U.S. futures slumped alongside tumbling European and Asian stocks on Thursday, but have since rebounded and were back near unchanged levels as traders awaited remarks from Jerome Powell following a recent bout of bond market turmoil. Treasuries and bitcoin were steady, while the dollar and oil were slightly higher. Nasdaq futures rebounded after falling to a two-month low, wiping out all 2021 gains.

At 6:45 a.m. ET, Dow E-minis were down 48 points, or 0.15% and S&P 500 E-minis were down 10 points, or 0.26%. Nasdaq 100 E-minis were down 36points, or 0.29%.

The S&P 500 is set to open below its 50-day moving average, an indicator of short-term momentum that has proved to be a support line in the recent days. Microsoft Corp, Apple Inc and Amazon.com Inc dropped between 0.3% and 0.4% before the bell. Tech stocks and growth names in general which have huge duration, are particularly sensitive to rising yields because their value rests heavily on future earnings, which are discounted more deeply when bond returns go up. Shares of Snap dropped about 2% even as the company’s chief executive, Evan Spiegel, said the tech company expects to deliver 50% annual revenue growth over several years even without growing its user base or engagement.

"Given that recent price moves have been driven more by speculative trading than market fundamentals, any disappointment may lead to a sharp selloff," said Hussein Sayed, chief market strategist at FXTM. “For prices to remain near their pre-pandemic levels or higher, we need to see a positive surprise.”

S&P 500 and Nasdaq 100 contracts dropped as much as 1% but have come off their lows of the session, following a sharp selloff on Wednesday when the 10-year Treasury yield approached 1.5% and the 5Y neared 0.75% on surging inflation expectations which pushed the 5Y breakeven to 2.50%, the highest since 2008.

As previewed yesterday, Fed Chair Powell will appear in a noon appearance at a Wall Street Journal webinar where he is expected to push back on bond-market concerns, saying the central bank will be ultra-patient in withdrawing its support for the economy after the pandemic has ended. It is also very likely that he will hint the Fed will extend an SLR ratio exemption for banks, easing a big reason behind the recent bond volatility.

As discussed last night, the market is focused on Powell, who is due to speak at a Wall Street Journal conference at 12:05 p.m. ET for any hints of concern about last week’s jump in bond yields, in what will be his last outing before the Fed’s policy-making committee convenes from March 16 to 17.

Europe's Stoxx 600 Index slipped 0.7%, dragged down by tech and miners. The Stoxx Europe 600 Basic Resources Index plunged as much as 4.7% as Rio Tinto and BHP trade ex-dividend, while metals drop on higher bond yields and a stronger dollar. Nickel slumps on an unexpected plan to add supply in China, hitting Nickel-exposed miners. The Stoxx Europe 600 Technology Index fell as much as 3.1%, placing it among the day’s worst sectoral performers as chip stocks track U.S. and Asia peers lower, while high-flying pandemic winners also come under pressure. The Stoxx Tech Index fell as much as 1.8% to lowest in more than a month after the US SOX (semiconductor) Index fell 3.1% on Wednesday, closing at a one-month low. Shares in chip-equipment makers tumbled, having recently benefited from a global shortage of chips: ASM International -3.7%, Soitec -3.4%, BE Semi -2.8%, ASML -2.5%, Aixtron -3.5%. Here are some of the biggest European movers today:

• GEA Group shares jump as much as 5% after the German company upgrades its mid-term profitability target, with Warburg saying the move confirms its “more positive view” on the stock.
• Galapagos shares climb as much as 5.2% after releasing interim safety data from a study of Jyseleca (filgotinib) in males with inflammatory bowel disease or rheumatic conditions. The headline data may help future U.S. approval for the drug and lift some overhang for the stock, according to Jefferies.
• Unibail-Rodamco-Westfield shares gain as much as 6.3% and are the leading performer on the Stoxx Europe 600 Real Estate Index after Iliad founder Xavier Niel lifted his stake in the mall operator.
• Aviva shares jump as much as 4.1% after the British insurer announced the sale of its Italian units and reported better-than-expected results.
• Andritz shares drop as much as 6.2% after JPMorgan sold 2.2 million shares in a placement. Shares in the offering priced at EU38.75 each, a 4.2% discount to Wednesday’s close.

