Futures Surge Led By Tech Meltup Ahead Of Fed, BOJ Decisions

US stock futures and global markets are higher led by Tech with the Mag7 and semis higher pre-mkt while small-caps underperform ahead of two key central bank decisions - by the Fed, BOJ and BOE - while Nvidia has two key events this week which may be even more market-moving. As of 8:00am, S&P futures were 0.73% higher while Nasdaq futures gained 1.1%. Tech was boosted by news from Bloomberg  that Apple may use Google's woke AI chatbot Gemini to power the iPhone's AI features. Bond yields and USD are flat, while commodity strength is seen in both Ags and Energy, where oil hit a fresh four-month high as macro-economic data from China came in ahead of expectations, and Ukrainian attacks on Russian refineries heightened geopolitical risks. According to JPM's weekly preview, this is a catalyst-heavy week as the markets may be approaching an inflection point with Mag7 appearing extended, positioning getting stretched, and the potential for bond yields to reprice higher as economic growth is elevated amid above-target inflation. Today's US data calendar is light and keeps focus on Tuesday’s Bank of Japan meeting, where first rate hike in 17 years is expected, as well as Wednesday’s Fed policy announcement.

In premarket trading, Google parent company Alphabet rallied almost 4% in premarket trading after Bloomberg reported that Apple is in talks to build Google’s Gemini artificial intelligence engine into the iPhone; Nvidia and Tesla added more than 2%. Here are some other notable premarket movers:

• B. Riley Financial (RILY US) fell 12% after the boutique investment bank failed to file its audited results after an extension period ended.
• Nvidia (NVDA US) rose 2.3% after HSBC raised it price target on the chip giant. The bank says the company’s 2025 AI road map provides more pricing power and will help overcome 2H24 product transition risks.
• PepsiCo (PEP US) advanced 1.7% after the beverage and snack company was upgraded to overweight from equal-weight at Morgan Stanley, which said the issues driving their downgrade of the stock last year have now played out.
• Shift4 Payments (FOUR US) fell 9.0% after CEO Jared Isaacman said bids from potential suitors have failed to value firm adequately.

The Federal Reserve’s meeting on Wednesday is set to dictate the direction of global stocks for the next quarter, with policymakers likely to stick to forecasts for three interest-rate cuts in 2024. Meanwhile, the Bank of Japan is widely expected to hike interest rates tomorrow, potentially ending the world’s last negative interest rate regime. In the US, the main focus comes Wednesday, when Fed policy makers gather for a meeting that has the potential to set the tone for global stocks for the next quarter. While Fed Chairman Jerome Powell indicated the central bank was close to having the confidence to cut, bond traders appear to have painfully surrendered to a higher-for-longer reality. The 10-year Treasury yield held near a three-week high on Monday, having risen more than 20 basis points last week. A gauge of the dollar was steady.

“The recent market repricing has put policy expectations essentially at Fed estimates,” said Anthi Tsouvali, multi asset strategist at State Street Global Markets. The decision will likely provide “another signal that easing of economic conditions is coming, pushing equity markets higher,” Tsouvali said.

European stocks hover near record levels ahead of rate decisions from the US Federal Reserve and Bank of England later this week. The Stoxx 600 Index was largely unchanged, with autos, real estate and the energy sector among top gainers. Among individual stocks, Haleon falls after Pfizer said it plans to sell about £2 billion of its shares.  Here are some of the biggest movers Monday:

• Aston Martin gains as much as 11% in early trading as Bank of America upgrades the stock to buy from neutral, saying the British carmaker will turn the corner after a trough in 1Q24.
• Reckitt Benckiser advances as much as 5.9%, rallying from Friday’s record drop triggered by a US verdict related to baby formula. Barclays says the move was a “substantial over-reaction.”
• LPP gains as much a 11% after plunging 36% on Friday following a report by activist short-seller Hindenburg Research that said the company’s withdrawal from Russia was a “sham.”
• Alstom gains as much as 10% after the French rail systems firm saw its rating upgraded to buy from hold at Deutsche Bank, which bets that the “worst is now behind the group.”
• Signify gains as much as 8.5%, the most in almost five months, after Barclays double-upgrades the lighting manufacturer to overweight, citing a “compelling” risk-reward.
• Discovery shares rise as much as 3.8% before turning negative, after the financial services company said it expects normalized profit from operations to increase by between 10% and 15% y/y.
• Chemring rises as much as 5.9% after the defense market supplier won new work in Europe worth just under £90m, partly thanks to the EU’s efforts to boost supplies of ammunition to Ukraine.
• Richemont shares fall as much as 2%, after ZKB cut its recommendation on the luxury firm to market perform from outperform, seeing risks from the high prior-year baseline.
• Haleon shares fall as much as 3.2%, the most since Nov. 2, as biggest shareholder Pfizer plans to reduce its stake in the UK consumer health company to about 24% from 32%.
• Logitech shares fall as much as 8.2% after the Swiss manufacturer of computer peripherals said CFO Chuck Boynton will step down after just 13 months in the role.
• Meyer Burger shares fall as much as 18% after the solar panel maker announced a CHF200m rights issue, which is larger than the company’s market cap.
• Hannover Re shares rose, recouping earlier losses, following a stronger-than-expected dividend and in-line results.

Earlier in the session, Asian stocks climbed, led by Japan and China, as investors brace for an event-heavy week that includes monetary policy outcomes in Japan and the US. The MSCI Asia Pacific Index gained as much as 0.8%, the most since March 8, with technology and industrial stocks contributing the most.  In Japan, the Nikkei 225 index climbed the most in a month and the yen traded weaker against the dollar, amid signs markets have priced in the potential for an interest-rate increase. “Japanese stocks are rising, driven by weakness of the yen, and expectations that the currency won’t strengthen even if the central bank hikes,” said Charu Chanana, a strategist at Saxo Capital Markets based in Singapore.

“The weaker yen from widening US-Japan rates and reduced uncertainty for the BOJ meeting should push Japanese stocks higher today,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Intelligence Laboratory. US yields have been gaining amid bets on fewer rate cuts this year. “Defensives are likely to rise, including electric power and gas, land transportation, materials, non-ferrous metals and steel.”

Mainland China pared early gains as data released on Monday pointed to continued troubles for the property sector and weakness consumer spending. Property development investments slid 9% from last year in February, while retail sales missed expectations.

In FX, the Bloomberg Dollar Spot Index is also little changed. The yen falls 0.1% even as speculation mounts the Bank of Japan will raise interest rates on Tuesday.

In rates, treasuries are steady ahead of the Fed decision on Wednesday. US 10-year yields are flat at 4.3% with front-end outperforming, steepening the curve. US front-end yields richer by 1.3bp on the day with intermediate and long-end little changed, steepening 2s10s and 5s30s by 1bp-2bp; Bunds are underperforming by 2bp in the sector. Germany’s bond market sees bigger bear-steepening move, with long-end around 3bp cheaper on the day after erasing gains. Treasury auctions this week include $13b 20-year bond reopening Tuesday and $16b 10-year TIPS reopening Thursday.

In commodities, oil hit a fresh four-month high as macro-economic data from China came in ahead of expectations, and Ukrainian attacks on Russian refineries heightened geopolitical risks. Morgan Stanley increased its Brent crude price forecast to $90 a barrel by 3Q, citing tightening supply-demand balances. Over the weekend, BHP is reported to have stood down around a quarter of the workers constructing its West Musgrave nickel and copper project in Western Australia, according to the Australian Financial Review.  Spot gold is unchanged at $2,156/oz.

Bitcoin holds just above $68k after volatile price action over the weekend; Ethereum is also lower trading around $3,500.

The US economic data calendar includes March New York Fed services business activity (8:30am) and NAHB housing market index (10am); later this week are housing starts/building permits, manufacturing PMI and new home sales. Nvidia CEO Huang is set to speak on AI at 4pm ET. There are no Fed speakers scheduled before March 20 policy decision.

