MARKET WRAPS
Watch For:
Eurozone M3; Germany Ifo Business Climate Index; Italy Consumer/Business Confidence Surveys, Foreign Trade non-EU; UK Automotive Manufacturing, Consumer Confidence, Retail Sales, Capital issuance; updates from Lufthansa, Vitesco Technologies, Erste Group Bank, BASF, Rheinmetall, Banco Sabadell, Repsol, Banco Santander, Smiths Group, United Utilities, Steinhoff
Opening Call:
Investors face the ongoing worries of inflation, Fed policy tightening and the war in Ukraine, with stocks struggling to break free of recent ranges as a result. In Asia, major benchmarks were mixed, with tech losses dragging the Hang Seng down almost 2%. Elsewhere, the dollar edged lower, bond yields and gold ticked up and oil extended its modest retreat.
Equities:
Europe faces another cautious session Friday, with modest opening gains seen capped as investors continue to grapple with rising inflation, mixed economic signals, the war in Ukraine and the continuing disruptions from the pandemic.
The market looks like the February lows won't be breached and equities are entering a more temperate period where investors will try and digest everything that has happened so far, said JMP Securities analyst Mark Lehmann. "We've had a lot in a very short time," he said. "The market's trying to figure itself out."
U.S. stocks closed near session highs Thursday as Joe Biden wrapped up a series of gatherings with allies and world leaders in Brussels a month after Vladimir Putin invaded Ukraine.
"Until we see a cessation of hostilities between Russia and Ukraine, it is prudent for investors to raise cash and reduce exposure to stocks," said Richard Saperstein, chief investment officer at Treasury Partners.
"While the stock market is attempting to recover from its correction, markets are fundamentally riskier and more uncertain than before Russia's invasion of Ukraine."
Economic Insight:
The U.K. faces potential civil unrest as the country's European Union exit and coronavirus hit the economy and force up housing and childcare costs, according to a study. The country came second to last in a table of 36 major economies based on economic sustainability, with only Latvia faring worse, the report by L'Atelier BNP Paribas, a research unit of the French bank, suggests.
High accommodation costs, limited childcare support and concentration of economic gains among relatively few people constrain social mobility and raise the prospect of "social unrest, protest and extremism."
A growing deficit fueled by the impact of Brexit and coronavirus-related borrowing is mainly responsible for the high costs and deteriorating economy, according to the report.
Forex:
The dollar weakened slightly in Asia while the yen made gains.
SPI Asset Management said the yen has strengthened on possible demand by Japanese companies to repatriate profits on foreign holdings to Japan for accounting purposes ahead of the country's fiscal year-end on March 31.
However, the Bank of Japan's accommodative monetary-policy stance compared with the tightening bias among a number of countries such as the U.S. may help to limit yen's gains, analysts said.
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Sterling may gain against the euro as the Bank of England continues to raise interest rates and the European Central Bank is slower to start following suit, but gains will be limited, TD Securities said. "The short-term outlook favors a bit more downside in EUR/GBP, likely retesting the 0.825/0.830 area."
Sterling still offers yield advantage while the ECB inches towards policy normalization. However, the next big move in EUR/GBP will be higher, TD said. The eurozone has greater potential for fiscal stimulus while yield curves and market pricing for peak interest rates point to a rise in EUR/GBP.
TD expects EUR/GBP to increase to 0.88 by March 2023.
Bonds:
Treasury yields continued to tick higher in Asia after they mostly rose Thursday, with the 2- and 10-year rates at some of their highest levels of the year.
This followed the U.S. decision to roll out new sanctions against Russia and as investors continued to assess remarks by Federal Reserve officials on the need for further rate increases.
Energy:
Oil prices extended declines in early Asia trade after settling more than 2% lower Thursday.
Traders are digesting reports that Kazakhstan's Caspian Pipeline Consortium terminal could partially resume oil exports, as well as news that the EU hasn't been able to agree on a plan to boycott Russian oil, Phillip Securities said.
Focus will be on developments in a European boycott agreement, without which the U.S.'s sanctions won't have the same effect. SPI Asset Management said that if Germany eventually caves to U.S. over Russian oil embargo demands, that could push Brent to $150 a barrel.
Metals:
Gold futures nudged higher as uncertainty around the war in Ukraine continued to stoke risk-off sentiment in Asia.