MSCI’s Asia-Pacific index had its worst decline this week: Almost all regional indexes in Asia retreated, with gauges falling more than 2% in China, Hong Kong and Japan. Singapore was the only market posting gains.  The technology sector struggled while real estate, finance and energy shares outperformed amid a shift to value segments.

Asian stocks tumbled as investors sold technology companies following a renewed bout of volatility in U.S. Treasury yields. Tencent and TSMC were the biggest drags on the MSCI Asia Pacific Index, while Meituan and SoftBank each slid by at least 5%. The decline in technology stocks outweighed gains in banking shares, even as Australia & New Zealand Banking and National Australia Bank both advanced more than 2%. China led losses in Asia, with the CSI 300 Index falling the most since July 24. Investors sold off some of the country’s most popular stocks, including Kweichow Moutai.

Japanese shares fell, with the Nikkei 225 Stock Average sliding as much as 2.9%, as investors sold technology stocks after another spike in U.S. yields.The Nikkei 225 closed at its lowest since Feb. 5 and is now down 5.1% from its peak last month. The blue-chip gauge is still up 5.4% year to date, outperforming measures including the S&P 500 and MSCI AC Asia Pacific Index. SoftBank Group tumbled more than 5%, with Tokyo Electron and Fanuc also weighing on the blue chip measure. Fast Retailing was the biggest contributor to the Nikkei 225’s loss after announcing a plan to cut prices. A gauge of Topix electronics stocks declined for a third day, with chip-equipment makers among the biggest drags. Declines in Asia were broad and deep after U.S. benchmark

“There’s panic selling by those who fear that the market of excess liquidity could be shaken up,” said Hitoshi Itagaki, president of Principal Global Investors in Tokyo. “But because the economic outlook isn’t bad, bargain hunters are jumping in on dips.” Prime Minister Yoshihide Suga said the virus emergency in the Tokyo region now set to expire on March 7 may need to be extended for another two weeks, as he seeks to further rein in the pace of infections. “It’s become hard to tell which way local equities are headed from here, clouded by worry over U.S. yields,” Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co.

Emerging-market equities slid amid a selloff in Asian shares as investors awaited comments from Federal Reserve Chairman Jerome Powell. MSCI’s gauge of developing-nation shares dropped by the most since Friday, driven by declines from China to Sri Lanka and Taiwan. In South Korea, the won fell to a four-month low. Meantime, the Turkish lira tumbled for a third day, touching its weakest since December. Emerging-market assets are trading without a clear sense of direction as money managers weigh the risk of rising U.S. Treasury yields as well as the possibility of additional fiscal stimulus and climbing commodity prices. “The recent bond selloff is weighing somewhat on equity markets across the board -- EMs are no exception,” said Silvia Dall’Angelo, senior economist at Federated Hermes in London. “There is a tension between prospects of a strong recovery, especially in emerging markets, and tighter financial conditions.”

As Bloomberg notes, The rise in inflation expectations and long-term borrowing costs is stoking volatility and raising concern that a prolonged rally in equity markets may be in jeopardy. Investors are trying to assess central banks’ appetite to buy more longer-dated bonds to keep financial conditions loose. The focus turns to Powell’s upcoming comments, after Chicago Fed President Charles Evans said the recent climb in yields reflected economic optimism.

In FX the Bloomberg Dollar Spot Index reversed an earlier loss, approaching its 100-DMA. The euro fell to a 2-day low versus the dollar in the European session; the volatility term structure in euro-dollar escapes from normalized mode as the one-week tenor now captures the next ECB meeting; still, traders don’t expect outsized price swings to materialize. The pound fluctuated between modest losses and gains as investors digested the budget presented by Chancellor Rishi Sunak; Gilt yields edged lower after the government’s plan to sell more debt than expected in the next fiscal year sent 10-year bond yields soaring by the most since December on Wednesday. The yen fell to its lowest since July versus the greenback

Ahead of Powell’s remarks, the 10-year Treasury yields were at 1.47% but held below last week’s one-year high of 1.614%. Yields little changed across front-end of the curve, flattening 2s10s, 5s30s by 2bp and 2.6bp; 10-year yields around 1.46%, richer by 2bp on the day while gilts outperform by ~1bp in the sector. Choppy price action during the Asian session and European morning left the Treasuries curve flatter with long-end yield richer by up to 4bp vs Wednesday’s close. Gilts outperformed, fading some of Wednesday’s supply-driven selloff. U.S. session features Fed Chair Powell discussing the U.S. economy at 12:05pm ET.

