U.S. stock index futures crashed along with global markets on Thursday as Russia’s assault on Ukraine sent investors fleeing risky assets, while the tech-heavy Nasdaq was set to open in a bear market. Contracts on the Nasdaq 100 were down 2.9% by 7 a.m. in New York, having dropped as much as 3.6% earlier and signaling that the underlying gauge was poised to fall 20% from its November record high for the first time since the pandemic; the S&P 500 was down 2.23% or 98 points to, 4,214, while Dow futures lost 2.3%.  The flight to safety saw the 10-year Treasury yield tumble 14 basis points to under 1.9%. Gold hit the highest since September 2020, while the dollar also spiked higher.

The Nasdaq was set to open in a bear market, with NQ futures down more than 20% from its all time highs just two months ago...

... while the VIX spiked higher, and was last just around 37, up almost 10 points on the day.

Russian forces assaulted targets across Ukraine after Putin ordered an operation aimed at demilitarizing the country. Putin said Russia doesn’t plan to “occupy” its neighbor but that action was necessary after the U.S. and its allies crossed Russia’s “red line” by expanding the NATO alliance. Military vehicles breached into the Kyiv region that borders Belarus, Ukraine’s Border Guard Service said in a statement.

Western powers condemned the military incursion and vowed to step up penalties on Russia -- President Joe Biden said the U.S. and its allies will impose “severe sanctions.” European leaders are planning sanctions that will target Russian banks. The government in Kyiv called it a “full-scale invasion” as it declared martial law and called for international support including harsher sanctions on Russia.

"Stock markets were already hit and are now pricing in further military escalation in Ukraine. The selloff will therefore continue,” Norbert Frey, head of portfolio management at Fuerst Fugger Privatbank, said in an email. “We expect volatility to rise in the coming weeks, which will require investors to have good nerves. We will see a flight into supposedly safe government bonds, gold and, above all, cash – at least temporarily.”

The escalation in the Ukraine conflict comes at a time when financial markets were already grappling with surging inflation and the economic impact of hawkish central bank policies. All eyes are now on the Federal Reserve’s policy meeting next month, where analysts still expect it to raise interest rates, but deliver fewer-than-expected hikes through the rest of the year.

“It’s an absolute lose-lose for central banks because they will have no control whatsoever over inflation risk,” said Michael Hewson, senior markets analyst at CMC Markets UK. “I still think the Federal Reserve will hike rates in March. They have to, if only try and normalize rates, but do I think we’ll get seven hikes this year? I think we’ll be lucky to get two.”

U.S. tech giants were among the biggest decliners in pre-market trading as Russian forces launched a "military operation" targeting military command centers across Ukraine after President Vladimir Putin vowed to “demilitarize” the country and replace its leaders, triggering the worst security crisis in Europe since World War II as the West threatened further punishing sanctions in response. Energy stocks, on the other hand, were outliers as the attacks sent Brent oil prices surging above $105 a barrel and WTI above $100...

... sending energy names higher: Exxon +3.7%, Marathon Oil +5.8%, and so on. European natural gas also soared on possible risks to Russian energy exports.

Among individual stocks, EBay plunged 10% in premarket after the company warned its first-quarter sales will miss estimates as shoppers return to pre-pandemic spending habits. Analysts said fourth-quarter results were broadly in line with expectations, while the guidance disappointed. At least four reduced their price targets.  Here are some other notable premarket movers:

• Skillz (SKLZ US) shares tumble 38% in premarket trading after the mobile games company gave a forecast for 2022 revenue that fell short of even the lowest analyst estimate.
• Macy’s (M US) upgraded to neutral from sell at Citi after stock this week fell below its $25 target price, saying in note that risk/reward for the department store owner now appears to be balanced.
• Pulmonx Corp. (LLUNG US) dropped 22% postmarket Wednesday after the medical device maker released revenue guidance that fell short of analysts’ estimates.
• Rent-A-Center (RCII US) sank 37% premarket after giving an outlook for adjusted earnings per share for 2022 that trails even the lowest analyst estimate.
• NetApp (NTAP US) fell 6.4% in postmarket trading after the data and storage company announced it bought Fylamynt, a venture-backed cloud automation company, for an undisclosed sum.
• Clover Health Investments Corp. (CLOV US) shares surged by 26% in postmarket trading Wednesday after the company forecast revenue for 2022 that beat the average analyst estimate. The company’s fourth quarter revenue also came in ahead of expectations.

