Strategists at Goldman Sachs lowered their year-end price target to 4,700 from 4,900, citing the surge in commodities prices and the weaker outlook for U.S. and global growth.
Goldman's economists on Friday had cut their GDP forecast and said the odds of a U.S. recession next year were as high as 35%.
Forex:
The dollar fell as reports of progress in talks to resolve the Russia-Ukraine conflict reduce demand for safe-haven assets. Russian and Ukraine officials gave upbeat assessments on Sunday of their talks and signalled that planned further negotiations could yield positive results within days.
The news overshadows the prospect of a possible interest-rate rise by the Federal Reserve on Wednesday.
"A 25 basis points [rate] hike plus some solid color on balance-sheet reduction should be expected," RBC Capital Markets said. Fed Chair Jerome Powell is also likely to flag that additional rate rises are coming to combat inflation, RBC said.
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Sterling could rise slightly versus the euro as the Bank of England is expected to raise interest rates further on Thursday, although it is likely to fall against the dollar due to uncertainty over Ukraine, ING said.
The BOE is likely to raise its benchmark rate by 25 basis points, ING analysts said. The market is too aggressive in pricing in six rate rises this year but
Thursday may be too soon for the BOE to push back against these expectations given accelerating inflation, they said.
"EUR/GBP can probably drift back towards the 0.8350 area," they said.
However, GBP/USD could fall to 1.2850 as uncertainty over the Ukraine war favors the safe haven dollar, they said.
Bonds:
The 2% level for the 10-year U.S. Treasury yield is sustainable as long as the war is contained in Ukraine, ING's rates strategists said.
It would take a breakout beyond Ukraine for the 10-year UST yield to fall back to 1.7%, they said.
When Russia invaded Ukraine, ING's strategists forecast the 10-year UST yield to fall to between 1.5% and 1.75%, and it got to the 1.7% area before rising back to 2%, they said.
"That move back to the 2% area represents an implied market assumption that the war remains in Ukraine, where the biggest fallout is higher energy/commodity prices, and an elevated Russian default risk," they added.
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Despite recent tightening, euro corporate bond spreads remain higher than before Russia launched a military assault on Ukraine on Feb. 24, said UniCredit's research team.
"In terms of recent performance, despite Friday's spread tightening European credit spreads are well above where they were when the conflict started," analysts at the Italian bank said.
The major outperforming sectors in the Market iBoxx non-financial corporate bond indexes for the period are oil & gas, with the spread almost unchanged since the start of the conflict, and health care, where the spread is just 5 basis points wider, they said.
By contrast, retail, travel & leisure and chemicals were the major underperforming sectors, with spreads widening 53 bps, 22 bps and 13 bps respectively, they said.
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The yield on U.K. ten-year benchmark government bonds trades around its highest level in a month ahead of a much-anticipated interest rate increase by the Bank of England this Thursday.
Market watchers widely expect BOE officials to announce a 25 basis-point rate rise, taking the base rate to 0.75%, in an effort to bring down inflation as energy prices soar.
This would mark the third consecutive interest-rate increase since December 2021. "Attention will be centred on the signals for later meetings, and on how concerned central bankers sound regarding inflation expectations resetting higher," Mizuho said.
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The U.S. and China's meeting in Rome for expected high-level talks about war in Ukraine could potentially shake euro corporate bond markets Monday, said UniCredit's research team.
"While the economic calendar does not contain pivotal data releases, amid the ongoing Russia-Ukraine conflict, the European corporate credit market remains exposed to headlines," analysts at the Italian bank said, adding that the meeting between the U.S. and Chinese officials will be "crucial" today.
China has sought to keep a diplomatic distance from the Kremlin's invasion of Ukraine, choosing to abstain in a UN vote condemning Russia's military assault. By contrast, the U.S. and Western allies have condemned the attack and imposed stringent economic sanctions on Russia.
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The scope of any plans for a new round of shared European Union debt or any other details would be pure speculation at this stage, LBBW's analysts said.
"While reports have not been confirmed, we are seeing some indications that they have already generated quite a response on the financial market," they added.
The analysts are referring to the significant rise in 10-year Bund yields last week, as well as to the fact that risk premiums for sovereign bonds from peripheral eurozone countries were volatile and sideways.
