Whether it's because Goldman forecast over $11 billion in "forced" buying every day this week between the end of the buyback blackout period and systematic purchases amid the sliding VIX, or because hopes of an imminent recession prompted more expectations of a Fed pivot after Friday's drop led to oversold conditions amid record bearishness, but this morning US equity futures have moved higher ahead of what will be an extremely busy week with 30% of the S&P reporting earnings including big tech, the US revealing if Q2 GDP was negative thus pushing the US into a recession, and the Fed hiking another whopping 75bps. Or perhaps the optimistic sentiment came out of China where Chinese property stocks rallied after a reported move by Beijing to establish a fund to support developers fueled optimism about a turnaround for the struggling sector. 

Whatever the reason, stocks and US equity futures reversed earlier declines on Monday and traded near session highs with S&P 500 and Nasdaq 100 futures rising 0.6% and 0.5% respectively, while European stocks extended gains after their best week since May, rising 0.5%. Treasury yields advanced and a dollar gauge slipped. Oil also reversed earlier losses and last traded 0.9% higher.

The S&P 500 posted its biggest weekly gain in a month last week and is on a pace for its largest monthly increase since October. Stocks have gotten a lift as the corporate earnings season began with better-than-feared reports and as investors bet that a lot of the negative economic news was priced in.

Among notable movers in premarket trading, shares in companies that focus on antivirals and vaccines jumped after the head of the World Health Organization said the monkeypox outbreak is a public health emergency of international concern. Cryptocurrency-exposed stocks, on the other hand, fell as Bitcoin slipped back under $22,000 amid a wider cryptocurrency selloff.  Here are some other notable premarket movers:

• Watch Amazon (AMZN US) stock as its price target was trimmed at Oppenheimer (outperform), with the brokerage “conservatively” reducing its second-half 2021 e- commerce estimates as consumer spending slows after stable summer trends.
• Keep an eye on Integra LifeSciences (IART US) as Morgan Stanley initiated coverage of the stock with a recommendation of equal-weight, saying “visibility into pipeline-driven growth remains in the early stages.”
• Watch Ivanhoe Electric (IE US) as its shares were initiated with an outperform rating at BMO, with the broker touting the mining firm’s “notable” portfolio of copper exploration assets and technology.
• Keep an eye on Snap (SNAP US) as Morgan Stanley cut the recommendation on the stock to underweight from overweight, saying that the social media platform’s “ad business is less developed” than previously thought.

Focus this week is on reports from the giga tech companies including Google parent Alphabet Inc., Apple., Meta Platforms Inc. and Amazon.com Inc. Stock prices already reflect a lot of bad news, with the Nasdaq 100 down 24% this year. While earnings season got under way with several companies citing high inflation and a strong dollar as the reason for cutting full-year profit forecasts, UBS Global Wealth Management strategists said the results are turning out to be better than feared as consumer spending remains resilient. Goldman Sachs strategists agreed with UBS that S&P 500 revenues would be pressured by a stronger greenback in this season.

There are also plenty of skeptics about the market’s recent strength. Strategists at BlackRock Inc. and Morgan Stanley warned that challenging economic data suggests stocks could see more declines. “For as long as central banks don’t acknowledge any impact on growth from their aggressive rate hike, we don’t want to chase any bear market rebound,” said Wei Li, global chief investment strategist at BlackRock Investment Institute. Fresh economic statistics could point to “ever-tightening policy and rate-hiking signals,” she said on Bloomberg TV.

Meanwhile, Wall Street's uber-bear, Morgan Stanley strategist Michael Wilson said it was too early for stocks to price in a pause in the Fed’s policy even as recession fears grow. His counterpart Mislav Matejka at JPMorgan Chase on the other hand, said bets of peaking inflation could lead to a pivot in the Fed’s policy and improve the outlook for equities in the second half of the year.