Cryptocurrency-exposed stocks also plunged in premarket trading Thursday after Bitcoin slumped back below the $35,000 level amid a global shift away from risk assets. Bitcoin falls as much as 8.5% and trades at $34,940 as of 6:33 a.m. in New York, other digital tokens are also lower this morning with Ether falling 10%, while Litecoin sinks 13% and Monero drops 11%. Crypto stocks that are lower in premarket include Riot Blockchain -9.1%, Hut 8 Mining -8.9%, Marathon Digital -8.7%, Ebang -8.7%, Bakkt -8.5%, Mogo -7.8%, Block -6.9%, Coinbase -5.6%, Silvergate -5.6%, MicroStrategy -4.1%, Hive Blockchain 5%, and BitNile -2.1%.

Elsewhere, the Stoxx 600 Europe index shed 4% and Asian equities fell to the lowest since 2020. Banks, travel and autos are the worst-performing sectors. Russian shares slumped the most on record after a trading suspension ended; the Moscow Exchange (MOEX) was down 25% after plunging more than 30% earlier.

European banks extend their drop and are the region’s worst-performing sector amid a global selloff after Russia attacked targets across Ukraine. The Stoxx 600 Banks Index is down 6.1% at 10:15am in London, while the broader benchmark Stoxx Europe 600 Index is 3.3% lower. Raiffeisen slumps 16% to the lowest level since July, while Erste Bank falls 10%, most since March 2020. Polish lenders PKO Bank and Bank Pekao drop 12%, while Lloyds Banking Group is 8.7% lower after its earnings missed estimates. UniCredit declines 9.1%, the most since December 2020, before trading is halted. Here are some of the biggest European movers today:

• Oil companies lead gains on the Stoxx 600 as the Brent crude price climbed past $105 for the first time since 2014, with Norwegian oil firms Equinor (+4.6%) and Aker BP (+4.2%) among the top performers.
• Anglo American shares rise to an all-time high and outperform its European peers, after the company posted record earnings and announced shareholder returns that exceeded expectations.
• BAE Systems rise rise as much as 6.5% after reporting surprisingly strong free cash flow that Citi (buy) said shows the company is backing its profit growth with cash.
• European stocks with exposure to Russia plummet after Russian forces attack targets across Ukraine, lead declines on the Stoxx 600, including miner Polymetal International (-35%) and fashion retailer LPP (-24%).
• The European banking sector also drops after the Russian attack, and is the worst performing sector in the region, with Raiffeisen (-17%) leading declines.
• Renault, which counts Russia as its second-biggest market, drops as much as 13%, the most intraday since June 2020. Other automotive stocks with Russia exposure fall, too.
• Rolls- Royce shares decline as much as 19% on its latest earnings. Analysts highlight the ongoing challenges that the firm is facing as results, guidance, and CEO transition weigh on the shares.
• BP falls as much as 5.7% to the lowest level in a month after Russia’s invasion of Ukraine. The oil giant has 20% stake in Russia’s Rosneft, which plunged as much as 59% in Moscow.
• ISS shares fall as much as 10% after the company presented its latest earnings. It’s CEO says the 2022 guidance “may be” a bit conservative but that it reflects global uncertainties.
• Hikma falls as much as 9.6% on its latest earnings. Morgan Stanley says Hikma’s generics business will face headwinds in 2022 -- but an announced share buyback will “alleviate the downside.”

