"While Fed Chair Jerome Powell and other Fed officials have been talking up the potential need for larger 50 basis points rate hikes at upcoming FOMC meetings, the BOE is continuing to signal more caution over the need for further monetary tightening in the near-term," MUFG analysts sid.
This divergence in rhetoric has been reflected in market pricing with the BOE expected to deliver a cumulative total of 136bp rate rises by year-end, compared to 212bp for the Fed, they said.
Bonds:
ING's rates strategists said reaching 0.70% is within the realm of possible outcomes for the 10-year German Bund yield, mostly dragged by U.S. markets, but it isn't a done deal. "The main risk to our view is a deterioration in sentiment."
The strategists pointed to geopolitics but added that more broadly, sharp rises in rates have had a tendency to generate their own risk-off reactions.
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UniCredit Research said there are indications that the German Bund curve is about to join the flattening trend seen in the Treasury curve for a year.
"Since money markets are pricing in the European Central Bank's first rate hike in early September, we would regard it as reasonable if the Bund curve were now to enter a flattening trend."
UniCredit said the 2-10-year segment of the Bund curve closed flatter on four of the past five trading days.
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Italian government bonds hold well despite a popular market mantra that investors would run away from all eurozone periphery debt at the first signs of interest rate rises by the European Central Bank, said Hendrik Tuch, head of fixed income at Aegon Asset Management Netherlands.
Periphery governments have been preparing for the normalization of yields and have extended the term of their debt as much as possible, he said.
In the last two quarters, German 10-year Bund yields rose almost 80 basis points, while the 10-year Italian BTP-German Bund yield spread rose about 50 basis points "but it looks like there are sufficient investors to replace the ECB buying program at a spread of around 150 bps over German government bonds," he said.
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Investors are keeping one eye on bond markets, however, for a sign seen by many as predicting a recession. The yield on the benchmark 10-year note rose to 2.497% from 2.476% on Monday while the 2-year bond's yield rose to 2.423% from 2.340%, at the previous day's settlement.
When the shorter-dated bond's yield rises above the longer-dated 10-year's it is known as a yield curve inversion, something which is sometimes considered an indicator of a coming recession.
"There have been more yield curve inversions than recessions but every time there is a recession you can look back and find a yield curve inversion," said Mr. Kassam.
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Expectations that the Fed will raise interest rates by 50 basis points in both May and June meetings suggests credit spreads trade too tight, said Mizuho.
"A quick U.S. tightening like this over the next quarter leaves credit spreads still too tight, and equities slightly stretched," analysts at the Japanese bank said.
They expect the combination of lower economic growth and elevated inflation coupled with tighter monetary policy to weigh on companies. "The stagflation theme will erode corporate earnings, and the tighter monetary policy will increase the cost of funding for corporates," they said.
Commodities:
Oil prices edged higher in Europe as investors monitored peace talks between Russia and Ukraine while demand concerns lingered over lockdowns in China.
The war in Ukraine has tightened the oil market as Western nations have shunned Russian crude but negotiations are raising hopes that the conflict can be ended.
Meantime, Covid-19 outbreaks in China are raising fears for demand. "Markets are fearing the outbreak could ultimately put under threat the 15.5mb/d of oil the country consumes," ANZ Bank said.
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Gold fell in the morning European session. The precious metal could consolidate between the $1,900/oz and $1,950/oz levels as the global bond market selloff seems to be only pausing, Oanda said.
Until growth concerns get real, gold might struggle in the short term, Oanda said.
EMEA HEADLINES
Ukraine and Russia Prepare for Talks in Turkey as Russian Missiles Hit Cities
KYIV, Ukraine-Russia and Ukraine prepared to hold cease-fire talks in Turkey to try to end more than a month of war while intense fighting continued, with Ukrainian forces pressing to retake territory north of the capital Kyiv after Russian forces fired missiles at several Ukrainian cities overnight.
Russian negotiators were due to arrive in Istanbul late on Monday, followed by a Ukrainian delegation during the night, for cease-fire talks scheduled for Tuesday morning. Ukrainian President Volodymyr Zelensky over the weekend outlined the conditions under which Ukraine might accept neutral status as part of a peace settlement with Russia, saying his country could hold a referendum on neutrality, but only after Russian occupation forces leave Ukraine's territory.