Besides earnings, all eyes this week will be on the Fed’s two-day policy meeting, with a decision on interest rates on Wednesday. Economists predict the central bank will hike rates by another 75 basis points after last month delivering its biggest increase since 1994. The Fed's decision this week, along with earnings from the likes of Google’s Alphabet Inc. and technology titan Apple Inc., will help to clarify the outlook for a one-month-old rebound in stocks. Prices already reflect a lot of bad news, with the Nasdaq 100 down 24% this year.

“We still see further downside for risky assets as recession fears accumulate and central banks remain committed to fighting inflation at the expense of growth,” wrote Eric Robertsen, chief strategist at Standard Chartered Bank Plc.

In Europe, the Euro Stoxx 600 rose 0.2% with Spain's IBEX outperforming peers, adding 0.5%. Banks, telecoms and insurance are the strongest-performing sectors. German business confidence deteriorated to the worst level since the early months of the pandemic on growing concerns that record inflation and limited energy supplies from Russia will throw Europe’s biggest economy into a downturn. Here are the other notable European movers:

• Ryanair shares fluctuated between gains and losses as the budget airline reported a quarterly earnings beat but analysts flagged ongoing uncertainty in its outlook.
• Faurecia jumps as much as 8.3% after Forvia, the auto-supplier formed out of the French company and Germany’s Hella, reported first-half results and confirmed full-year guidance.
• Bechtle shares jump as much as 6.4% after the IT services firm reported preliminary second-quarter revenue that beat consensus estimates. Oddo BHF says the results were “impressive” in the face of a weakening macro environment.
• Verbund climbs as much as 3.3% and hits a record high of EUR109.70 after the Austrian power company was upgraded to overweight from equal-weight at Barclays. The bank analysts view company share price as unreflective of power-price rally.
• Richemont shares climb as much as 2.5%, outperforming other luxury stocks, after Miss Tweed reports that the Cartier owner is getting closer to a deal with Farfetch on the online fashion retailer YNAP.
• Volkswagen preference shares drop as much as 4.6% in Frankfurt after Porsche AG boss Oliver Blume was named CEO of the German carmaker. Bernstein and Jefferies are divided on what Blume’s appointment means for the company.
• Philips shares fall as much as 12% after the Dutch medtech firm published earnings which Jefferies says were “significantly below” consensus estimates and cut its guidance.
• Uniper falls as much as 11% as JPMorgan cut the stock to underweight. The downgrade leaves the stocks with six sell ratings, one buy and nine analysts advising to hold. Majority- owner Fortum’s shares were down as much as 8.4%.
• Kuehne + Nagel shares fall as much as 5.4% despite results beat, with analysts saying lower volumes across air and sea as well as a pricing decline is negative for sentiment and expecting past quarters’ momentum to slow.

Earlier in the session, equities across Asia Pacific fell Monday, as investors took a risk-off approach ahead of the Federal Reserve’s monetary-policy decision later this week.  The MSCI Asia Pacific Index slipped as much as 0.8%, poised to snap a five-day winning streak, as energy and consumer-discretionary shares declined the most. Chinese tech stocks slid even as the State Council reiterated a call for measures to support healthy development of the Internet platform economy.  Benchmarks in the Philippines, Japan and China led declines, while measures for Thailand and South Korea bucked the downtrend. Risk appetite has soured as investors await another Fed interest-rate hike of at least 75 basis points this week. Earnings releases of US big-tech companies will also be closely analyzed to gauge global growth momentum. Data released on Friday showed a contraction in US business activity for the first time since 2020, escalating fears the economy is headed into a recession.

“Big week ahead with the Fed likely to go ahead with another jumbo rate hike and 30% of S&P 500 companies reporting earnings this week -- including the big tech,” said Charu Chanana, market strategist at Saxo Capital Markets. “Investors are being cautious and closing their positions ahead of the slew of risk events.” China’s economic slowdown and a stronger dollar remain key overhangs for Asian corporates. The MSCI Asia gauge is still nearly 30% lower from a 2021 peak, even as some money managers consider the recent selloff in Chinese stocks as a blip.  