Oil traded near $62 a barrel, with investors focusing on a critical OPEC+ meeting that may see supply curbs eased, while tracking events in the Middle East after Houthi rebels said they hit targets in Saudi Arabia. Preliminary OPEC+ talks giving little hint as to whether the market will get the April supply increase it is expecting. As has become usual, Saudi Arabia remains cautious on increasing output while Russia is keen to open the taps. Oil is holding above $60 a barrel ahead of the meeting, with investors also keeping an eye on developments in the Middle East where Yemen’s Houthi rebels claimed an attack on an Aramco facility in Saudi Arabia.

The number of Americans filing for jobless benefits likely rose to 750,000 in the latest week from 730,000. The data comes on the heels of Wednesday’s report showing slower-than-expected growth in February’s private payrolls. The crucial monthly payrolls report is expected on Friday. Also on today's calendar, the U.S. Senate is expected to begin debating President Joe Biden’s $1.9 trillion coronavirus relief package on Thursday after agreeing to phase out payments to higher-income Americans in a compromise with moderate Democratic senators.

But the main event is Powell's noon Zoom conference, in which the Fed Chair is widely expected to reinforce the central bank’s ultra-patient stance in pulling back its support for the economy; there’s been speculation in the market about the possibility of a shift to “twist” operations, but such a move has not been openly discussed by Fed members

Looking at today's calendar, U.S. durable goods and factory orders for January are at 10:00 a.m. Powell speaks at 12:05 p.m. Votes in the House have been cancelled for today following a warning from law enforcement officials that a militant group may be planning an attack on the Capitol. Broadcom Inc., Costco Wholesale Corp. and Gap Inc. are among the companies reporting results.

Market Snapshot

• S&P 500 futures down 0.5% to 3,798.25
• MXAP down 1.8% to 207.94
• MXAPJ down 2.0% to 700.12
• Nikkei down 2.1% to 28,930.11
• Topix down 1.0% to 1,884.74
• Hang Seng Index down 2.2% to 29,236.79
• Shanghai Composite down 2.1% to 3,503.49
• Sensex down 1.0% to 50,929.17
• Australia S&P/ASX 200 down 0.8% to 6,760.71
• Kospi down 1.3% to 3,043.49
• Brent Futures down 0.6% to $63.66/bbl
• Gold spot down 0.2% to $1,708.62
• U.S. Dollar Index up 0.28% to 91.20
• Euro down 0.2% to $1.2033
• Brent Futures down 0.6% to $63.67/bbl

Top Overnight News from Bloomberg

• Federal Reserve Chairman Jerome Powell will probably seek to convince suddenly skeptical financial markets on Thursday that the central bank will be ultra-patient in pulling back its support for the economy after the pandemic has ended
• U.K. Chancellor of the Exchequer Rishi Sunak defended his plan to increase U.K. taxes to their highest level in more than 50 years, saying it was fair for the highest earners to suffer the hardest hit
• London’s virus infections are rising, while the rate of decline of the disease nationally is slowing, a new study suggested
• The head of the U.K.’s Debt Management Office is hardly batting an eye over the meltdown in U.S. Treasuries that sent shockwaves across global bond markets last week for one key reason: liquidity at home

Look at global markets courtesy of Newsquawk

Asian equity markets declined across the board as the region followed suit from the losses on Wall St where tech stocks underperformed and sentiment was pressured by a resumption of selling in the bond market and rise in yields, as well as soft data releases after ISM Non-Manufacturing PMI and ADP Employment missed expectations. ASX 200 (-0.8%) was dragged lower by broad weakness across its sectors aside from real estate and financials which benefitted from strong house prices and a rising yield environment, with sentiment also clouded by mixed data in which retail sales fell short of estimates but the trade balance posted a record surplus. Nikkei 225 (-2.1%) declined from the open to give up the 29k level after the government announced an extension of the state of emergency for the Tokyo region until March 21st and were also considering not accepting overseas spectators to the delayed Olympics this summer. Hang Seng (-2.2%) and Shanghai Comp. (-2.1%) conformed to the losses in the region after another tepid liquidity operation by the PBoC which resulted in a slight net drain from the interbank market and with participants cautious ahead of the NPC where focus will be on the Government Work Report and 5-year plan amid mixed views on whether or not China will set an official growth target, while declines were led by the ChiNext which slumped by more than 4% as it mirrored the rotation out of growth and tech seen stateside. Finally, 10yr JGBs were subdued amid spillover selling from USTs and with demand also hampered after results of the 30yr JGB auction pointed to a weaker auction across all metrics, although the Japanese 10yr benchmark is off its lows as prices then converged back to the 151.00 level.