Market Snapshot

• S&P 500 futures up 0.2% to 5,193.25
• STOXX Europe 600 little changed at 504.60
• MXAP up 0.9% to 176.23
• MXAPJ up 0.3% to 534.99
• Nikkei up 2.7% to 39,740.44
• Topix up 1.9% to 2,721.99
• Hang Seng Index little changed at 16,737.12
• Shanghai Composite up 1.0% to 3,084.93
• Sensex up 0.2% to 72,815.76
• Australia S&P/ASX 200 little changed at 7,675.85
• Kospi up 0.7% to 2,685.84
• German 10Y yield little changed at 2.45%
• Euro little changed at $1.0896
• Brent Futures up 0.9% to $86.10/bbl
• Gold spot down 0.2% to $2,152.61
• US Dollar Index little changed at 103.39

Top Overnight News

• China’s YTD (Jan/Feb) industrial production came in solidly ahead of plan (+7% vs. the Street +5.2%), and fixed asset investment beat expectations too, while retail sales were essentially inline (+5.5% vs. the Street +5.6%) and property investment remained in the doldrums. RTRS
• China’s marriage rate rose in 2023, the first increase in nine years. SCMP
• Brazil launches a slew of anti-dumping investigations into Chinese products (this is the latest sign of pushback by a government concerned about China responding to slow domestic growth by flooding the world with imports). FT
• South Ossetia, a region that broke away from Georgia and calls itself an independent state, has discussed becoming part of Russia with Moscow officials, Russian news agency RIA cited the head of South Ossetia's parliament as saying on Sunday. RTRS
• Trump advisors presented him with three names to become Fed chair: Kevin Hassett, Arthur Laffer, and Kevin Warsh. WSJ
• Mike Pence said he will not endorse Trump, reflecting the deep divisions between the two men. The Hill
• Evidence is mounting that many Americans have reached their limit for tolerating higher prices, raising questions about how much consumer expenditures will continue to power US economic growth this year. FT
• One of the most pressing issues facing Donald Trump is the financial disparity he and allied groups now face with Mr. Biden and the Democratic Party. Democrats have boasted of entering February with $130 million. The Trump operation did not release a full total, but his campaign account and the Republican National Committee had around $40 million. NYT
• GOOGL is in talks to license its Gemini AI technology to Apple for use in the iPhone (Apple will incorporate some of its own AI technology in the next iPhone, but lacks the powerful generative AI models of Google and OpenAI). BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were somewhat mixed after quiet weekend newsflow and as participants brace for this week's busy slate of central bank announcements including tomorrow's crucial BoJ decision, while better-than-expected Chinese activity data had little lasting effect. ASX 200 traded cautiously with the index contained by underperformance in real estate and energy. Nikkei 225 outperformed despite weak Machinery Orders and with many anticipating a policy shift at tomorrow's BoJ announcement, while momentum in the index was helped by currency weakness and softer yields. Hang Seng and Shanghai Comp. were both ultimately positive after the Hang Seng pared earlier losses with the help of tech strength but with gains capped by weakness in property, while the mainland was gradually underpinned following better-than-expected Chinese Industrial Production and Retail Sales data.

Top Asian News

• China's NBS said with macro policy, the economy continued to recover but noted that the property market is still in the process of adjustment and stated that China can achieve this year's growth target.
• China’s Vice Commerce Minister said they are studying cutting new energy vehicle insurance premium rates and improving NEV maintenance service capabilities to reduce buyer worries, according to Yicai.
• China’s air passenger numbers rose 44.6% Y/Y to 62.48mln trips in February with international passenger traffic up 593.4% Y/Y to 81.8% of 2019 levels and domestic air passenger traffic up 35.5% Y/Y in February.
• India is to begin voting in the national elections on April 19th which will end on June 1st and India will count the votes in the national elections on June 4th.
• China’s strong factory output and investment growth at the start of the year raised doubts over how soon policymakers will step up support still needed to boost demand and reach an ambitious growth target, according to Bloomberg