Earlier in the session, Asian stocks slumped as geopolitical fears of an imminent strike on Ukraine came to fruition. The ASX 200 fell beneath the 7k level with losses led by tech and miners despite Rio Tinto's record profit. Nikkei 225 slumped below 26k for the first time since late 2020, mired by geopolitics and haven flows. Hang Seng and Shanghai Comp. weakened as bourses were hit by the Russian offensive with Hong Kong dragged lower by tech as Alibaba shares slumped ahead of earnings.

Japanese stocks fell for the seventh time in eight sessions after Russian President Vladimir Putin’s ordered a military attack on Ukraine. Electronics makers and trading houses were the biggest drags on the Topix, which fell 1.3%. Fast Retailing and SoftBank Group were the largest contributors to a 1.8% loss in the Nikkei 225. The Japan market was closed for a holiday Wednesday. Russian forces assaulted targets across Ukraine after Putin ordered an operation aimed at demilitarizing the country, prompting Ukraine’s foreign minister to warn of a “full-scale invasion.” Putin said Russia doesn’t plan to “occupy” its neighbor, but that Russia must “defend itself from those who took Ukraine hostage”. U.S. President Joe Biden called Putin’s move “an unprovoked and unjustified attack” and said the “world will hold Russia accountable.” “The market’s at a loss of where the right bottom will be” for Japan stocks, said Hideyuki Suzuki, a general manager at SBI Securities. “Share prices are likely to continue showing big swings until at least the next FOMC meeting.”

In rates, fixed income rallied as risk assets tumbled: bonds, oil, gold and the dollar gained. U.S. 10-year yields were around 1.85%, richer by ~14bp vs Wednesday’s close, vs session low 1.844%; 2-year yields around 1.49%. Treasuries broadly hold overnight gains into early U.S. session after Russia began a full-scale invasion of Ukraine, unleashing a strong flight-to-quality bid across the curve at the start of the Asia session. The U.S. session includes 7-year note auction and a host of Fed speakers. Front- end swaps erased some Fed rate-hike premium into the risk-off move, leaving around 28bp priced into the March meeting and 150bp -- or six 25bp moves -- priced into the December FOMC. Gilts 10-year yield slides 10bps to 1.38%, bunds -9bps to 0.136%, while 10-year UST yield falls 14bps to 1.86%. U.K. 10-year real yield is down 24bps, set for its biggest drop since 2016.

In FX, the Bloomberg Dollar Spot Index advanced a third consecutive day, rising by as much as 0.5%, as the greenback climbed against all of its Group-of-10 peers apart from the yen. The developments in Ukraine have brought mass risk aversion in the market and long-volatility trades serve as a haven. Still, term structures in the euro and the pound aren’t fully inverted and central bank risks are behind the moves.Currency options and volatility term structures are no longer in normalized mode. Demand for long gamma in yen crosses stands out; euro-yen one- week implied rises by as much as 272 basis points to touch 11.59 vols, the most since June 2020. 10-year Treasury yields tumbled by as much as 13 basis points to 1.86, though the drop was most pronounced at the belly of the curve. The euro plunged to more than a three-week low of $1.1209, before paring losses slightly. The pound fell and gilts rallied in broad risk-off trading as Russia attacked Ukraine. Money markets scaled back bets on a 50-basis-point hike from the Bank of England in March, pricing around 30bps of tightening. Scandinavian and Antipodean currencies led the slump among G-10 peers; Norway’s krone is the second worst G-10 performer as risk aversion outweighs surging oil prices. Japan’s yen rose to its highest in three weeks while bonds advanced as the demand for haven assets intensified.

The ruble fell to a record low against the greenback, sliding more than 4%, and Russia’s central bank said it will intervene in the foreign exchange market for the first time in years and expand its Lombard list of securities accepted as collateral

The trade-weighted yuan index advanced to a record as the currency emerged as a haven amid a global risk-asset selloff induced by Russia’s attack on Ukraine.  The Bloomberg CFETS RMB Index tracker rises as much as 0.6% to 104.28, the highest ever in data compiled by Bloomberg going back to 2007. USD/CNH rises 0.1% to 6.3181; USD/CNY gains 0.1% at 6.3186.

