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US President Biden and China's President Xi Jinping will discuss Russia's war against Ukraine and 'other issues of mutual concern' via phone call.
Markets will look out for hints that China is willing to take a more active role as a mediator in the Russia-Ukraine war.
During an otherwise quiet day on the data front, headlines surrounding possible ceasefire negotiations between Ukraine and Russia will also remain in focus. Comments from Fed's Waller could reveal more about the pace of future policy tightening.
The 60 second overview
UK: Bank of England yesterday hiked its key policy rate 25bp to 0.75% as expected. However, it played down the possibility of more rate increases over the coming months as it sees 'risks on both sides'.
Oil: Brent bounced back yesterday. We attribute it to the relatively dovish perception of Wednesday's FOMC meeting, which has also led to a drop in broad USD. We continue to see upside for oil prices over the coming 3M as the market tightens in search of oil beyond Russia.
Russia: S&P cut Russia's credit rating to CC yesterday citing the risk Russia will not be able to make payment on its debt saying. It was S&P's understanding that investors did not receive coupon payment on a USD bond scheduled for Wednesday, triggering a 30-day grace period for Russia to avert default.
Japan: Bank of Japan kept monetary policy unchanged at its meeting overnight and further revised down its view on the economy due to impact of Covid and rising commodity prices.
Equities: Global equities higher for the third day in a row with VIX index lower for the third day in a row as well. The first 2½ months of 2022 have been characterized by massive rotation between sectors and styles and with risk of investors being caught on the wrong foot. Looking forward we see uncertainty fading despite the terrible war in Ukraine continuing. With uncertainty fading, we see rotations in the coming months being much smaller and hence also volatility coming down. US stocks rose yesterday and ended the day with Dow +1.2%, S&P 500 +1.2%, Nasdaq +1.3% and Russell 2000 +1.7%. Asian markets are mostly higher this morning though with Hang Seng in small setback after two days of spectacular moves. Futures are lower in both US and Europe.
FI: The war in Ukraine and the negative impact on the European economies relative to the high inflation is still the main focus on the markets after the Federal Reserve and Bank of England both raised policy rates on Wednesday and Thursday. Yesterday, bond yields initially fell before rising later in the day. We are seeing a normalisation of some of the “stretched” spreads such as the German ASW-spreads that are slowly normalising. However, the significant increase in German net borrowing requirement from EUR 99bn to EUR 200bn due to the increase in defence spending has had only modest impact on the German ASW-spreads.
FX: Yesterday's rebound in commodities benefitted NZD, NOK and AUD but also EUR notably benefitted despite a recent inverse relationship to oil. EUR/USD temporarily moved above 1.11, EUR/SEK edged above 10.40 while EUR/NOK moved below 9.80. GBP weakened on Bank of England's rate announcement with EUR/GBP moving above 0.84.
Credit: Indicies continued to tighten yesterday with iTraxx main some 3.1bp tighter and Xover 11.8bp tighter. These are now indicated at 70.3bp and 335.5bp respectively, marking a solid recovery from their widest levels during the war (at 89bp and 434bp). Yesterday we also saw positive signals from the primary markets, where Castellum from the otherwise badly bruised real-estate sector, managed to print an oversubscribed EUR benchmark bond.
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