Top Asian News

• Asian Stocks Tumble as Technology, China Shares Resume Declines
• China Stocks Approach This Year’s Low as Traders Sell Favorites
• Suez Is Said in Talks to Sell Australian Arm to Cleanaway
• India’s Flipkart Said to Mull U.S. Listing With SPAC as Option

European equities opened the session softer across the board (Euro Stoxx 50 -0.6%), in-fitting with Asia’s negative lead, with downside in equities persisting throughout the morning following earlier choppy price action. Stateside, US equity futures also see lacklustre trade, but have been somewhat choppy within tight ranges, with the RTY (-1.0%) the under-performer. Fresh fundamental catalysts have remained sparse as the equity sphere awaits further direction in the run-up to Powell’s speech at the WSJ Jobs Summit at 17:05GMT/12:05EST. This will be heavily observed against the backdrop of rising yields and chatter of a "Fed twist" in a bid to influence the yield curve - namely the long and short ends. That being said, desks believe that the Fed Chair will likely stick to his guns and put the Fed's policy over bond market woes. Back to Europe, sectors opened in negative territory and traded choppy in early hours before stabilising mostly in the red. The risk aversion across the region is displayed by the better performance in defensive sectors vs cyclical. Food & Beverages sector outperforms, closely followed by Personal & Household goods. To the downside, Basic resources (-4.5%) is the notable laggard and after that Travel & Leisure (-1.2%) and Technology (-2.9%) are experiencing softness. In terms of individual movers, Aviva (+2.1%) trades firmer this morning after the Co. announced it is to generate cash with the sale of Aviva Italy for EUR 873mln. Melrose (+1.7%) is also seeing early morning gains after a beat on FY revenue expectations alongside the surprise proposition of a final dividend. To the downside, Thyssenkrupp (-2.2%) is subdued after the Norwegian Wealth Fund is to undertake active ownership discussions with the Co. due to the concern that they are contributing to or even responsible for gross corruption. Lastly, Just Eat Takeaway (-3.1%) lags after it was announced that one of their direct competitors, Deliveroo, has selected London as its IPO location.

Top European News

• France Launches State Aid Plan as Post-Pandemic Model for Europe
• EMA to Start Review Process for Russia’s Sputnik V Covid Vaccine
• Lufthansa Sees Delayed Recovery After Record Annual Loss
• Uniper Sees Drop in Profit After ‘Extraordinary’ 2020 Gain

In FX, marked divergence between the Aussie and Yen, but not necessarily as a direct reflection of broad risk sentiment that traditionally drives the cross one way or the other. Instead, Aud/Usd rebounded from just above 0.7750 to circa 0.7815 largely on the back of a record trade surplus swelled by exports rising twice as fast as the previous month, while imports fell at the same pace. However, the Greenback is grinding higher across the board, with the index looking to retest recent highs above 91.000 between 90.970-91.223 parameters, and the Aussie also faces relatively formidable option expiry interest in the form of 1.5 bn at 0.7820-25 assuming it can clear 1 bn expiries at the 0.7800 strike convincingly alongside a pronounced retreat in copper and other base metals. Conversely, Usd/Jpy has made a clean break above 107.00 and breached another technical resistance level in the form of the 100 WMA at 107.24, leaving the Yen with only half round number support at 107.50 to rely on.

