The drills had raised concerns about a possible Russia invasion of Ukraine. USD/RUB fell 1.4% to a four-day low of 75.2910, according to FactSet. The exchange rate reached a two-week high of 78.1716 on Monday on worries over an escalation of the crisis.
Bonds:
Yields on benchmark U.S. 10-year Treasury notes rallied to 2.035% from 1.995% Monday.
Bond investors seem to be clinging to the Fed's typical tightening playbook, Morgan Stanley Wealth Management's global investment committee said.
This means pushing up front-end interest rates, flattening the yield curve and assuming central bank success in quashing inflation, even if it risks a recession, it said.
Morgan Stanley Wealth Management remains in the camp that says inflation is likely to be stickier and more structural than in prior cycles, adding that it has been sceptical of the argument that the current situation is all about supply chains and will be cured rapidly.
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Julius Baer sees the 10-year U.S. Treasury yield at 2.1% on a three-month horizon, as the prospect of an early policy normalization puts upward pressure on yields, its analysts said.
An upside surprise to U.S. inflation in January suggests an early normalization of monetary policy, including a 50-basis-point rise in the policy rate at the Fed's next meeting in March, followed by a 25-basis-point rate rise at each of the May and June meetings, Julius Baer's analysts said.
"The higher-than-expected inflation reading for January; increases political pressure on the Fed to normalize its monetary policy stance without further delay," they added.
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The European Central Bank is still intending to reduce monetary policy accommodation in the coming months, but recent comments from ECB policy makers suggest that the aggressive exit that markets had started to price in was unrealistic, ABN Amro's economists said.
"We have therefore seen a co-ordinated campaign to push back on the speed and extent, rather than the general direction," they added. ABN Amro expects the ECB to end net asset purchases altogether in September, followed by a 10 basis point rise of the deposit rate in December 2022 and another 10 basis point rise in March 2023."After that we expect rate hikes to be aborted, or at least put on ice, with the deposit rate at -0.3% by the end of 2023," ABN Amro's economists said.
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NatWest Markets continues to target the 10-year German Bund yield at 0.50% this year, while it considers the market pricing of interest rate rises by the European Central Bank in the summer as premature.
"Looking at core sovereigns and Bunds in particular, the team continues to express the view that the front end of the curve has value...while still targeting 0.50% this year for Bunds," its strategists said.
NatWest Markets views market pricing of interest rates rises for summer as too aggressive, and even a rise in December is an open question for its strategists, they added.
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The gap, or spread, between 10-year U.K. benchmark government debt and its German counterpart is likely to widen further and Mizuho analysts are advising clients to position for this.
"Gilt-Bund has started the week by widening as per our high conviction view," analysts at the Japanese bank said, adding that they recommend looking to add more to this position on a pullback today.
While the U.K. is selling a 10-year debt today, "the more potent catalyst from sterling rates comes on Wednesday with U.K. inflation data, " they said.
Commodities:
Oil and natural gas prices slumped as Russian state media reports that some Russian troops are pulling back, raising hopes that conflict with Ukraine can be avoided.
European natural gas futures also slump with Dutch prices, the European benchmark, falling over 5% to EUR76.50 a megawatt-hour, while U.K. gas prices fall over 5% to 182.75 British pence a therm.
The Russian Defense Ministry said some military units were returning to their bases after completing training, according to RIA Novosti. The reports were easing some investors' concerns that a conflict threatened to disrupt Russian supplies of energy and other commodities, said Hani Redha, a multiasset fund manager at PineBridge Investments.
EMEA HEADLINES
Russia Says Some Troops Pulling Back From Ukraine Border but Exercises Continue
Russia's Defense Ministry said it had pulled back some troops from near Ukraine while noting that large-scale military maneuvers were continuing and Western officials warned that combat units were moving into forward positions.
The announced pullback of around 10,000 troops, out of a force estimated to have numbered about 130,000, came amid a new round of shuttle diplomacy aimed at defusing the crisis. Moscow has warned of unspecified consequences if the U.S. and its allies reject its security demands.