Bullion settled at its highest level in about two weeks on Thursday, with futures further boosted by headlines indicating the G-7 has agreed to crack down on any gold transaction involving Russia's central bank, which will be subject to existing sanctions, FXStreet said.
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Aluminum was almost 1% lower on fears of weak economic growth due to China's lockdowns and the war in Ukraine, but prices could rise as supply remains tight, ANZ said.
"To date, there are no U.S. sanctions on aluminum. However, sanctions by market players world-wide have caused constraints on the supply of raw materials to Russia," ANZ said.
High energy prices are also putting cost pressure on producers, which may further support aluminum. "Aluminum buyers will scramble to secure supply amid low inventories and strong demand."
Other News:
Fitch said commodity prices could rise further, expecting the Ukraine war to drag on into the second quarter and for Western sanctions on Russia to continue broadening as a result.
"The deepening conflict in Ukraine will maintain heavy pressure on the commodities complex in the short term, with energy bearing much of the brunt."
Oil and gas prices could remain high over the first half, which would spill over into agricultural commodities and other energy-intensive resources. Sugar, cotton and palm oil face likely price upside, while nickel, aluminum, copper and palladium face export-disruption risks, Fitch said.
TODAY'S TOP HEADLINES
Fed's Evans Sees 'Many' Rate Rises Ahead This Year
Federal Reserve Bank of Chicago President Charles Evans said on Thursday that he agrees with the central bank's collective view that monetary policy will need to move to a restrictive stance to get high levels of inflation under control.
In a public appearance, Mr. Evans said he is on board with the seven rate rises penciled in for 2022 by the central bank at last week's Federal Open Market Committee. Regarding last week's monetary policy action, he said "our recent 25-basis-point rate hike was the first of what appears to be many this year."
European Lawmakers Reach Deal on Sweeping New Digital-Competition Law
BRUSSELS-European lawmakers reached agreement late Thursday on the main points of a new digital-competition law focused on the world's biggest tech companies, setting the stage for one of the most sweeping pieces of technology-regulation legislation to go into effect next year.
The new law, known as the Digital Markets Act, is part of the biggest proposed expansion of global-tech regulation in decades. It seeks to impose new obligations and prohibitions on a small cadre of digital giants the European Union defines as gatekeepers-backed by fines for noncompliance that, based on early drafts of the legislation, could rise into the tens of billions of dollars.
BOJ's Kuroda Says Yen Hasn't Lost Its Credibility
Bank of Japan Gov. Haruhiko Kuroda said Friday that the recent weakening of the yen doesn't mean the market has lost trust in the Japanese currency.
"It is desirable for foreign exchange rates to reflect economic and financial fundamentals and move in a stable manner," Mr. Kuroda said in a parliamentary committee meeting. A weaker yen is generally positive for the Japanese economy and prices, while its impact is different on each economic entity, he added.
Biden Calls for Russia to Be Expelled From G-20
BRUSSELS-President Biden said Russia should be expelled from the Group of 20 major economies and pledged the U.S. would take in up to 100,000 refugees fleeing Ukraine as he met Thursday with world leaders to discuss new sanctions and humanitarian aid in response to Moscow's invasion.
The gatherings in Brussels came amid concerns that Russian President Vladimir Putin could order the use of chemical or other unconventional weapons in Ukraine, a move Mr. Biden said would trigger a response from the U.S. and allies.
Ukraine Strikes Russian Navy as War Enters Second Month
Ukraine said it struck the Russian-occupied port in the Azov Sea city of Berdyansk on Thursday, igniting a large fire and hitting a Russian warship at the site, which has become a major logistics hub for Moscow's invasion forces.
Footage from the area showed smoke billowing from a ship and secondary explosions from detonating ammunition. Footage also showed two smaller Russian ships fleeing the port after the explosions, one of the ships on fire.
Russian Central Bank Chief Tried to Quit Over Ukraine War
Russian Central Bank Gov. Elvira Nabiullina tried to resign after the invasion of Ukraine, people familiar with the matter said. Her effort was rejected by Russian President Vladimir Putin who instead nominated her for a third term.
Over nearly a decade Ms. Nabiullina has been one of Mr. Putin's most stalwart allies in buttressing the Russian economy against volatile oil prices and U.S. sanctions in a growing face-off with the West, while remaining one of the few liberals who hold senior positions in the Russian government.
U.K. Car Manufacturing Had Worst February in 13 Years, War to Hurt Further
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03-25-22 0127ET