Japanese stocks declined, with the Nikkei 225 ending a seven-day winning streak, after US stocks fell on disappointing earnings from social-media firms and as concerns of a global slowdown continue to weigh on investor sentiment. The Topix Index fell 0.7% to 1,943.21 as of market close Tokyo time, while the Nikkei declined 0.8% to 27,699.25. Sony Group Corp. contributed the most to the Topix Index decline, decreasing 2.7%. Out of 2,170 shares in the index, 836 rose and 1,224 fell, while 110 were unchanged. “Stocks were soaring for seven straight days last week as well, so there could be a fair amount of selling,” said Naoki Fujiwara chief fund manager at Shinkin Asset Management. 

In Australia, the S&P/ASX 200 index was little changed to close at 6,789.90 after a volatile session. Gains in materials and industrials stocks were offset by declines in healthcare and technology shares. EML Payments was the worst performer after the Irish Central Bank said it identified shortcomings in components of the remediation program of EML’s Irish subsidiary PFS Card Services. Insurance Australia Group was the best performer, rising the most since August.  In New Zealand, the S&P/NZX 50 index fell 0.6% to 11,198.68

In FX, the Bloomberg dollar spot index fell 0.2%, sliding against most of its Group-of-10 peers. Investors are monitoring weaker economic data amid expectations the Federal Reserve will inflict more pain on the economy to get inflation under control. It’s set to raise rates for a fourth straight meeting this week. JPY and NZD are the weakest performers in G-10 FX, SEK and NOK outperform. TRY lags EMFX, weakens 0.6%. 

“We are not yet ready to change our strong dollar call” as the Fed is likely to continue hiking in the second half, Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. in New York, wrote in a note to clients. “US economic data have been weakening but we do not think a recession is imminent. We believe the US economy remains the most resilient”

In rates, the US Treasury curve steepened as long-end leads yields were cheaper on the day: US yields were cheaper by more than 7bp across long-end of the curve, steepening 5s30s by ~4bp, 2s10s by ~3bp on the day; 10-year yields around 2.81%, cheaper by more than 5bp vs Friday’s close and underperforming bunds by 3bp in the sector. Recession fears ratcheted higher Friday after US data showed business activity contracted in July for the first time in more than two years. Final coupon auctions of May-July quarter begin with $45b 2-year note sale at 1pm ET, followed by 5-year notes Tuesday and 7-year sale on Thursday. Preliminary estimates for corporate supply this week are $15b to $20b, expected to be front-loaded before Wednesday’s Fed policy announcement. Focal points of US session include 2-year note auction, while new activity may be sidelined before Wednesday’s Fed decision. Bunds, gilts both outperform Treasuries over European morning. Bunds bear-flatten. Gilts bear- steepen. Peripheral spreads are mixed to Germany; Italy widens, Spain tightens and Portugal tightens.

In commodities, WTI rose 0.9% higher to trade near $94.76, after sliding at the open. Brent also rose near $104.51. Base metals are mixed; LME tin falls 1.8% while LME copper gains 0.2%. Spot gold rises roughly $2 to trade near $1,729/oz. Wheat climbed as commodity markets evaluated a Russian missile strike on Odesa’s sea port that threatened to test a fledgling agreement to unblock Ukrainian grain exports from the Black Sea.

Bitcoin remains under pressure and is yet to convincingly reclaims the USD 22k mark, after slipping to USD 21.75k overnight.

The busy economic data slate this week includes June Chicago Fed national activity index (8:30am) and July Dallas Fed manufacturing activity (10:30am); this week also includes consumer confidence, new home sales, durable goods orders, 2Q GDP, personal income/spending (includes PCE deflator), MNI Chicago PMI and University of Michigan sentiment

Market Snapshot

• S&P 500 futures little changed at 3,967.25
• STOXX Europe 600 down 0.1% to 425.16
• MXAP down 0.5% to 158.83
• MXAPJ down 0.3% to 519.58
• Nikkei down 0.8% to 27,699.25
• Topix down 0.7% to 1,943.21
• Hang Seng Index down 0.2% to 20,562.94
• Shanghai Composite down 0.6% to 3,250.39
• Sensex down 0.5% to 55,771.23
• Australia S&P/ASX 200 little changed at 6,789.90
• Kospi up 0.4% to 2,403.69
• German 10Y yield little changed at 1.04%
• Euro little changed at $1.0207
• Gold spot up 0.1% to $1,728.88
• U.S. Dollar Index down 0.11% to 106.62