• CHF - The Franc’s fortunes are going from bad to worse, but the SNB will be cheering from the side-lines as Usd/Chf climbs towards 0.9250 and Eur/Chf scales 1.1100 ahead of Swiss reserves data for February on Friday and this month’s quarterly policy review.
• NZD/CAD - Some compensation for the Kiwi as Aud/Nzd holds below 1.0750, but Nzd/Usd is losing more upside momentum having failed to retain grip of the 0.7300 handle, while a dip in oil prices is keeping the Loonie anchored around 1.2650 after its fleeting foray above 1.2600 yesterday.
• GBP/EUR - Both conceding ground amidst the latest Dollar upturn, as Cable meanders mostly in the low 1.3900 area in the UK Budget aftermath and not really reacting to a firmer than forecast construction PMI. Similarly, mostly better than expected Eurozone construction surveys have not really lifted the Euro’s spirits, while a big retail sales miss was largely flagged by member state data and partly offset by a steady jobless rate following a downward revision to the previous month. Hence, Eur/Usd is still straddling 1.2050 and also capped by decent option expiry interest as 1.3 bn rolls off at the NY cut from 1.2085-1.2100 before attention turns to Fed chair Powell at a WSJ event on the labour market and US economy.

In commodities, WTI and Brent front-month futures are both softer on the session and just below overnight lows during early European trade. The initial positive price action seen this morning could potentially be derived from the Yemen Houthis launching a missile at a Saudi Aramco facility, in Jeddah, - on the day of the OPEC+ meeting, albeit the attack was thwarted. Nonetheless, back to OPEC+, it is suggested that oil prices were supported in part due to the prospect OPEC+ may stick with supply cuts and may decide against increasing output. It is clear that there are diverging views among members - with variables plentiful in terms of any potential final outcome - with Russia reportedly vying for a 125k increase for itself, according to sources. However, the broader sentiment among traders is for a return of Saudi's unilateral cuts in phases, alongside an ease of the output curbs - again, the magnitude of any potential easing and Saudi's oil return will garner the most focus. WTI resides around USD 61.00/bbl mark (vs high USD 61.98/bbl) and Brent trades in the upper-63/bbl region (vs high USD 64.88/bbl). Aside from OPEC+, other notable risk events on the table today include the US Initial Jobless Claims and Fed Chair Powell's speech. Elsewhere, precious metals were softer on the session which is in cause by USD strength but are now mixed. Spot gold trades just north of USD 1700/oz, 0.2% higher, and spot silver sees itself 0.6% lower at the time of writing. Overnight spot gold hovered near a nine-month low as rising US Treasury yields kept the non-yielding commodity under pressure. Moving on to base metals, LME copper fell over 4% in early trade amid the soured risk tone and firmer Buck. China stainless steel slumped 6% as nickel prices dropped, however, analysts at Huatai Futures said supply and demand for stainless steel in H1 2021 was not weak and prices could rebound after the sentiment-driven disruption. Leading on from this, nickel prices in Shanghai are set for their biggest fall in nine months after a major deal by Tsingshan curbed worries of battery-grade nickel supply shortage; LME nickel is -7.5% presently and on course to drop to a ten week low.

US Event Calendar

• 8:30am: Feb. Initial Jobless Claims, est. 750,000, prior 730,000; Continuing Claims, est. 4.3m, prior 4.42m
• 8:30am: 4Q Unit Labor Costs, est. 6.6%, prior 6.8%; Nonfarm Productivity, est. -4.7%, prior -4.8%
• 10am: Jan. Durable Goods Orders, est. 3.4%, prior 3.4%
• 10am: Jan. Cap Goods Orders Nondef Ex Air, est. 0.5%, prior 0.5%;
  • -Less Transportation, est. 1.4%, prior 1.4%
  • Cap Goods Ship Nondef Ex Air, prior 2.1%
• 10am: Jan. Factory Orders Ex Trans, prior 1.4%; Factory Orders, est. 2.1%, prior 1.1%

DB's Jim Reid concludes the overnight wrap

A monumental day yesterday. I got a text from my GP surgery inviting me in for a vaccine. My first reaction was pride at humanity. My second was panic and to try to work out what underlying condition I didn’t know I had that made me eligible before my age group had come up. My third reaction was to re-read the text. It said at the end that this was for the MMR vaccine and please ring to book. I had no idea things were going so well in the roll out in the U.K. that they were giving vaccines out for other stuff. They left a number to contact and book but it was busy all afternoon as I imagine any text sent to a group of people that has the word vaccine in will solicit busy phone lines. I thought it may actually be the covid one and that they’d made a mistake but a little research told me that they might be looking to backfill older people who haven’t had the full protection as children. I have absolutely no idea what I was vaccinated for as a kid. All I know is that it wasn’t for hair loss or if it was the efficacy was low.