European bourses are mostly firmer, though with clear underperformance in the SMI (-0.6%), which is hampered by losses in Logitech (-7.5%). European sectors are mixed; Real Estate takes the top spot, whilst Telecoms is found at the foot of the pile. US equity futures (ES +0.3%, NQ +0.6%, RTY +0.2%) are entirely in the green, with clear outperformance in the NQ; Google (+2.5%) benefits from Apple/Gemini related news and Nvidia (+2.1%) gains ahead of its GTC

Top European News

• EU is reportedly mulling joining the US in reviewing risks of Chinese legacy chips, according to Bloomberg sources; flagging potential risks to national security and supply chains.
• UK PM Sunak’s strategists are planning another tax-cutting budget in September ahead of an election in October or November if he can survive amid doubts about his leadership spreading in the Conservative Party, while Sunak’s government is said to be facing the same levels of economic misery that led to the Conservative Party’s defeat in 1997, according to Bloomberg citing the Misery Index.
• ECB’s de Cos said it is normal that they should begin cutting rates if their macroeconomic forecasts are met in the coming months and that June would be a good date to start, while he believes the current degree of consensus is very high and he hopes this will continue, according to an interview with Spanish newspaper El Periodico.
• ECB's Knot said the eurozone has avoided a recession and that he has pencilled in June to start cutting rates, while he added that where they take it from there will be data dependent.
• Fitch affirmed Germany at AAA; Outlook Stable and affirmed Malta at A+; Outlook Stable, while S&P affirmed Spain at A; Outlook Stable.

FX

• Contained trade for DXY within tight parameters of 103.36-51 with markets in "wait-and-see" mode ahead of a slew of risk-events (Fed, BoJ, RBA, BoE, PMIs).
• EUR is touch firmer vs. the USD but in quiet newsflow with the pair running out of steam ahead ahead of Friday's 1.0899 peak and the psych 1.09 mark.
• GBP is flat vs. the Dollar and marginally softer vs. the EUR. UK newsflow over the weekend has been non-incremental ahead of a busy week of UK updates including, CPI, PMIs, Retail Sales and the BoE policy announcement. For now, Cable is stuck within Friday's 1.2725-59 range.
• JPY is a touch softer vs. the USD with USD/JPY back on a 149 handle. However, conviction in price action is likely to be limited ahead of the BoJ tomorrow, trading within a 149.32-148.92 range.
• Antipodeans are both firmer vs. the USD alongside the favourable risk environment. AUD/USD went as high as 0.6574 but unable to test Friday's peak of 0.6582. NZD/USD also edging higher but still shy of the 0.61 mark.
• PBoC sets USD/CNY mid-point at 7.0943 vs exp. 7.1995 (prev. 7.0975)

Fixed Income

• USTs are incrementally softer given the modestly constructive risk tone after China's activity data while the US looks to the Nvidia keynote this evening and then the FOMC on Wednesday.
• A contained start for Bunds ahead of a blockbuster week, including policy announcements from the Fed, BoJ and the BoE. Currently holds around 131.70 and garners support at 131.60 (1st March) and resistance at 132.78.
• Gilts are similarly contained and slightly closer to the unchanged mark than EGB peers, perhaps given the relative underperformance seen in Gilts during the second half of last week; currently holds around 98.30.

Commodities

• A firm session for the crude complex following constructive Chinese activity data coupled with a weekend of geopolitical headlines, including Ukraine ramping up its targeting of Russian oil facilities; Brent currently holds just above USD 86.00/bbl.
• Subdued trade for precious metals with the market on standby ahead of this week's major risk events; XAU trades within a tight range (2,146.15-2,157.60/oz).
• Base metals are mostly subdued despite the constructive Chinese activity data overnight but following the notable run higher in prices last week.
• Ukraine’s SBU security service attacked three Rosneft oil refineries in Russia’s Samara region with drones. It was separately reported that a fire broke out at the Slavyansk refinery in the Krasnodar region following a drone attack, while the Syzran oil refinery reportedly experienced a fire which was put out.
• BHP said 30% of Australian nickel mines have shut and 30% more are under pressure on low prices, according to Reuters.
• China's NDRC maintained retail gasoline and diesel prices as of March 19th.