Top Overnight News from Bloomberg

• Markets are looking tentative at the start of a busy week that includes a Fed policy meeting and much data. The dollar faded earlier gains and stocks traded softly in the green
• The Federal Reserve will most likely fail to tame inflation without driving the economy into a ditch, according to the results of the latest MLIV Pulse survey
• Stocks and US equity futures wavered Monday amid concerns about a dimming economic outlook and possible recession
• While last week’s price action suggests that earnings downgrades have been well-priced, a more hawkish than expected Fed could spill the apple cart. Inflation data, European gas and Chinese Covid-19 developments are also a source of risk
• The pound’s woes run deep, and whoever becomes 10 Downing Street’s newest resident will inherit a maelstrom of economic problems

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded mostly lower with the tech sector in the region hit following the Stateside sectoral performance.    ASX 200 saw the gains in its Metals & Mining sector offset by a selloff in Tech. Nikkei 225 underperformed following the JPY strength seen on Friday, whilst the KOSPI outpaced peers. Hang Seng was lower following reports China is said to be mulling categorising US-listed Chinese firms into three groups based on the sensitivity of data held by the firms, but the property sector outperformed amid reports that China is planning to set up a real estate fund. Shanghai Comp was also softer but monkeypox-related stocks soared after the WHO declared monkeypox a global health emergency.

Top Asian News

• China is reportedly imposing COVID "closed loops" on major Shenzhen companies which include Foxconn (2354 TW), BYD (1211 HK), CNOOC (0833 HK) and Huawei (002502 SZ), via Bloomberg.
• China is said to be mulling categorising US-listed Chinese firms into three groups based on the sensitivity of data held by the firms, according to FT sources.
• Neither the EU nor China believes that conditions are ripe for the implementation of the China-EU Comprehensive Investment Agreement, according to Chinese sources cited by SGH Macro.
• China reportedly plans to set up a real estate fund worth up to USD 44bln, according to REDD cited by Reuters.
• Hong Kong is reportedly planning to cut hotel quarantine times, according to Sing Tao Daily.
• The Sakurajima volcano on Japan's western major island of Kyushu has erupted with the alert level raised to 5 - the highest, according to Sky News. No damage has been reported but volcanic stones could be seen raining down up to 1.5 miles away from the site, according to NHK.
• China’s securities regulator said in a statement it has not researched a plan for a three-tiered system to help Chinese companies avoid US delisting, according to CNBC.

European bourses are firmer across the board as the initially cautious tone amid soft-Ifo and weekend developments dissipated amid USD-downside and constructive Kremlin remarks; Euro Stoxx 50 +0.3%. US futures are modestly firmer, ES +0.5%, as we kick off the busiest week of earnings for Q2 and in the run-up to the FOMC. Tesla (TSLA) discloses a USD 170mln impairment loss resulting from changes to the carrying value of Bitcoin during H1 (ending June 30th). Increases FY22-24 CapEx to USD 6-8bln/yr (prev. 5-7bln).

Top European News

• Italy's far-right Brothers of Italy party is reportedly struggling to find ministerial candidates, according to The Times.
• A survey by DIHK of 3,500 firms in Germany found that 16% are scaling back production or partially pausing business operations amid high energy prices, via Reuters.
• Fitch affirmed Hungary at "BBB"; outlook Stable; affirmed Ireland at "AA"; outlook stable.

