Futures Slide Ahead Of PPI As Democrats Prepare To Shut Down Government

US equity futures are again lower, although well off session lows, with small caps leading and tech stocks lagging as concerns over whether Democrats will push the US into a government shutdown over the weekend added to uncertainty around the outlook for the economy. As of 8:00am, S&P futures contracts fell 0.4%, in an extremely illiquid and volatile session, after gains on Wednesday spurred by a softer-than-expected inflation print. Nasdaq futures dropped 0.5%, with most Mag7 names lower; weak earnings hit software firm Adobe and clothing retailer American Eagle in premarket trading, Intel jumped as much as 11% after the chipmaker named a new chief executive officer. Senate Minority Leader Chuck Schumer said Wednesday that Democrats would not provide the necessary votes to pass the Republican plan to avert a shutdown. The yield curve is seeing yields rise in longer-dated bonds by 1-2bps. USD is flat while cmdtys are under pressure, though Ags are stronger. The market seems a bit more resilient to headline risk as macro fundamentals return to focus ahead of next week’s Fed meeting. Today’s macro data focus is on PPI to see if yesterday’s CPI (and PCE mapping) are intact ahead of tmrw’s Univ of Mich sentiment update.

In premarket trading, Intel shares jump 11% after the chipmaker named Lip-Bu Tan as its CEO. Tan is signaling that he’ll stick with his predecessor Pat Gelsinger’s plan to make chips for other companies, even as he vows to learn from past mistakes. On the other end, Adobe shares slumped 4.6% after the maker of software for creative professionals gave an outlook thatwas mixed relative to expectations. While analysts are generally positive, Evercore wrote that the report wasn’t strong enough to change the narrative around the stock. Here are some other notable movers:

• Wells Fargo shares edge 1% higher after RBC Capital Markets upgrades to outperform from sector perform, saying the stock’s weakness provides a good entry point.
• SentinelOne shares slump 14% after the security software company gave a revenue forecast that was weaker than expected.
• UiPath shares slide 18% after the automation software company gave a forecast that is weaker than expected, raising concerns about the threat it faces from AI.
• American Eagle shares drop 9.1% after the apparel retailer forecast operating income for the first quarter that missed the average analyst estimate. Analysts note that the clothier’s weak forecast overshadowed its 4Q earnings beat.

The previous day’s CPI reading “has reinvigorated belief in the declining inflation narrative,” said Daniel Murray, CEO of EFG Asset Management in Zurich. Investors are now awaiting readings on US wholesale inflation and initial jobless claims, with price growth seen moderating to 0.3% last month.

Recent weeks have seen a slew of Wall Street banks including Goldman Sachs Group Inc. and Citigroup Inc. cut their forecasts for the S&P 500, predicting a hit from the slowing economy. Yardeni Research added to that bearish chorus, noting that Trump’s tariff policies have heightened the risk of stagflation. Still, some strategists think a bottom for US stocks is “probably” here, with JPMorgan Chase & Co. saying the worst of the correction may be over, with credit markets indicating a lower risk of a recession.

Meanwhile Treasury yields shrugged off the cooler inflation data to edge higher, with investors focusing on the effect higher tariffs could have on prices in the coming months. The Federal Reserve, which meets next week, has already signaled it will take a wait-and-see approach before cutting interest rates further.

European equities erased a gain of 0.5%, as earlier gains in health care, consumer product and insurance stocks were promptly reversed after Trump threatened the EU with 200% tariffs on alcohol products, and as concerns about trade persist after President Donald Trump said the US would respond to the European Union’s countermeasures to his tariffs on steel and aluminum. Poland’s Allegro leads gains, while Deilveroo and HelloFresh fall. European truckmakers slip after US regulators signaled they would dial back emissions standards, potentially derailing purchases of new trucks. Here are the biggest movers Thursday:

• Allegro climbs as much as 8.9% in early trading in Warsaw after the Polish e-commerce platform reported better-than-expected adjusted Ebitda in the fourth quarter, announced a first-ever buyback
• Novo Nordisk shares rise as much as 2.8% after Kepler Cheuvreux raised the stock to buy. The analysts see a recovery in the Danish drugmaker’s shares after sentiment “swung too far the other way”
• Volution jumps as much as 12%, the most in over five months, after the maker of indoor air quality products delivered a beat in the first half and said annual earnings should be ahead of consensus
• DFS Furniture gains as much as 12%, the most since July 2023, after the British furniture firm reported “a strong set of interims,” according to Jefferies, with 1H pre-tax profit almost doubling year on year
• Lotus Bakeries rises as much as 6.1%, most since August, after analysts at KBC Securities upgraded the stock to accumulate from hold, seeing better opportunities for the sweets producer following a selloff
• Halma advances as much as 4.4% after the health and safety sensor technology group delivers results that analysts view as solid, with consensus estimates now expected to nudge up slightly
• Daimler Truck falls as much as 15%, leading the rest of European truckmakers lower, after the new head of the US EPA announced potential rollbacks of truck-emissions regulations starting in 2027, which could derail purchases of new trucks to comply with standards
• DocMorris shares drop as much as 21% and hit a record low after the Swiss-based online pharmacy announced a potential capital increase and didn’t provide any guidance for 2025
• Valeo falls as much as 5.1% as Exane cuts the car-parts maker to neutral from outperform following a rally over the past six months, preferring outperform-rated peer Forvia
• Deliveroo shares fall the most in more than two years after the UK food delivery firm forecast earnings that disappointed investors
• Hugo Boss shares fall as much as 5.1% to their lowest level in over three months after the high-end clothing maker’s sales outlook for 2025 missed estimates amid macroeconomic volatility
• Trainline shares fall as much as 16%, the most in almost four years, after the train operator reported net ticket sales and group revenue for the full year that missed the average analyst estimate
• Grenke shares slide as much as 22%, falling to the lowest since June 2012, after the German lease finance provider gave a forecast for 2025 earnings that missed the average estimate
• Deliveroo shares fall as much as 6.9% to the lowest in almost a year, after the food delivery firm set guidance for adj. Ebitda below estimates, dragged by targeted investments to boost growth

Earlier in the session, Asian equities fell amid a broad risk-off mood, as traders largely looked past weaker-than-expected US inflation data. The MSCI Asia Pacific Index dropped as much as 0.5%, reversing a gain of as much as 0.6%. TSMC was the biggest drag on the gauge, with Taiwan’s benchmark the region’s biggest decliner as the central bank warned of currency risks from stock outflows. Sentiment turned sour as worries mounted about the health of the world’s largest economy amid on-again, off-again trade policies and geopolitical tensions. The regional gauge is down about 1.8% this week. “The general sense is that the world is not in a good place. There’s uncertainty everywhere and nobody wants to put on risk,” said Vey-Sern Ling, a managing director at Union Bancaire Privee. “I think economic uncertainties in the US caused by Trump’s policies will be a constant worry.”

In FX, the Bloomberg Dollar Spot Index rises 0.1%. The yen is off its best levels but still the top G-10 FX performer against the greenback. The Swedish krona is the weakest with a 0.7% drop, closely followed by the Antipodean currencies.

In rates, treasuries dip ahead of US producer price data, with US 10-year yields rising ~2 bp to 4.33%; treasury futures drifted lower as US trading begins after plying narrow ranges during Asia session and London morning, lifting cash yields by 1bp-3bp across maturities and steepening the curve. US 10-year yields around 4.33% are ~2bp cheaper on the day near session high with bunds in the sector lagging by an additional 1bp. Treasury curve spreads are steeper, 2s10s by ~1.5bp day’s high. Bunds have bigger losses as European stocks pare losses. This week’s Treasury auction cycle concludes with $22b 30-year reopening at 1pm New York time; Wednesday’s 10-year note auction stopped through by 0.5bp. WI 30-year yield at around 4.662% is ~9bp richer than February’s auction result. Focal points of US session include February PPI, weekly jobless claims data and 30-year bond supply.

In commodities, oil prices decline, with WTI falling 0.5% to $67.30 a barrel. Spot gold rises $10 to around $2,944/oz with prices rising toward record highs as several banks predicted further gains for the haven asset amid the escalation in global trade tensions. Bitcoin is steady just above $83,000.

