It gets real



A look at the day ahead in markets from Sujata Rao

Minutes from the European Central Bank's February meeting are due later on Thursday but last month's shock hawkish pivot seems like distant history now.

With Brent crude up some $30 a barrel since mid-February and European gas prices more than doubling in this period, the ECB will be looking with alarm at spiralling inflation expectations; Ten-year German 'breakevens', which reflect future inflation, have jumped 40 basis points since that February ECB meeting DE2YIL=RR .

Shorter-dated breakevens are above 4%.

And while estimates vary widely of how the war will impact euro zone GDP, a growth hit is certain and that's dampening the likelihood of near-term policy tightening.

With markets paring expectations of an ECB rate rise this year, swathes of the regional bond market are back into negative-yield territory. Moves are more pronounced in "real" yields - borrowing costs after stripping out inflation -- German 10-year real yields are at record lows below -2%.

U.S. Treasury real yields recovered a touch on Wednesday after Federal Reserve Chairman Jerome Powell clearly signalled a quarter-point rate rise was on the cards at the Fed's March 15-16 meeting. (Though ten-year real yields around -0.9% are still half where they were earlier this month).

Stock markets are reflecting this transatlantic divide, and Citi advise clients to add exposure to U.S. stocks, in particular the tech sector which benefits from falling real yields. But they also remain positive on commodity-heavy UK stocks.

European stocks are opening weaker, despite a strong Wall Street close following Powell's clear signal that a 50 bps rate rise is unlikely.

The bad news continues to pour in on the Russia front. Societe Generale acknowledged an 18.6 billion-euro exposure to the country. It's further bad news for European banking stocks, already down more than 20% since mid-February . Key developments that should provide more direction to markets on Thursday: Japan's service sector activity contracts at fastest pace in 21 months China's Feb services activity expands at slowest rate in six months -Euro zone PPI/unemployment rate -Emerging market central banks: Malaysia, Ukraine -European earnings: Taylor Wimpey, Lufthansa, Thales, LSEG, ITV, Admiral, Fortum, Raiffeisen, Merck, -U.S. earnings: Best Buy, Kroger, Costco, Gap, Marvell



Real yield Link



Reporting by Sujata Rao; editing by

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.