Central Banks

• ECB's Lagarde said the ECB will raise rates for as long as it takes to bring inflation back to target, according to an interview via Funke Mediengruppe.
• ECB's Nagel said it is better to start with a bigger hike and is confident that ECB's TPI would survive legal challenges, according to Handelsblatt. He added that future rate hikes are to depend on data, and we still see positive growth in 2022 and 2023. He said TPI is to be used in exceptional circumstances.
• ECB's Holzmann said the ECB may accept a "light recession" if the outlook for CPI rises, according to an interview via ORF. Holzmann said the ECB is to consider the economic situation before another big hike and said economic growth is slowing and that has brought in caution.
• ECB's Kazaks says large interest rate hikes may not be over; too weak EUR is a "problem". The hike in September needs to be quite "significant" and should be open to larger hikes.
• BoJ's Takata (new member) says the BoJ is able to keep monetary policy easy, but are facing new challenges such as dwindling bank margin and impact on market function.
• BoJ's Tamura (new member) says Japan may soon see positive cycle commence, with wages increasing with inflation. If this occurred, exit from easy policy would become focus of discussions.

FX

• DXY down again ahead of the Fed on Wednesday as risk appetite recovers broadly, index slips further from 107.00 to 106.240.
• Euro underpinned by hawkish ECB commentary and supportive Russian gas supply vibe to the extent that bleak German Ifo survey findings are shrugged off, USD/USD probes 1.0250 where hefty option expiry interest sits (1.86bln).
• Aussie derives traction from spike in iron ore prices, AUD/USD through 0.6950 and towards circa 1bln option expiries at 0.7000 strike.
• Franc and Yen underperform as bond yields rebound firmly from recent lows, USD/CHF around 0.9625 and USD/JPY 136.00+ vs Friday lows of 0.9600 and 135.57.
• Yuan welcomes PBoC notice of recovery in support of cultural and tourism sectors plus reports of Chinese real estate fund, USD/CNH and USD/CNY both sub-6.7500 compared to highs at 7.7667 and 6.7577 respectively.
• Lira laments deterioration in Turkish manufacturing confidence, USD/TRY just shy of 17.8400.
• AUD/USD -- Although spot rally stalled at 50-DMA, additional attempts can’t be ruled out amid bullish momentum. That said, further resistance at 0.6996, June 20 high should be respected
• EUR/USD -- Needs to close above 38.2% Fibonacci to put in a short-term low. Otherwise further visits below parity remain in play
• USD/JPY -- Close below ascending channel support speaks to further losses, which look to be corrective in nature
• NZD/USD -- A relief rally from this point would be limited to the 50% level of the June/July range, which comes in near the 0.6316, 50-day moving average

Fixed Income

• Debt futures flip then flop in choppy fashion amidst hawkish ECB rhetoric and encouraging news from Russia on EU gas supplies.
• Bunds rebound to 154.86 before retreat to 153.78, Gilts recoil from 117.48 to 117.02 and 10 year T-note within a 120-02+/119-21 range
• Downbeat German Ifo survey and mixed UK CBI industrial orders vs business optimism largely ignored
• 2 year note supply looms and may be interesting as a gauge of investor demand ahead of the Fed

Commodities

• Crude benchmarks began the session on the back foot, amidst the generally cautious APAC mode where participants were digesting multiple updates including Russia/Ukraine, Nord Stream, China/US and reiterations from Biden.
• However, a seeming USD-driven move lifted the benchmarks back towards session highs amid a concerted risk move following Kremlin commentary.
• US President Biden said gasoline prices are still too high and is working to make sure gasoline prices move with oil prices and said companies should use profits to boost output, according to Reuters.
• LME will not ban Nornickel's metal as the Russian firm is not under UK sanctions, according to Reuters sources.
• Chicago wheat, corn and soybean futures rose at the open, possibly on the back of reports that the Ukrainian port of Odessa was hit by Russian missiles less than 24 hours after the signing of the grains agreement in Turkey.
• Malaysia's Commodities Minister said crude palm oil prices are likely to remain weak for most of Q3 2022 as Jakarta lifts the exports levy; but prices are expected to be higher in Q4 amid the resumption of Indonesia's palm oil export levy, via Reuters.
• Spot gold has found support from the declining USD, lifting to USD 1733.70/oz, though upside is capped by the broader risk tone with the yellow metal yet to test Friday’s USD 1738.99/oz best.

