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Opening Call:
European stocks could start the week higher after Biden agrees to Putin summit provided Russia pulls back from Ukraine attack. The Dollar and Japanese yen weaken against most G-10 and Asian currencies. The yield on the 10-year Treasury note was unchanged at 1.928%. Oil prices are mixed. Gold falls after summit agreement.
Equities:
European stocks are set to open higher Monday after an announcement that President Joe Biden and Russia's Vladimir Putin have agreed in principle to a summit to ease tensions over Ukraine.
U.S stock-index futures bounced back from early-session losses Sunday.
Late Sunday, French President Emmanuel Macron's office said that Biden and Putin have agreed "in principle" to a summit in the coming weeks, after a series of conversations with the French leader, but only if Russia does not invade Ukraine
The U.S. confirmed the announcement. "President Biden accepted in principle a meeting with President Putin ... again, if an invasion hasn't happened. We are always ready for diplomacy," White House press secretary Jen Psaski said Sunday night.
That sharply defused investors' concerns as tensions had ratcheted higher earlier Sunday, after Russia reneged on a pledge to withdraw tens of thousands of troops from neighboring Belarus at the conclusion of military exercises. U.S. officials said Sunday that Russia has decided to invade Ukraine, based on intelligence that field commanders have been given final to prepare for an attack.
The U.S. and its Western allies have vowed to impose tough sanctions against Russia if it invades, and Russia could retaliate by cutting oil and gas exports. Speaking at the Munich Security Conference on Sunday, Vice President Kamala Harris warned that U.S. consumers could be affected, paying higher energy prices.
Forex:
Havens such as the dollar and Japanese yen weaken against most G-10 and Asian currencies as President Biden agreed to meet his Russian counterpart, Vladimir Putin, bolstering appetite for riskier assets.
Meanwhile, the Fed's challenge is to get ahead of market to safeguard inflation credibility, while the ECB can stay behind, Bank of America said, and there's asymmetric risks from the Russia-Ukraine crisis.
"We expect more USD strength as 2022 unfolds, concentrated against lower beta FX. We expect core inflation pressure to persist in the US for longer than elsewhere, leading to additional monetary policy divergence and rising US interest rate differentials."
The firm is also "constructive on commodity G10 FX, anticipating commodities to remain supported as global growth rebounds" and bearish on GBP.
The US dollar lost a little ground against most major currencies over the last week as a whole, as the FOMC minutes prompted a scaling back of market expectations for Fed tightening and risk sentiment see-sawed on continued Russia-Ukraine tensions," Capital Economics' Joseph Marlow said.
"We believe that the 'terminal rate' discounted in US money markets is low and will eventually rise. That is why we continue to think that longer-dated yield differentials will shift in favor of the US dollar, which we expect to keep the greenback on the front foot over the next year or two."
Bonds:
The yield on the 10-year Treasury note was unchanged at 1.928% early Monday. The Ukraine situation "remains fragile and still has the potential to trigger major market moves at any time," wrote analysts at Commerzbank, in a Friday note.
Short-term Treasurys' curve flattens last week, in a possible sign that investors foresee a slower pace of tightening, Tradeweb said.
"The spreads that constitute this curve had been trending steeper since the fall of 2021 and into 2022. They still are steeper compared to where they closed on the dates of the last few FOMC meetings. But they are flatter compared to where they were in the last week."
On Wednesday, the FOMC minutes were widely seen as less hawkish than previously thought. Tradeweb said that the 3/6-month spread closed at a steep 33.4 basis points earlier this week, but has since fallen to 26.7 bps.
Energy:
Oil prices initially jumped near $93 a barrel before settling back down following the summit announcement. As of late Sunday night, West Texas intermediate crude was back in positive territory.
A potential war between Russia and Ukraine could send oil prices over $100 a barrel, analysts have warned.
Traders also focused on developments in Iran nuclear deal talks, CBA said, as oil markets will be able to access much needed supply if a deal between Iran and global powers is reached.
When U.S. President Obama helped broker the nuclear accord which gave sanctions relief for Iran in 2016, Iran's oil output lifted much more quickly than anticipated, CBA said.
"This time around it looks like markets are more optimistic about Iran's potential increase in oil production," the bank said.