The US economic data calendar includes February PPI and jobless claims (8:30am) and 4Q household change in net worth (12pm). Fed officials are in external communications blackout ahead of March 19 policy announcement

Market Snapshot

• S&P 500 futures down 0.5% to 5,574.00
• STOXX Europe 600 little changed at 540.95
• MXAP down 0.3% to 184.55
• MXAPJ down 0.7% to 576.88
• Nikkei little changed at 36,790.03
• Topix up 0.1% to 2,698.36
• Hang Seng Index down 0.6% to 23,462.65
• Shanghai Composite down 0.4% to 3,358.73
• Sensex little changed at 73,993.34
• Australia S&P/ASX 200 down 0.5% to 7,749.07
• Kospi little changed at 2,573.64
• German 10Y yield little changed at 2.89%
• Euro little changed at $1.0878
• Brent Futures up 0.2% to $71.12/bbl
• Gold spot up 0.3% to $2,943.89
• US Dollar Index little changed at 103.62

Top Overnight News

• Senate Republicans are planning tax reductions that go well beyond an extension of President Trump’s expiring tax cuts. On the menu: Reviving lapsed business tax breaks, expanding the child tax credit, loosening the cap on the state and local tax deduction and incorporating Trump’s ideas for eliminating taxes on tips, overtime and Social Security benefits, said Finance Committee Chairman Mike Crapo (R., Idaho), who ticked through a list of ideas Wednesday that could easily top $5 trillion or more over a decade. WSJ
• On the back of Trump’s Yale CEO caucus meeting Tuesday, while CEOs have largely been quiet, they affirmed that things would have to get significantly worse to publicly criticize the President. Asked how much the stock market would need to decline for them to speak out collectively, 44% said it would have to fall 20%. Another 22% said stocks would have to fall 30% before they would take a stand. WSJ
• US Treasury Secretary Bessent spoke with congressional leaders about making Trump tax cuts permanent and said that is what they will deliver: Fox Business
• Japanese investors registered the second-largest net purchases of overseas equities on record last week. Funds offloaded a net $2.4 billion of overseas bonds. BBG
• The BOJ’s terminal rate may be 1.5% or higher, according to JST’s chief economist Hiroshi Ugai. The recent rise in long-term interest rates indicates that a similar view is spreading in markets. BBG
• Intel soared premarket (INTC +11% premkt) after naming industry veteran Lip-Bu Tan as CEO. He signaled he’ll stick to the firm’s contentious foundry strategy. Chip-related stocks in Asia rallied
• Poland’s president has called on the US to transfer nuclear weapons to Polish territory as a deterrent against Russian aggression, a request that is likely to be perceived as highly provocative in Moscow. FT
• Global oil demand is under pressure from the escalating trade war, the IEA said. It expects a surplus of 600,000 barrels a day in 2025, which may jump to 1 million b/d following OPEC+’s decision to revive output. BBG
• Fentanyl seizures along the US-Mexico border tumbled ~40% M/M in Feb to 590 pounds, hitting the lowest level since Dec ’21. BBG
• Median Manhattan apartment rents hit a record $4,500 in February, with bidding wars in almost 27% of deals. The competitive market is expected to hold as economic uncertainty keeps potential homebuyers in rentals. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were subdued as risk appetite soured despite the mostly positive handover from Wall St where sentiment was underpinned after softer-than-expected CPI data but with the upside capped as concerns lingered. ASX 200 was dragged lower by consumer stocks, energy and financials, with the consumer sector pressured as electricity bills are to jump as much as 9% in a cost-of-living blow following the energy regulator’s price ruling. Nikkei 225 initially outperformed and briefly reclaimed the 37,000 level before wiping out the gains. Hang Seng and Shanghai Comp gradually deteriorated following a tepid PBoC liquidity operation and with participants unfulfilled by the lack of policy action so far by the central bank post-NPC, while reports that Hong Kong is mulling reducing thresholds for purchasing the most expensive stocks did little to spur a bid.

Top Asian News

• PBoC says will lower rates and the RRR at a „proper time”; will keep liquidity ample. Will guide social financing costs lower. Will balance short and long-term developments. Will keep CNY basically stable at a reasonable and balanced level. Will strengthen expectation guidance.
• BoJ Governor Ueda said underlying inflation remains slightly below 2% but expects it to gradually accelerate as the economy recovers, while he added that the BoJ is gradually shrinking the size of its balance sheet and will take time to assess the ideal size, considering overseas examples. Ueda also said Japan’s monetary base and balance sheet are somewhat too big which is why bond buying is being slowed.
• Hong Kong mulls reducing thresholds for purchasing the most valuable stocks, according to Bloomberg.
• Japan’s Bankers Association Chair says market view on BoJ’s terminal rate have risen more than expected; long-term interest rates have scope to rise further due to BoJ rate hikes and bond-buying taper.
• Acer (2353 TW) FY (TWD): net 5.54bln (+2.1% Y/Y); plans to raise up to TWD 10bln via unsecured bond; cash dividend of 1.7/shr; will de-list its GDR from LSE.