A jab to protect against higher yields was what was needed yesterday as we returned to levels seen at the end of last week. As a result global risk appetite was subdued, with equity markets moving lower, especially in the US. As we’ve been saying for a while now I suspect this huge liquidity and recovery story is going to repeatedly lock horns against the risk of higher inflation and higher yields in 2021. This year won’t be for the faint hearted.

By the close, US Treasuries had witnessed another big selloff, with 10yr yields up +8.9bps to 1.481%, marking the 3rd biggest daily increase we’ve seen so far this year, with the moves higher driven by increases in both real rates (+6.6bps) and inflation expectations (+2.5bps), although the former is the problem (see my credit note mentioned at the top). This included a noticeable steepening in the yield curve as well, with the 2s30s curve just managing to reach a 5-year high, while 5-year breakevens moved above 2.5% in trading for the first time since 2008, before closing just beneath that point at 2.487%. So 13yr highs for inflation expectations which is quite a landmark.

With sovereign bonds selling off yet again, there’ll be a lot of attention on Fed Chair Powell today, who’ll be interviewed at the WSJ Jobs Summit at 17:05 London time. While multiple ECB speakers have pushed back on the moves higher in yields, there’s been a comparatively relaxed tone at the Fed, with a number arguing that it reflects confidence in the country’s economic prospects. Just yesterday, Governor Evans attributed the rise in yields to “real factors” including the progress on US vaccination efforts. Nevertheless, markets are still pricing an initial hike within the next 2 years, so it’ll be interesting to see if there’s any pushback against these expectations. Governor Harker noted yesterday that a hike could come by the latter part of 2023, though he suggested that was as early as he could see one. Both Governors Evans and Harker noted that yield-curve control was a tool in the Fed’s bag but it is not yet planning to use it. One tool that has been talked about in the financial press was a potential “twist” where the Fed increases its longer-term holdings while lowering its T-bill inventory, but again Governor Evans seemed to push back on this saying he doesn’t “expect we’ll need to change duration of bond buys.” So Powell later today will now be the main event before the blackout period begins this Saturday ahead of the next FOMC meeting in mid-March.

On the fiscal front in the US there was the first real concession from President Biden, who agreed with moderate Democrats to narrow eligibility for stimulus checks. Now checks would only be sent to those earning up to $80k, rather than $100k as previously drafted. Though this seems to have been traded for the other sticking point for moderates – namely raising supplemental unemployment checks by $100/week to $400/week – which will now go ahead as planned. The overall change to the $1.9 trillion price tag is “only” estimated at $50bn or so. So more of a wash. Voting is expected to begin as soon as today according to Congressional Democrats, with both Senator Schumer and Speaker Pelosi confident that President Biden will sign it into law prior to the current additional jobless benefits expiring on March 14.

As sovereign bond yields moved higher, US equities again sold off sharply, though mostly in the US afternoon. The S&P 500 was down -1.31%, led in particular by large cap tech stocks, which took a further tumble as the NASDAQ lost -2.70% and the NYSE FANG+ index was down -3.75%. The NASDAQ saw its worst 2-day loss since early September, taking the index performance down to +0.85% on a YTD basis and to its lowest closing level since 6 Jan. That said, banks performed strongly thanks to rising yields, with the S&P 500 banks index advancing +1.50%, while Europe’s STOXX Banks index climbed +2.36% to a post-pandemic high. More broadly in Europe, the STOXX 600 managed to eke out a +0.05% gain, having closed before the worst of the US losses. European sovereign bonds joined the US in selling off across the board, as yields on 10yr bunds (+6.4bps), OATs (+6.9bps) and gilts (+9.2bps) all rose on the day. Another notable underperformer was gold, with prices falling to their lowest level since June thanks to another -1.56% decline. Bitcoin rose +7.38% though and moved back above $50,000.

Overnight in Asia the equity sell-off has accelerated with the Nikkei (-2.15%), Hang Seng (-2.47%), Shanghai Comp (-1.76%) and Kospi (-1.08%) all making sharp moves lower. Futures on the S&P 500 (-0.50%) are also trading lower. Turning to sovereign yields, the rise has filtered through into Asian time with Australian (+9.7bps), New Zealand (+11bps) and Japanese (+1.8bps) 10yr yields all higher. Yields on 10y USTs are flattish. Meanwhile, Japan’s ministry of finance reported overnight that Japanese funds sold a record $33.6bn of overseas bonds in the last two weeks of February. This may have exacerbated the recent global sell-off. Elsewhere, Brent crude oil is trading at $64.55 (+0.75%) ahead of the result of a critical OPEC+ policy meeting later today which decides on new production targets.