Commodities:
Oil prices dropped as concerns over fresh Covid-19 outbreaks in China counter concerns that Iran nuclear talks have stalled. "There is a shift in focus...from the latest developments in the Russia-Ukraine war to worsening Covid outbreaks in China," SPI Asset Management said.
China locked down the major city of Shenzhen on Sunday after an outbreak of cases.
The lockdown, which raises concerns about demand in China, is countering the signs that talks over a new Iran nuclear deal have stumbled. Analysts had been expecting a new deal would be followed by a lifting of sanctions on Iran's oil exports.
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Gold prices declined in the early European session as hopes for progress in the Russia-Ukraine talks diminish safe-haven appeal of the precious metal.
Russian President Putin noted there are "certain positive shifts" in negotiations with Ukraine, Oanda said. While Putin's comments are likely giving market participants hope that cease-fire talks are heading in the right direction, economic growth concerns are unlikely to go away anytime soon, hence gold's pullback should be limited, Oanda added.
EMEA HEADLINES
Russian Missiles Strike Ukrainian Military Training Base Near Polish Border
A Russian airstrike on a Ukrainian military training center close to the Polish border threw into sharp relief the hazards of the Western push to deliver arms support to Kyiv while avoiding direct conflict with a nuclear adversary.
The airstrike killed 35 people at the facility in Yavoriv about 10 miles from the Polish border early Sunday, far to the west of where the conflict has been concentrated, one day after Moscow warned the West that it would consider arms deliveries to Ukraine as legitimate targets.
How Europe Hopes to Wean Itself From Russian Natural Gas
International efforts to sanction Russia for its invasion of Ukraine have magnified a long-running dilemma for the European Union: Its attempts to wean itself from coal have left it more reliant on Moscow for natural gas. This dependence has made it reluctant to support the kind of tough sanctions on energy exports that some say are essential for thwarting Russia's aggressions.
As part of its efforts to cut greenhouse-gas emissions, the EU has reduced its reliance on coal, the burning of which produces more carbon dioxide than oil or natural gas.
JPMorgan Leads Talks to Contain Nickel Crisis Damage
Some of the world's biggest banks worked over the weekend to resolve a crisis in the nickel market that leaves them on the hook for billions of dollars owed by a Chinese metals giant.
JPMorgan Chase & Co., Standard Chartered PLC and BNP Paribas SA were among the banks and brokers seeking to reach an agreement with Tsingshan Holding Group, people familiar with the discussions said. Trades placed by the Chinese steel and nickel producer on the London Metal Exchange contributed to an uncontrollable rise in prices that led the exchange to halt trading and cancel eight hours' worth of transactions last Tuesday.
EDF Sees Bigger Earnings Hit From Government Measures, Lower Nuclear Output
Electricite de France SA said Monday that it now expects a more serious decrease in its earnings this year from French government measures aimed at curbing rising electricity bills, as well as from lower nuclear output.
The French state-controlled utility now sees an impact of around 10.2 billion euros ($11.13 billion) on its earnings before interest, taxes, depreciation and amortization for 2022, relating to the setting this weekend of a purchase price from suppliers. In January, EDF had estimated a hit of EUR8.4 billion from related measures.
Rio Tinto Makes $2.7 Bln Bid for Remaining 49% Stake in Turquoise Hill
Rio Tinto PLC said Monday that it has made a nonbinding proposal to acquire the remaining 49% shareholding in Turquoise Hill Resources Ltd., the holding company of the Oyu Tolgoi copper-gold project in Mongolia.
The mining group said the offer is for 34 Canadian dollars (US$26.68) in cash a Turquoise Hill share, representing a 32% premium to the latest closing price and valuing the Turquoise Hill minority share capital at around $2.7 billion.
Deutsche Bank Violates DOJ Settlement, Agrees to Extend Outside Monitor
Deutsche Bank AG agreed to extend the term of an outside compliance monitor after Justice Department prosecutors found the bank violated a criminal settlement by not disclosing a misconduct complaint in its asset manager's sustainable-investing business, the bank said.
The complaint, made by a former executive, alleged that Deutsche Bank's majority-owned asset manager, DWS Group, overstated how much it used environmental, social and governance criteria, or ESG, to manage investments it oversees. Instead of hearing about it from the bank, U.S. authorities learned of the issue in an August Wall Street Journal article.
Russian Prosecutors Warn Western Companies of Arrests, Asset Seizures
(MORE TO FOLLOW) Dow Jones Newswires
03-14-22 0641ET