The news on Ukraine “sapped risk appetite and sank most Asian currencies this morning,” says Fiona Lim, senior foreign exchange strategist at Malayan Banking Bhd. in Singapore. That said, most Asian currency pairs are still within recent trading ranges, possibly buffered by the steady offshore yuan, she adds.

In commodities, crude futures advance. WTI drifts 8.4% higher to trade above $100, Brent hits $105 for the first time since 2014. Spot gold rose roughly $61 to trade as high as $1,970/oz. 

Looking at the day ahead now, and US data releases include the weekly initial jobless claims, the second estimate of Q4 GDP, and January’s new home sales. In France, there’s also consumer confidence for February. From central banks, we’ll hear from the Fed’s Barkin, Bostic, Mester and Daly, the ECB’s Schnabel, and BoE Governor Bailey, Deputy Governor Broadbent and Chief Economist Pill. Earnings releases include Royal Bank of Canada and Moderna. Finally, EU leaders will be holding a summit tonight on Ukraine.

Market Snapshot

• S&P 500 futures down 1.7% to 4,149.50
• STOXX Europe 600 down 2.8% to 441.10
• MXAP down 2.7% to 180.40
• MXAPJ down 3.5% to 590.13
• Nikkei down 1.8% to 25,970.82
• Topix down 1.2% to 1,857.58
• Hang Seng Index down 3.2% to 22,901.56
• Shanghai Composite down 1.7% to 3,429.96
• Sensex down 4.6% to 54,589.09
• Australia S&P/ASX 200 down 3.0% to 6,990.63
• Kospi down 2.6% to 2,648.80
• German 10Y yield little changed at 0.14%
• Euro down 0.6% to $1.1238
• Brent Futures up 6.9% to $103.54/bbl
• Brent Futures up 6.9% to $103.54/bbl
• Gold spot up 2.0% to $1,947.40
• U.S. Dollar Index up 0.53% to 96.70

Top Overnight News from Bloomberg

• Russia’s attack on Ukraine, including shelling from Belarus and the movement of troops across that northern border, has been accompanied by separatists launching assaults in the eastern part of the country
• President Joe Biden announced he would impose “severe sanctions” on Russia after Vladimir Putin ordered a military assault on Ukraine, which Biden condemned as an “unprovoked and unjustified attack”
• Ukraine’s central bank has taken emergency measures after Russia started attack against Ukraine, governor Kyrylo Shevchenko says in statement on bank’s website
• Futures tracking the Nasdaq 100 Index signaled the U.S. equity gauge is poised to fall into a bear market on Thursday for the first time since the depths of the pandemic selloff as investors exit risk assets on geopolitical risks
• The crisis over Ukraine probably won’t keep the ECB from agreeing on a faster wind-down of asset purchases at its next policy meeting, though the prospects for an interest-rate hike are less clear, Governing Council member Gabriel Makhlouf said
• The ECB should continue its asset-purchase program at least until the end of the year and keep it open-ended to cushion the fallout from any conflict in Ukraine, Reuters cites ECB policy maker Yannis Stournaras as saying in an interview
• Iran has millions of barrels of oil stored offshore that could flow into a tight global market if a nuclear deal is agreed, with refiners in South Korea likely to be among the first in line to take cargoes

A more detailed look at global markets courtesy of Nesquawk

Geopolitics

• Russian President Putin authorised a special military operation to demilitarise Ukraine. Putin said Russia does not plan to occupy Ukrainian territory and called on Ukrainian soldiers to immediately lay down weapons and go home, while he warned that Russia will react immediately in the case of foreign interference.
• Russian strategic bombers loaded with weapons took flight and Russian special forces entered Ukraine, while multiple explosions were heard across several Ukrainian cities including the capital of Kiev and there were also a series of explosions heard in the Belgorod province of Russia which is near the border with Ukraine. Furthermore, Ukrainian military command centres in Kiev and Kharkiv were attacked by missile strikes.
• Ukraine's Foreign Minister said Russian President Putin started a full-scale war against Ukraine, while he added that this is an aggressive war and Ukraine will defend itself and win.
• Ukrainian military commands claims it is being hit by a second wave of missile strikes.
• German Foreign Minister said Russia rejected offers of more talks.