Metals:
Gold fell in early Asia trade after President Biden agreed in principle to meet his Russian counterpart, Vladimir Putin, provided that Russia pulls back from a potential attack of its smaller neighbor.
TODAY'S TOP HEADLINES
Biden Agrees to Putin Summit Provided Russia Pulls Back From Ukraine Attack
As the U.S. warned of an imminent Russian invasion of neighboring Ukraine, President Biden agreed in principle to meet his Russian counterpart, Vladimir Putin, provided that Russia pulls back from a potential attack of its smaller neighbor.
President's Biden's decision came during a discussion with French President Emmanuel Macron, who made a flurry of calls seeking a diplomatic solution to the crisis. In the call with his American counterpart, Mr. Macron proposed a summit between Presidents Biden and Putin and then a meeting with other governments on security and strategic stability in Europe, the French president's office said in a statement. Mr. Biden and Mr. Putin have accepted the principle of such a summit, Mr. Macron's office said.
Fiscal Stimulus Is Turning Into a Fiscal Drag, in a Big Headwind for Growth
The federal pandemic support that helped propel the economy to blistering growth last year and put upward pressure on inflation is rapidly waning. That will weigh on consumers this year, pulling growth down though not by enough to knock the recovery off track, economists say.
Inflation-adjusted gross domestic product rose 5.5% in the fourth quarter from the same period a year earlier, its best annual rate since 1984. That was supported by roughly $3.6 trillion in federal spending in response to Covid-19 since the pandemic's start, including direct support to households via stimulus checks, enhanced unemployment benefits, monthly child tax-credit payments, and aid to state and local governments.
China PBOC Keeps Benchmark Lending Rates Unchanged
China's central bank on Monday kept its benchmark loan prime rates unchanged after trimming the official rates for two months in a row.
The People's Bank of China kept the one-year loan prime rate at 3.7%, while the five-year rate was 4.6%, both on par with the prior month.
Economy Week Ahead: Housing, Inflation, the Fed
Federal Reserve speakers, consumer spending and inflation data highlight this week's economic calendar. Geopolitical tensions in Eastern Europe will also be in focus.
Decline in China New Home Prices Moderates in January
BEIJING-New home prices in China fell for the fifth month in a row in January, albeit at a slower pace, amid policy easing and regulatory support.
Average new home prices in 70 major cities edged down 0.04% in January from the previous month, China's National Bureau of Statistics said Monday, compared with December's 0.28% decrease.
Great Britain Property Prices Rise at Record Pace in February
Rightmove said Monday that the price of new property rose 2.3% in February in Great Britain, the biggest on-month increase recorded by the real estate website in more than 20 years.
According to Rightmove data, new seller-asking prices rose by 7,785 pounds ($10,599) this month, hitting a record-high average price of GBP348,804. The annual growth rate accelerated to 9.5%, the highest since September 2014, signaling a red-hot U.K. housing market.
Russia-Ukraine Tensions Power Gold to Eight-Month Highs
Escalating tensions between Russia and Ukraine have boosted gold prices to their highest levels since June.
Gold has gained in 12 of the past 15 sessions, including seven straight through Monday, lifted by demand from investors nervous that an outbreak of war could spark losses in other investments. Investors prize gold for its stability in times of turmoil.
Apple Finds Itself Under Scrutiny in Washington's Big Tech Clampdown
U.S. lawmakers in both parties are expressing concern with how Apple Inc. runs its App Store, leaving the company playing defense against legislation that would loosen its grip on the profitable business.
The Senate Judiciary Committee voted 20-2 this month to advance legislation that could erode the fees Apple collects on digital app revenues. The vote came despite calls to senators by Chief Executive Tim Cook, and the company's warnings that the bill would hurt user privacy and security.
Russia Calls on People to Flee Eastern Ukraine. Most Are Staying Put.
Russian-installed leaders in two breakaway areas of eastern Ukraine warned Friday that war was coming and called on people to evacuate or take up arms. The response was largely a weary shrug.
Squeezed between a massive Russian military buildup on one side and Ukrainian forces on the other, people drained ATMs of cash, filled their cars with gas and stocked up on essentials.
Burning Electric-Vehicle Batteries Complicate Efforts to Fight Fire on Drifting Ship in Atlantic Ocean
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02-21-22 0033ET