Geopolitics: Middle East

• Israeli official says they will offer in Qatar a truce for 6 weeks in exchange for the release of 40 detainees, according to Reuters; the official estimated that negotiations could take at least two weeks
• Israeli PM Netanyahu said US Senate Majority Leader Schumer’s speech commenting on Israeli elections was inappropriate and they will continue military pressure on Hamas. Netanyahu said Israel’s goal of eliminating Hamas battalions goes hand in hand with enabling civilians to leave Rafah.
• Israel’s Mossad chief Barnea was expected to resume Gaza ceasefire talks with Qatar’s PM and Egyptian officials on Sunday with the meeting a direct response to the latest proposal from Hamas and talks will focus on the remaining gaps between Israel and Hamas, according to a source briefed on the talks cited by Reuters.
• Israel is to send a delegation to Qatar for talks on achieving a hostage deal after Israeli security cabinet approval, according to Kann correspondent Amichai Stein.
• Egyptian President El-Sisi said Egypt and EU leaders agreed on rejecting any Israeli military operation in Rafah, while EU’s von der Leyen said it is critical to achieve an agreement on a ceasefire in Gaza rapidly now and that Gaza is facing famine which they cannot accept. German Chancellor Scholz said they cannot stand by and watch Palestinians starve, while he added that lasting security for Israel lies in a solution with Palestinians, meaning a two-state solution.
• A Syrian soldier was injured in an Israeli strike on the southern region, according to Syrian state TV.
• Iran and the US held secret talks on proxy attacks and a ceasefire, according to the New York Times.
• UKMTO noted an incident off Yemen’s Aden where an explosion was reported near the Master of Merchant vessel although there was no damage to the vessel and the crew were reported safe.
• US offical says Houthis are unable to continue escalation, US can always escalate against the Houthis

OTHER

• Russian President Putin won 88% of the votes in the Russian election where the opposition was banned, according to FT. Russian President Putin said Russia should be stronger and more effective and his win will allow Russia to consolidate society and shows how Russia was right to choose its current path.
• Russian President Putin commented on the French proposal for a ceasefire during the Olympics in which he stated that they are ready for talks and will proceed from Russia's interests on the front line, while he added they will think about with whom they can talk with about peace in Ukraine and he doesn't rule out setting up a 'sanitary zone' in Ukraine-controlled territories amid Ukraine attacks.
• White House commented the Russian election was not free nor fair given how Putin has imprisoned opponents and prevented others from running against him, while Ukrainian President Zelensky said there is no legitimacy in Russian imitation of elections and that Putin seeks to rule forever, according to Reuters.
• Russian air defence systems downed 35 Ukraine-launched drones over eight regions, while Russia launched 14 drones against Ukraine’s Odesa which damaged agricultural enterprises and infrastructure.
• Russia’s Foreign Ministry accused Ukraine of stepping up ‘terrorist activities’ during the Russian election to attract more aid and weapons from the West, while Russia said Ukraine dropped a shell from a drone on a polling station in the Zaporizhzhia region.
• Russian Foreign Ministry spokeswoman commented on French President Macron’s idea of a ceasefire in Ukraine during the Olympics and proposed for him to stop weapons supplies to Ukraine, according to TASS.
• Head of parliament in the breakaway Georgian region of South Ossetia said a possible inclusion into Russia is being discussed with Moscow, according to RIA.
• SpaceX is building hundreds of spy satellites under a classified contract with the US National Reconnaissance Office, according to Reuters sources.
• North Korea fired projectiles believed to be ballistic missiles which landed shortly after their firing outside of Japan’s exclusive economic zone. In relevant news, - North Korea’s leader Kim oversaw warfare drills and urged realistic preparation for combat, according to KCNA.
• US Secretary of State Blinken told South Korean President Yoon that the two countries are to consult to upgrade extended deterrence and work together on the North Korean threat, according to Yonhap.
• Japanese PM Kishida said North Korea's missile launch threatens not only the peace and stability of the region but also of the international community and Japan strongly condemns North Korea’s actions. Kishida stated that Japan lodged a stern protest against North Korea and will further advance close trilateral cooperation with the US and South Korea.