US Event Calendar

• 08:30: June Chicago Fed Nat Activity Index, est. -0.03, prior 0.01, revised -0.19
• 10:30: July Dallas Fed Manf. Activity, est. -22.0, prior -17.7

DB's Jim Reid concludes the overnight wrap

I've never been to a wedding before where there is not a nervous bride or groom worried about what scandal might be dredged up about the groom in the speeches. However that changed at my colleague Henry's wedding on Saturday as I couldn't find anything incriminating about him from anyone. And boy did I ask. The nearest I got was that maybe he may have hit someone with a cricket bat once and it might have been an accident. Overall, a wonderful and wholesome wedding. Congratulations to my co-author Henry and his lovely wife Beth.

If last week was all things European (Gas, Italy and the ECB), this week mostly belongs to the US with the highlight being the FOMC concluding on Wednesday. Unless we hear otherwise in a newspaper, they are expected to raise rates 75bps, but we’ll go through some of the nuances below. An important US Q2 GDP number on Thursday will tell us whether we’re in a technical recession or not (DB at -0.6%, Atlanta Fed tracker -1.6%). Expect lots and lots of headlines if we are. In case you thought it was safe to take your eye off Europe though, be warned that Thursday and Friday sees multiple Q2 GDP and CPI releases. Don’t forget as well that Putin has suggested that if the turbine is not back early this week then gas flow may fall to 20% capacity even though originally this turbine wasn’t expected to be needed until September. So watch out for gas politics. Elsewhere we have US durable goods (Wednesday), consumer confidence numbers (tomorrow), spending and income data (including the important core PCE deflator), and final consumer confidence numbers with the important revisions to inflation expectations to round out a big macro week on Friday. The micro will also be significant with 166 S&P 500 and 197 Stoxx 600 companies reporting. The full day by day calendar will appear at the end as per usual for a Monday but we’ll spend most of time previewing the Fed before we briefly review Asia and last week.

Our economics team expect +75bps this week (to 2.375%) followed by +50bps hikes in September and November, with a further +25bps in December until a terminal rate of 4.1% is reached which is notably above ever lower market pricing of 3.3%. There won’t be new economic projections in this meeting so all focus will be on how the Fed guides us in a world where no-one should really believe central bank forward guidance anymore as it’s proved very unreliable over the last year. However the market will still devour clues as to whether the committee are leaning towards 50 or 75 for September. To be fair there are two CPIs before then so it’s likely the Fed don’t really know at the moment.

In terms of the press conference, it will be interesting to see how Powell navigates the line between tackling inflation and supporting growth. The market is increasingly pricing a more dovish pivot at some point early in 2023 so all eyes on how firm Powell is that inflation is the number one priority or whether he looks set to blink on growth weakness.

Turning to corporate earnings, it will be a busy week filled with results from the BigTech, oil majors and key consumer-focussed companies. Starting with the former, Microsoft, Alphabet (tomorrow), Meta (Wednesday), Apple and Amazon (Thursday) all report. Notable hardware tech firms reporting include NXP Semiconductors (today), Texas Instruments (tomorrow), SK Hynix, Qualcomm, Lam Research (Wednesday), Samsung, Intel (Thursday) and Sony (Friday).

In commodities, oil majors Shell, Total Energies (Thursday), Exxon and Chevron (Friday) will be among the largest companies reporting. Utilities will be in focus too amid energy concerns in Europe, with results due from Iberdrola (Wednesday), Enel, EDF and EDP (Thursday). Finally, key players in materials like Rio Tinto (Wednesday), Vale and Anglo American (Thursday) will also report. Industrial highlights include Raytheon Technologies (tomorrow) and Honeywell (Thursday). In healthcare, Pfizer, Merck and Sanofi (Thursday) will release. Major automakers releasing include General Motors (tomorrow), Mercedes-Benz, Ford (Wednesday) and Volkswagen (Thursday). In staples and food, the spotlight will be on Coca-Cola, McDonald's, Unilever and Mondelez (tomorrow), Kraft Heinz (Wednesday), Nestle and AB InBev on Thursday and Procter & Gamble and Colgate-Palmolive on Friday.

