energy and defence spending, news that Europe was not participating in the US ban on the import of Russian energy, as well as a suggestion on Monday (which got wider circulation on Tuesday) that Ukraine appeared to be scaling-down its immediate NATO ambitions, perhaps offering a route to peace with Russia.

TREASURIES: Treasuries continue to ease for the third straight day, and yields are higher across the curve by 2-4bps; spreads are mixed, but 2s30s is narrowing. Inflation concerns – as evidenced in the recent widening of breakevens – as well as the announced ‘massive’ EU issuance to finance energy and defence spending has left a bearish impulse in the complex. The Treasury will auction 10yr notes later this afternoon, following a weak 3s sale on Tuesday, which saw the highest yield since 2019, a chunky tail, and cover below recent averages; internals saw indirects take a smaller share. Analysts will be watching to see how the TPLEX trades into today’s 10s auction, tomorrow’s 30s auction, tomorrow’s US CPI report (expecting further upside for headline and core annual rates of inflation) ahead of next week’s FOMC meeting (25bps hike is the base case), and Thursday’s ECB with its potentially global macro implications (our preview here – analysts expect the monpol normalisation to be slowed amid uncertainties), where Treasuries could move in sympathy.

CRUDE: Oil benchmarks have tilted into negative territory; the constructive risk mood and some hopes that Ukraine scaling down NATO ambitions offers some hope regarding the talks between the Russian and Ukrainian Foreign Ministers, due to take place in Turkey on Thursday. The US announced a ban on imports of Russian oil but doesn’t import all that much; Europe is far more dependent, and will not participate in the latest US moves, but aims to reduce reliance on Russian energy over the medium-term. Analysts said the US moves will still tighten oil markets in the coming weeks and months. We continue to be cognizant regarding the possibility of a Iran nuclear deal; the country’s chief negotiator is back in Vienna. Meanwhile, Venezuela released imprisoned Americans following recent talks with the US; the latter’s officials said that the release was not part of any deal with Venezuela to restart oil sales to the US, but analysts noted the more friendlier tone could imply Venezuela might eventually help offset some of the global shortfall caused by the ban on Russian oil, even though it might not have a short-term impact given that raising Venezuelan output could still take some time. Elsewhere, there does not appear to be a lack of barrels in the US: API’s gauge of energy inventories for the week reportedly showed a surprise build in crude stocks of +2.8mln (exp. -0.7mln), although the products drew down more than expected: Gasoline -2.0mln (exp. -2.1mln), Distillate -5.5mln (exp. -1.9mln).

DOLLAR: The decent risk tone is seeing the USD sold in the European morning, with the Dollar Index now trading back below the 99.00 handle. Analysts have been suggesting that some of the geopolitical risk premium is being unwound across many macro assets amid some hope that Ukraine’s scaled-back NATO ambitions may offer a pathway to peace in talks with Russia this week. Risk-sensitive FX is rallying, with the SEK outperforming in the high-beta G10 FX complex; GBP lags with gains of just +0.3% against the USD. Oil importers like INR are rallying, but TRY continues to suffer. There is a lot of green on the EMFX screen, while haven FX are flat vs the USD, though gold is lower by around 1.5%.

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09 Mar 2022 - 09:55- EnergyResearch Sheet- Source: Newsquawk

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