Western response:

• US President Biden said Russian President Putin has chosen a premeditated war, while Biden will address the American people on Thursday and will announce further consequences on Russia. Furthermore, the US will coordinate with NATO allies to ensure a strong and united response to Russian actions.
• Russia is confident it can withstand Germany’s decision to halt the Nord Stream 2 pipeline certification, according to sources close to Kremlin and Gazprom cited by the FT.
• European Commission President von der Leyen said EU will target strategic sectors of Russian economy, blocking access to key tech and markets; will freeze assets in EU and stop access of Russian banks to EU financial markets.
• EU could discuss personal sanctions on Russia President Putin, Russia's Sputnik News reported.
• EU is unlikely to cut Russia off SWIFT payment system for now, Reuters sources said. Sources added that would make it difficult for creditors to get money back from Russia, while Russia has been building up an alternative payment system.
• UK PM Johnson called for an urgent meeting of all leaders as soon as possible, according to Reuters.
• EU Finance Ministers to discuss Ukraine on Friday/Saturday, according to a German government source cited by Reuters.
• European leaders to discuss offering Ukraine EU Candidate Status at Thursday's European Summit, according to Lithuania's President.
• EU Ambassadors will prepare the extraordinary European Council meeting tonight, according to the EU spokesperson.

Asia-Pac stocks slumped as geopolitical fears of an imminent strike on Ukraine came to fruition. ASX 200 fell beneath the 7k level with losses led by tech and miners despite Rio Tinto's record profit. Nikkei 225 slumped below 26k for the first time since late 2020, mired by geopolitics and haven flows. Hang Seng and Shanghai Comp. weakened as bourses were hit by the Russian offensive with Hong Kong dragged lower by tech as Alibaba shares slumped ahead of earnings

Top Asian News

• China’s Yuan Becomes Unlikely Haven as Geopolitics Roil Markets
• Unilever’s India Unit Splits Chairman and CEO Roles
• China Tech Rout Resumes on Policy Jitters Before Alibaba Results
• Hong Kong Reports 8,798 Covid Cases, 50 Deaths Thursday

European bourses trade with losses across the board as sentiment took a hit on President Putin's announcement on Ukraine. Countries with high exposure to the Russian economy feel the pressure; Austria, France, and Italy are the worst hit. The overall picture tilts defensive with Healthcare, Utilities and Food & Beverages among those with the shallowest losses; banks lag whilst energy is supported. US equity futures are also in the red, with the NQ narrowly lagging its peers.

Top European News

• European Stocks Set for Correction on Russia’s Ukraine Attack
• European Energy Prices Soar After Russia Attacks Ukraine Targets
• ECB Is Closely Monitoring Implications of Situation in Ukraine
• ECB May Still Decide on End of QE Despite Ukraine, Makhlouf Says

In FX, the DXY extended its rebound from recent lows to levels above 97.000. USD/JPY retreated through 115.00 to a sub-114.50 low before bouncing. RUB saw considerable weakness and almost touched 90.0000 vs the USD before paring back after CBR intervention. CHF is faring better than other majors due to its safety credentials. Euro is struggling to retain 1.1200+ status Aussie is back under 0.7200 and Kiwi teetering over 0.6700 having topped 0.6800 only yesterday in wake of the recent hawkish RBNZ hike

In commodities, WTI and Brent futures have soared in a market dictated by geopolitics. Brent Apr surpassed USD 105/bbl whilst WTI Mar eyes USD 100/bbl to the upside. Brent six-month backwardation hit a new record high. UK and European Nat gas prices rose over 30% apiece. FT sources close to Kremlin and Gazprom have suggested that Russia is confident that it can withstand Germany’s decision to halt the gas pipeline certification. Ukraine's Naftogas says energy infrastructure in the country has not been damaged. India to discuss ways to mitigate high global crude oil prices, and other commodities, according to a source cited by Reuters. Haven demand has bolstered spot gold and silver prices, with the yellow metal extending gains above USD 1,950/oz. LME aluminium surpassed its 2008 peak to reach fresh record highs.