Maersk Warns of Delays and Higher Costs as Shanghai Locks Down
Danish container-shipping company A.P. Moeller-Maersk AS said the lockdown of Shanghai will hit trucking services and could increase transport prices as Chinese authorities escalate measures to contain a spiraling Covid-19 outbreak in China's financial capital.
The city imposed a two-stage lockdown on Monday, with citizens on the eastern side of the city ordered to stay home Monday and public transportation shut down for four days while public-health officials conduct a testing blitz. The lockdown is due to switch to the western half of the city on April 1.
German Consumer Sentiment Is Expected to Deteriorate Sharply on Inflation, War Concerns
Consumer confidence in Germany is set to worsen sharply in April, falling to a 14-month low, as inflation and the war in Ukraine weigh heavily on households' expectations about the economy and personal finances.
Market research group GfK's forward-looking consumer sentiment index forecasts confidence decreasing to minus 15.5 in April from minus 8.5 in March. The decline, which is broadly in line with economists' expectations, places the index to its lowest level since February 2021.
SSE Raises FY22 Guidance as Renewable Power Output Recovered in 4Q
SSE PLC on Tuesday raised earnings guidance for fiscal 2022, as renewable electricity production benefited from better weather conditions in the fourth quarter.
The U.K. energy group, which owns power-eneration plants and networks, forecast adjusted earnings per share of between 92 pence and 97 pence ($1.20-$1.27) for the year ending March 31. Previously, in February, SSE had said that adjusted EPS would be at least 90 pence.
Russia Built Parallel Payments System That Escaped Western Sanctions
Western sanctions have disrupted nearly every part of Russia's financial system, but there is one big exception.
The domestic-payments system continued to work smoothly after Visa Inc. and Mastercard Inc. pulled out earlier this month. While the card giants' exit from Russia was viewed as a significant move by many in the West, the reality on the ground was anything but. Most Russian consumers never lost the ability to use their Mastercard- and Visa-branded cards to pay for things within the country.
Roman Abramovich and Ukrainian Peace Negotiators Suffer Suspected Poisoning
Russian oligarch Roman Abramovich and Ukrainian peace negotiators suffered symptoms of suspected poisoning after a meeting in Kyiv earlier this month, people familiar with the matter said.
Mr. Abramovich, Ukrainian lawmaker Rustem Umerov and another negotiator developed symptoms following the March 3 meeting in Kyiv that included red eyes, constant and painful tearing, and peeling skin on their faces and hands, the people said. Mr. Abramovich has shuttled between Moscow, Belarus and other negotiating venues since Russia invaded Ukraine.
Ukraine War Increases Risk of Debt Defaults by Developing Countries
WASHINGTON-Up to a dozen developing countries face increased risk of debt defaults in the coming year as the war in Ukraine boosts commodity prices and adds to existing Covid-19 pandemic-related pressures, a top World Bank economist said.
Even before Russia invaded Ukraine, highly indebted emerging and developing economies were on shaky ground, said Marcello Estevao, the World Bank's global director for macroeconomics, trade and investment, in a blog post on Monday. The pandemic had pushed up total indebtedness of the countries to a 50-year high, or the equivalent of more than 2.5 times government revenues.
Secret World of Pro-Russia Hacking Group Exposed in Leak
In a secret chat room run by a group of Russian-affiliated cybercriminals, a hacker expressed excitement about a plan to attack and disable more than 400 U.S. hospitals. "There will be panic," the hacker wrote, in Russian.
It was 2020, at a severe point in the pandemic, and the gang planned to hold hostage the computer systems of the hospitals, many of which were fighting to save Covid-19 patients.
Barclays Trips Itself Up
Barclays shareholders woke on Monday to the unwelcome news of a sizable hit to its U.S. structured products business. These are generally cleverly designed instruments-sometimes too cleverly for an unpredictable world-but the British bank was tripped up by a much more elementary error.
(MORE TO FOLLOW) Dow Jones Newswires
03-29-22 0632ET
