Trends across markets are somewhat mixed but the broader bias is tilting towards risk taking at the start of a busy week. The clear focus remains on the war in Ukraine and, while there has been no relenting in the fighting, the two sides continue to talk, supporting the pro-risk mood. Crude oil has dropped sharply again while European stocks are starting the week on a strong note, lifting US stock futures. Global bonds are lower and losses are meaningful—US 10Y yields are up 9-10bps, with similar gains seen across most major bond markets. Chinese stocks slumped earlier, however, as reports that Russia had approached China for military aid prompted concerns that Chinese companies could become exposed to sanctions. A city-wide, Covid-related shutdown of Shenzhen also weighed on local tech sentiment and threatens further supply chain disruption. The USD is trading generally softer, with European FX out-performing on the day; the SEK and NOK are leading gains while the EUR has advanced after finding steady support around the 1.09 zone. Swedish inflation jumped 0.9% in Feb, more than expected, bringing forward market expectations for Riksbank rate hikes. The JPY is underperforming amid rising US rates while the AUD has lost ground as commodities retreat. Beyond geo-political risks, there are a number of key data points confronting markets this week. The FOMC is expected to announce its first rate hike since late-2018 Wednesday while the BoE is also widely expected to lift rates Thursday. Policy decisions are also due from Japan, Brazil, and Russia. We look for the USD to remain broadly better supported amid elevated geo-political risks and a hawkish Fed signaling that policy settings are poised to tighten progressively (or perhaps more aggressively) in the months ahead to combat still rising inflation pressure. Note that Scotia’s latest forecast released Friday now calls for the Fed to raise rates to 2.25% by year end (from 2.00%).
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