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Geopolitical uncertainty is not keeping investors away from risk Monday.
Stock index futures point to a higher opening. Dow futures (INDU) +1.1% are doing better than S&P futures (SPX) +0.9% and Nasdaq futures (NDX:IND) +0.7%.
The S&P managed to hold the important 4,200 level during Friday’s selloff.
Rates are rising sharply to start Fed week. The 10-year Treasury yield is up 8 basis points to 2.09%, while the 2-year is up 8 basis points to 1.83%.
“Markets are pricing in a +25bps hike, in line with the rhetoric from Chair Powell at his congressional testimonies a couple of weeks back,” Deutsche Bank’s Jim Reid wrote. “Before the invasion we thought a 50bps was likely this week and the problem is that by delaying such a move they may have to do more later. The market seems to agree to some degree as at Friday’s close the market was pricing in 6.7 hikes this year, the most seen in this cycle and above the post invasion intra-day lows of 4.45. This morning we are at 6.92.”
“With regards to QT, they anticipate that the Fed will use this upcoming meeting to announce caps determining the maximum monthly runoff and, in May, announce QT that would begin in June,” Reid added. “They think we will see $800bn of runoff this year and an additional $1.1tn drawdown in 2023, a cumulative reduction we think is roughly equal to between three and four rate increases.”
Ceasefire talks between Russia and Ukraine will continue today, but on the ground fighting continues, with Kiev facing heavy shelling.
In Asia, China’s Shenzhen region is under lockdown, which will add more problems to supply chains. The U.S. dollar is up 0.8% agains the yen and 0.4% against the yuan.
“International consumers are unlikely to notice; production will shift, and any delay is roughly the difference between free delivery with Amazon Prime and free delivery without Amazon Prime,” UBS chief economist Paul Donovan said. “However, markets do seem to be nervous about the effectiveness of the zero-tolerance policy, and the potential for future disruption.”
In M&A news, JD.com is buying Deppon Logistics for $1.4B.