US Event Calendar

• 8:30am: Feb. Initial Jobless Claims, est. 235,000, prior 248,000
• 8:30am: Feb. Continuing Claims, est. 1.58m, prior 1.59m
• 8:30am: 4Q GDP Annualized QoQ, est. 7.0%, prior 6.9%
• 8:30am: 4Q Personal Consumption, est. 3.4%, prior 3.3%
• 8:30am: 4Q GDP Price Index, est. 6.9%, prior 6.9%
• 8:30am: 4Q PCE Core QoQ, est. 4.9%, prior 4.9%;
• 8:30am: Jan. Chicago Fed Nat Activity Index, est. 0.15, prior -0.15
• 10am: Jan. New Home Sales, est. 802,000, prior 811,000
• 11am: Feb. Kansas City Fed Manf. Activity, est. 24, prior 24

DB's Jim Reid concludes the overnight wrap

We go to press this morning amidst major developments in Ukraine, with Russia having launched a full-scale invasion of the country overnight. In a televised address, Russian President Putin claimed that “Russia can’t exist with a constant threat from the territory of Ukraine”, and called on Ukrainian soldiers to lay down arms. There have since been numerous reports of explosions from multiple cities in Ukraine, including Kyiv, albeit full information is limited at time of writing, and Ukrainian President Zelensky has imposed martial law across the country.

In response, US President Biden said that he would be meeting today with G7 leaders, and that “our Allies and partners will be imposing severe sanctions on Russia. We will continue to provide support and assistance to Ukraine and the Ukrainian people.” He also said that he would be speaking to the American people today “to announce the further consequences the United States and our Allies and partners will impose on Russia for this needless act of aggression against Ukraine and global peace and security.”

The market reaction to these developments has been seismic, with Brent Crude oil prices surpassing $100/bbl for the first time since 2014, whilst S&P 500 futures are currently down -1.92%, on top of the index’s -1.84% decline yesterday. US Treasuries have also rallied strongly this morning as investors have moved into haven assets, with the 10yr yield down by -11.8bps to 1.873%, and gold prices have surged +1.90% to their highest level in over a year, at $1,945/oz. Otherwise overnight, the Ruble has sunk to a record low against the US dollar in the interbank trade, whilst other commodities are reacting, including aluminum which has hit a record high in London and surpassed its 2008 peak.

This morning, markets in Asia are sharing in this global risk-off move, with the Nikkei (-1.96%), the Hang Seng (-3.18%), the Shanghai Comp (-1.40%) and the CSI 300 (1.94%) all seeing major declines. Ahead of the breaking news on Ukraine, the Bank of Korea also held their policy rate at 1.25%, in line with expectations.

Even before the serious developments overnight, yesterday had already been an incredibly eventful day in markets, with the highlights including 1) that the FANG+ index has now wiped out all of 2021s gains and has lost around a quarter of its value from the November peak, 2) the S&P 500 is now down more than -10% YTD for the first time, 3) 2 year US breakevens rose a huge +20.6bps, 4) German 10 year breakevens hit decade plus highs and 5) European natural gas was up more than 10% again (and that was before the overnight developments).