Asian equity markets are slipping at the start of a key week as concerns about a global economic slowdown is sapping risk appetite in the region. The Hang Seng (-0.97%) is the largest underperformer amid a drop in Chinese listed technology stocks with the Nikkei (-0.77%), Shanghai Composite (-0.71%) and CSI (-0.63%) also trading in negative territory. Elsewhere, the Kospi (+0.50%) is bucking the trend. Outside of Asia, stock futures in the DM world are edging lower in the US with contracts on the S&P 500 (-0.15%) and NASDAQ 100 (-0.15%) slightly weaker. DAX futures (-0.87%) are catching down to a weaker US close on Friday. Elsewhere, Oil prices gave up earlier gains with Brent futures now -0.54% down at $102.64/bbl and WTI futures (-0.63%) at $94.10/bbl as I type.

Recapping last week now and we saw another major week for news-flow and volatility. The ECB surprised markets with a 50bp hike only for lacklustre data and political risks to send yields lower over the course of the week.

The +50bps from the ECB came alongside their new anti-fragmentation tool, the Transmission Protection Instrument (TPI). One wonders whether central banks will eventually run out of letters for all their bailout vehicles and have to create a new alphabet. In terms of the TPI, markets were skeptical about its parameters, ultimately leaving 10yr BTP spreads +13.9bps wider to German bunds over the week. However maybe it would have been hard to rally in a week where the resignation of Prime Minister Draghi eventually proved irreversible thus exposing the country, and Europe, to fresh elections and the prospects of populists in power again.

The turn in growth and political sentiment left year-end 2022 ECB policy pricing only +3.0bps higher over the week. Most of that action took place on Friday after poor PMIs, when 2yr bunds fell -22.3bps, bringing them -1.4bps lower on the week. The declines were larger further out the curve, driving a recessionary signaling flattening, with 10yr bunds -10.2bps lower on the week, and -19.2bps on Friday alone. The back-and-forth energy brinksmanship left European natural gas futures a marginal +0.99% higher on the week, with some larger intraweek swings. The fact that gas went back to pre maintenance 40% capacity was a positive but Germany (and much of Europe) lives day-by-day to see what Putin does next on gas supplies.

The US certainly saw a rolling over of growth expectations towards the end of last week, where a combination of poor business optimism, increasing jobless claims, and a large services PMI miss (47.0 versus expectations of 52.7) drove yields lower as investors priced in an easier Fed policy path. 2yr Treasuries fell -15.2bps (-11.7bps Friday) while 10yrs were -16.5bps lower (-12.bps Friday), driven by a -14.7bp decline in real yields given the easier Fed policy path (-16.7bps Friday). The parallel shock left 2s10s little changed, but still deeply inverted at -22.bps, closing inverted for its 14th day in a row. Terminal fed funds retreated to around 3.3% from 3.5% the week before, all setting the stage for a big FOMC this week when inflation is still raging. This morning in Asia, yields on 10yr USTs have edged +2.91bps higher to 2.78% as I type. This is after touching 3.08% immediately after the ECB less than 48 business hours ago.

Easier expected policy proved a boon to equity prices, where the STOXX 600, DAX, and CAC climbed +2.88% (+0.31% Friday), +3.02% (+0.05% Friday), and +3.00% (+0.25% Friday), respectively. In the US, easier policy pushed equities higher as well, through a back-and-forth positive/negative packed earnings schedule, ultimately bringing the S&P 500 +2.55% higher (-0.93% Friday). Given the easier policy path, tech and mega-caps outperformed over the week, with the NASDAQ up +3.33% (-1.87% Friday) and the FANG+ up +5.02% despite a large -2.94% drawdown Friday.

After all that no rest this week in a busy week with holidays likely to reduce liquidity.