US Event Calendar

• 08:30: March New York Fed Services Business, prior -7.3
• 10:00: March NAHB Housing Market Index, est. 48, prior 48

DB's Jim Reid concludes the overnight wrap

This could be a landmark week in markets as the last global holdout on negative rates looks set to be removed as the BoJ likely hikes rates from -0.1% tomorrow. That could slightly overshadow the FOMC that concludes on Wednesday that will have its own signalling intrigue given recent strong inflation. We also have the RBA meeting tomorrow (DB preview here) and the SNB and BoE (DB preview here) meetings on Thursday to close out a big week for global central bankers with many EM countries also deciding on policy. We’ll preview the main meetings in more depth below but outside of this we have the global flash PMIs on Thursday as well as inflation reports in Japan (Thursday) and the UK (Wednesday). US housing data also permeates through the week as you'll see in the full global day-by-day week ahead at the end as usual.

Let’s go into detail now, starting with the BoJ tomorrow. We’ve had negative base rates now for 8 years which if I have my history correct is the longest run ever seen for any country in the history of mankind. In fact I doubt pre-historic man was as generous as to charge negative interest rates on lending money prior to this! It also might be one of the longest global runs without any interest rate hikes given the 17 year run that could end tomorrow. So a landmark event.

Our Chief Japan economist previews the meeting here and e xpects the central bank to revise its policy and abandon both NIRP and the multi-tiered current account structure and set rates on all excess reserves at 0.1%. He also sees both the yield curve control (YCC) and the inflation-overshooting commitment ending, replaced by a benchmark for the pace of the bank’s JGB purchasing activity. Our house view forecast of 50bps of hikes through 2025 is more hawkish than the market but risks are still tilted to the upside. On Friday, the Japan Trade Union Confederation (Rengo) announced the first tally of the results of this year's shunto spring wage negotiation. The wage increase rate, including the seniority-based wage hike, is 5.28%, which was significantly higher than expected. This year will probably see the highest wage settlements since 1991 which given Japan’s recent history is an incredible turnaround. This wage data news has firmed up expectations for tomorrow. See our economists’ piece on it here.

With regards to the FOMC which concludes on Wednesday, our economists (see their preview here) expect only minor revisions to the meeting statement that saw an overhaul last meeting. With regards to the SEP, the growth and unemployment forecasts are unlikely to change but the 2024 inflation forecasts potentially could. DB expect the Fed to revise up their 2024 core PCE inflation forecast by a tenth to 2.5%, although they see meaningful risks that it gets revised up even higher to 2.6%. In our economists' view, a 2.5% core PCE reading would allow just enough wiggle room to keep the 2024 fed funds rate at 4.6% (75bps of cuts). However, if core PCE inflation were revised up to 2.6%, it would likely entail the Fed moving their base case back to 50bps of cuts, as this would essentially reflect the same forecasts as the September 2023 SEP.

Beyond 2024, DB expect officials to build in less policy easing due to a higher r-star. If two of the eight officials currently at 2.5% move up by 25bps, then the long-run median forecast would edge up to 2.6%. This could be justified by a one-tenth upgrade to the long-run growth forecast. After all this information is released the presser from Powell will of course be heavily scrutinised, especially on how Powell sees recent inflation data. Powell should also provide an update on discussions around QT but it is unlikely they are ready yet to release updated guidance.