Those moves yesterday came amidst a continued souring of risk sentiment given fears of a potential conflict that’s since transpired. There had been a more positive tone 24 hours ago during the European morning, but that turned shortly after the US open after news came through from Ukraine that numerous websites had suffered a distributed denial-of-service attack. That saw the S&P 500 (-1.84%) gave up its opening gains and lose ground for a 4th consecutive session. And as mentioned, for the first time so far this year, the S&P ended the day more than -10% lower on a YTD basis, which is a big turnaround from how 2022 began, having reached an all-time closing high on the first trading day. Cyclical sectors underperformed, and the FANG+ index of megacap tech stocks fell by -3.01%, marking the fourth consecutive day of declines greater than 2% for the first time since December 2018. The drop brought the index to its lowest closing level since December 2020, having now fallen by -24.97% since its all-time closing high back in early November. The Nasdaq (-2.57%) also almost wiped out its 2021 gains. For Europe the market had closed before the bulk of the losses, but with the STOXX 600 (-0.28%) closing at its lowest for 2022 as well.

In terms of the broader global impact, a significant way the events in Ukraine will affect the rest of the world is regarding inflation, and even before we saw $100/bbl oil overnight, that relentless rise in commodities showed no sign of abating yesterday. Along with European natural gas prices gaining +11.41% as mentioned, wheat futures (+3.78%) climbed to their highest since late-2012, and soybean futures (+2.45%) managed to eclipse their peak from last May, taking them to their highest levels on record. All-in-all, that sent the Bloomberg Commodity Spot Index (+0.70%) to another record high, suggesting there’ll still be significant momentum behind inflation for some time to come.

These growing fears of inflation among investors led to a further selloff in sovereign bonds on both sides of the Atlantic, although overnight the movement in Treasuries has completely reversed that. But for a sign of how acute those inflation concerns are growing, 10yr German breakevens were up +5.4bps to 1.97%, their highest closing level in over a decade, though 10yr bunds pared back moves later in the session, ending the day down -1.5bps, thanks to a decline in real yields. The pressure was even stronger across the Atlantic; the 2yr US breakeven rose a remarkable +20.6bps to 3.96%, which is its highest in Bloomberg data series going all the way back to 2004, while 5yr breakevens rose +16.7bps. Given that, yields on 10yr Treasuries were up +5.2bps to 1.99%, with breakevens up a paltry +9.5bps by comparison. So falling real yields helped prevent a US bond meltdown.

These inflationary moves seemed to be even forcing the resident doves of both the ECB and the Fed to sound a more hawkish tone despite the geopolitical turmoil, although the big question now will be how developments overnight will affect their reaction function. Fed funds futures have slashed the implied odds of a 50bp move in March to just 16%, which is the lowest in over 3 weeks before we had the CPI report. The number of 25bp hikes priced for the year as a whole has also gone down from 6.48 to 6.00, suggesting that (at least for now) investors believe this is going to make central bankers more dovish rather than hawkish as they react to the turmoil, even with inflationary pressures building.

In terms of yesterday’s central bank news, ECB Chief Economist Lane noted in an interview that there was growing confidence in medium-term inflation returning closer to the target, and if the data suggests their medium-term inflation goals were within reach, that policy would be adjusted. Unlike other previous ECB speakers, that adjustment was not couched in gradual terms. While emphasising a commitment to the exit sequence of ending net APP purchases before liftoff, Lane noted the timeline of purchases may be shorter than was expected. In line with other speakers, Lane also noted the ECB would leverage PEPP reinvestments to defend against policy fragmentation. Against that backdrop, there was a further widening in peripheral spreads, with the gap between Italian and German 10yr yields up to another recent high of 171bps, which we haven’t seen since June 2020, and the Greek spread hit 237bps, which hasn’t been seen since May 2020. Separately, President Daly of the SF Fed said a March liftoff was still on the table despite growing political risks. She also backed four Fed rate hikes this year, and left the option open for more if needed.

To the day ahead now, and US data releases include the weekly initial jobless claims, the second estimate of Q4 GDP, and January’s new home sales. In France, there’s also consumer confidence for February. From central banks, we’ll hear from the Fed’s Barkin, Bostic, Mester and Daly, the ECB’s Schnabel, and BoE Governor Bailey, Deputy Governor Broadbent and Chief Economist Pill. Earnings releases include Royal Bank of Canada and Moderna. Finally, EU leaders will be holding a summit tonight on Ukraine.