Eurozone Economic Growth Slowed in 4Q Amid Rising Coronavirus Cases, Confirming First Estimate
The eurozone economy grew at a slower pace in the fourth quarter than in the previous period due to rising coronavirus cases and the re-imposition of restrictions across the continent taking their toll on the services sector.
Across the 19 countries that use the euro as their currency, gross domestic product grew 0.3% on quarter in the last three months of the year, the European Union's statistics agency Eurostat said Tuesday, confirming the first estimate released on Jan. 31. This figure is in line with the forecast of economists polled by The Wall Street Journal.
Eurozone Trade Deficit Widens in December
The eurozone's trade balance recorded its second consecutive deficit in December, after recording a deficit in November for the first time since January 2014, data from the European Union's statistics agency, Eurostat, showed Tuesday.
The eurozone's trade deficit in goods--the difference between exports and imports--stood at 4.6 billion euros ($5.2 billion) in December, sharply down from the EUR28.3 billion surplus registered for the same month a year earlier.
German Economic Expectations Rise in February Despite Uncertainties
Economic expectations in Germany rose for the second consecutive month in February, as financial market experts expect an easing of pandemic-related restrictions and an economic recovery in the first half of 2022, the ZEW economic research institute said Tuesday.
The index of economic expectations increased to 54.3 in February from 51.7 in January, below the 56.0 forecast from economists polled by The Wall Street Journal.
Glencore Sets Aside $1.5 Billion to Cover Regulatory Probes
LONDON-Commodities giant Glencore PLC made a provision of $1.5 billion to cover a series of regulatory investigations in the U.S., the U.K. and Brazil into allegations of bribery, saying it expected the probes that have long bedeviled the company to be resolved this year.
In 2018, London-listed Glencore said it received a subpoena from the U.S. Department of Justice demanding records related to its compliance with American antibribery and money-laundering laws in Congo, Nigeria and Venezuela.
Blackstone's European Last-Mile Logistics Deal Values Mileway at $24 Billion
Blackstone Inc. is doubling down on its warehousing bet that is aimed at ensuring same-day delivery of food and goods by reinvesting in its European last-mile logistics real-estate company, a transaction valued at almost $24 billion.
The deal represents the biggest private real estate transaction globally since 1995, according to Dealogic. It also ranks as the largest M&A transaction in Europe involving private companies since 2012, according to the data provider.
Intel Nears Roughly $6 Billion Deal to Buy Tower Semiconductor
Intel Corp. is close to a deal to buy Israeli chip company Tower Semiconductor Ltd. for nearly $6 billion, according to people familiar with the matter, bolstering a plan to make more chips for other companies.
A deal could be unveiled as soon as this week, assuming the talks don't fall apart, the people said.
BHP First-Half Net Profit More Than Doubles on Strong Commodity Prices
BHP Group Ltd. said its first-half net profit more than doubled, underpinned by strong prices for all of its commodities, including copper and coal.
The world's largest-listed miner by market value said it made a net profit of $9.44 billion in the six months through December. It made a profit of $3.88 billion in the same period a year earlier, when impairment charges against its coal assets weighed on its bottom line.
UK Employers Added Jobs in January Despite Omicron
Employers in the U.K. continued to add staff to their payrolls in January, in a sign that the country's job market remained strong despite the hit to activity from the Omicron coronavirus variant.
Staff on businesses' payrolls rose by 108,000 in January compared with the previous month, to a record 29.5 million, according to data from the Office for National Statistics released Tuesday. In December, British employers added 131,000 jobs.
Randstad Declares Special Dividend as 4Q Performance Rose
Randstad NV on Tuesday declared a special dividend as it reported a 16% rise in net profit for the fourth quarter.
The Dutch staffing company made a net profit for the quarter of 238 million euros ($269.1 million), compared with EUR205 million for the same quarter a year earlier.
Russia's Parliament to Weigh Recognition of Breakaway Ukraine Regions
MOSCOW-Russian legislators will Tuesday consider proposals urging President Vladimir Putin to formally recognize the separatist-controlled regions of eastern Ukraine as independent states, in a move that could justify Moscow's incursion into an area it no longer considers to be Ukrainian territory.
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02-15-22 0631ET