One additional global highlight this week might be a big fall in UK inflation on Wednesday with our economists' preview here suggesting that headline CPI will slow to 3.4% (vs 4% in January) and core to 4.5% (5.1%). Elsewhere there is plenty of ECB speaker appearances including President Lagarde on Wednesday. They are all highlighted in the day-by-day guide at the end.

Asian equity markets are climbing this morning with the Nikkei (+2.13%) rising sharply ahead of what could be the first baby step towards normalising policy tomorrow. Elsewhere, the CSI (+0.51%) and Shanghai Composite (+0.49%) are also moving higher after data showed that the world’s second biggest economy kicked off the year on a stronger note (more below). Meanwhile, the KOSPI (+0.60%) is also up while the Hang Seng is struggling to gain traction this morning. S&P 500 (+0.26%) and Nasdaq (+0.45%) futures are higher. US Treasury yields are fairly stable. .

Coming back to China, industrial production grew +7.0% in the first two months of 2024, well above Bloomberg’s forecast of +5.2% with businesses continuing to engage in strong capital spending as fixed asset investment grew +4.2% in the two-month period, more than the +3.2% expected. Meanwhile, retail sales advanced +5.5% YTD y/y, v/s +5.2% expected, indicating that the Chinese economy is performing better than expected helped by extra demand during the Lunar New Year period.

Elsewhere, in one of the more predictable electoral events of 2024, Vladimir Putin secured another term as Russia’s president. Peter Sidorov has published a short reaction on the result and on things to watch in its aftermath, here.

Recapping last week now, concerns about stubborn inflation proved to be at the forefront of investors’ minds. The main drivers of these renewed inflation worries were the stronger than expected US CPI and PPI reports, which showed that both consumer and producer prices were rising faster than expected. And markets found little relief in Friday’s data, with the University of Michigan’s preliminary consumer sentiment index falling to 76.5 in March (vs 77.1 expected), while the 5-10yr inflation expectations were unchanged at 2.9% as expected. Adding to the inflation fears, oil prices surged last week. Brent crude rose +3.97% (-0.09% on Friday) to $85.34/bbl, its highest weekly close since late October, and WTI crude jumped +3.88% ( -0.27% on Friday) to $81.04/bbl.

Off the back of this, markets revisited their expected timing of Fed cuts. For example, futures are now pricing only a 61% chance that the Fed will cut by June. At the start of March, markets had seen a 96% chance of a cut by June. The number of cuts expected by the December meeting were dialled back by -23.1bps last week (and -4.8bps on Friday), with just 72bps of cuts priced in for the year, the lowest this has been in four months.

The prospect of fewer rate cuts led to a strong upward move in global yields. US 2yr Treasury yields surged +25.3bps last week (and +3.4bps on Friday). Longer dated Treasuries also jumped. For example, 10yr yields rose +23.1bps to 4.31% (+1.6bps on Friday), bringing them back to their February levels. European fixed income was far from immune to these moves, as 10yr bunds gained +17.5bps (and +1.6bps on Friday). Increasing expectations that the BoJ was looking to cut at this week’s meeting also added to this upward pressure on global yields, with 10yr Japanese bond yields up +5.1bps (and +0.9bps on Friday).

The equity reaction was not as negative but they also struggled after last week’s hot inflation prints, as well as with the softer US retail data. The S&P 500 was down -0.13% last week, and fell -0.65% on Friday against a risk-off backdrop. The small cap Russell 2000 struggled the most, down -2.08% over the week, despite a +0.40% rise on Friday. Technology also underperformed on the week, as the NASDAQ fell -0.70% (and -0.96% on Friday). The Magnificent 7 were down -1.04% on Friday (-0.30% on the week), though Nvidia (+0.35% on the week) managed to narrowly secure 10 weeks of consecutive gains. Equity markets were more optimistic in Europe, with the STOXX 600 up +0.31% (-0.32% on Friday). The German DAX and French CAC outperformed, up +0.69% and +1.70% on the week, respectively.