In other overnight news, the South Korean government has launched a consortium of executives from Samsung Electronics and SK Hynix, two of the world’s biggest chipmakers, along with their counterparts from Hyundai Motor and Hyundai Mobis to address shortages in automotive chips and lay the groundwork for a joint venture capitalising on growing demand for future vehicles.

Back to yesterday, one of the main pieces of news came from here in the UK, where the government’s annual budget announcement saw Chancellor Sunak announce an upgraded set of economic forecasts, whilst also signalling fiscal retrenchment over the years ahead. In terms of the headlines, the independent OBR upgraded the near-term GDP profile relative to their November projections, partly thanks to 2020’s growth turning out better than they’d anticipated. However, while the deficit projection for 2020-21 was revised down to 16.9% of GDP (from 19.0% in November), the 2021-22 projection was revised up to 10.3%, which if realised would mean that they’re the highest two annual deficits that the UK has seen since WIII.

Looking at the fiscal measures, the announcements included an extension of the furlough scheme that pays 80% of employee’s wages until September, albeit with a tapering off from July, which is once the lockdown restrictions are scheduled to have been lifted. There was also an extension of various other support measures, including an extension of the stamp duty cut, the VAT reduction for hospitality, as well as the uplift to the Universal Credit benefit. Nevertheless, Sunak used the opportunity to preview how some of this would be paid for in the years ahead, including an increase in the corporation tax rate to 25% from 2023 (from 19% at present), and a freezing in the income tax thresholds after this year’s uplift until 2026. Other notable measures included a new “super-deduction” over the next 2 years that would mean companies investing in qualifying new plant and machinery assets would get a 130% first-year capital allowance, reducing their tax bill, while multiple new freeports would be created, offering tax relief and other benefits to incentivise businesses to operate there. Finally, the Bank of England’s remit is also being updated to include the government’s objective of “an environmentally sustainable and resilient net zero economy”. In a statement, the BoE said that they’d provide more information in the coming months about adjustments to their corporate bond purchases to account for the issuers’ climate impact.

Turning to the pandemic, Japanese Prime Minister Suga said that the virus emergency in the Tokyo region might need to be extended for a further 2 weeks from March 7. Greece announced restrictions would increase after the country saw its highest number of new cases since mid-November. On the other side of the coin, German Chancellor Merkel announced a plan to gradually unwind restrictions with hairdressers set to resume operations from Monday even as hotels, restaurants and other non-essential retail outlets will continue to remain closed. Germany has tied further easing steps to local contagion rates and has set up an “emergency brake” to react to hot spots. In the US, New York eased some restrictions with the limit on outdoor gatherings rising to 25 people from 10 while venues that hold fewer than 10k people can open at 33% capacity with some caps. New York City announced they expect to open vaccination appointments to all residents who want one starting by late-April or May. Meanwhile in Michigan, the state lowered its vaccine eligibility age down to 50 from 65 as of March 22, the lowest so far of any state.

Looking at yesterday’s data, the release of the final services and composite PMIs for February generally surprised to the upside, with the Euro Area services PMI revised up to 45.7 (vs. flash 44.7) and the composite PMI up to 48.8 (vs. flash 48.1). Over in the US, there were also upward revisions as well, with the services reading up to 59.8 (vs. flash 58.9) and the composite up to 59.5 (vs. flash 58.8). The other US data was slightly less positive however, with the ISM services index falling to 55.3 (vs. 58.7 expected), which is the lowest reading since last May. Furthermore, ahead of tomorrow’s US jobs report, the ADP research institute reported that private payrolls were only up +117k (vs. +205k expected).

To the day ahead, and the main highlight will likely be Fed Chair Powell’s remarks, as other central bank speakers include the ECB’s Knot and Centeno. Data releases include the German and UK construction PMIs for February, the Euro Area unemployment and retail sales figures for January, while from the US there’s the weekly initial jobless claims and January’s factory orders. Earnings releases include Broadcom and Costco.