European bourses (STOXX 600 +0.3%) opened mostly lower, but sentiment has improved as the morning progressed to display a modestly positive picture in Europe. European sectors are mixed, and holds a slight defensive bias; Telecoms is towards the top of the pile, joined closely by Healthcare, which is propped up by Novo Nordisk (+3%); the Co. benefits from a broker upgrade at Kepler and as it bounces back from recent losses. Autos sits at the foot of the pile, with no clear driver but with tariff uncertainty still at the forefront of traders minds.

Top European News

• German Green Party official says there is no progress in talks with CDU/CSU and SPD on debt plans, via an RTL interview.
• German Greens Spokesperson says there is no rapprochement so far in talks with the SPD and CDU/CSU; will continue to reject the draft legislation of the CDU and SPD.
• ECB’s Nagel says US trade tariffs on the EU could push Germany into a recession in 2025.
• ECB’s Kazaks says „I cannot say everything is done on inflation”; rates will be decided meeting by meeting amid uncertainty.
• ECB’s Rehn says you can only hope that the Trump administration can respect central bank independence; should aim at negotiated solutions for US tariffs, encourage the administration to avoid the unnecessary and harmful measures.
• IFW Institute says German economy is expected stagnate in 2025 (unchanged from prev. forecast); to grow by 1.5% in 2026 (prev. forecast of 0.9%); anticipates tailwinds from a public spending boost that incoming Chancellor Merz is pushing for.

FX

• DXY is incrementally firmer/flat and trades within a 103.50-76 range, as traders await US PPI and weekly jobless claims. The former includes key components which feed into the Fed’s preferred US PCE measure; following the softer-than-expected CPI yesterday, JP Morgan provisionally forecasted core PCE to have risen 0.31% M/M; this would lift Y/Y to 2.7% (prev. 2.6%). Trade updates will of course also be in focus, as will any commentary surrounding a potential US shutdown.
• EUR is a little lower and trades within a 1.0860-97 range, with a slew of ECB speakers set to appear throughout the day. Traders will keep an keen out on any commentary out of Germany, where the Bundestag is set to debate fiscal reform. Commentary this morning has come via a German Green Party official who said there is no progress in talks with CDU/CSU and SPD on debt plans; remarks which sparked some modest pressure in the Single-currency, which entirely pared soon after. Elsewhere, on the growth front for Germany; IfW Institute raised its 2026 GDP forecast, citing tailwinds from a boost in public spending under incoming Chancellor Merz.
• GBP is a little lower and ultimately trading rangebound, given the lack of UK-specific updates, but ahead of GDP figures on Friday. High for the day sits at 1.2973, a little shy of the prior day’s peak at 1.2987.
• JPY was the marginal G10 outperformer, before then paring the upside as the day progressed. USD/JPY currently sits at the mid-point of a 147.59-148.37 range. Overnight, BoJ Governor Ueda said underlying inflation remains slightly below 2% but expects it to gradually accelerate as the economy recovers, while he added that the BoJ is gradually shrinking the size of its balance sheet and will take time to assess the ideal size, considering overseas examples.
• Antipodeans are the clear underperformers today, largely a factor of the subdued risk tone in Asia overnight and in a slight paring of the upside seen on Wednesday.
• PBoC set USD/CNY mid-point at 7.1728 vs exp. 7.2439 (Prev. 7.1696).
• Canadian Prime Minister-designate Mark Carney will be officially sworn in on Friday and is to shrink the cabinet when he takes over with the cabinet expected to have between 15 and 20 ministers, down from the current 37, according to Bloomberg

Fixed Income

• USTs are flat, after spending the early portion of the morning a little firmer following a strong 10yr auction, which garnered strong demand with a stop-through of 0.5bps. Back to today, US paper has held a downward bias, in tandem with pressure seen in Bunds. Focus today will be on the US PPI, where some components will feed into the US PCE metric. Sentiment has also taken a slight hit following updates out of Washington; US Senate Democratic Leader Schumer said Senate Republicans do not have the votes to approve the House-passed government spending bill without amendments. On the supply front, a 30yr auction is due.
• Bunds are on the backfoot, after spending most of the morning firmer; the complex has slipped from a intraday high of 127.53 to a current trough of 126.93. All eyes are on the German Bundestag today, where the main German officials involved will each outline their approaches and views before a general debate. Pre-debate commentary thus far has come via a German Green Official who said that there has been no progress in talks on debt plans; this sparked some modest upside in German paper, before entirely paring. More recently, a Greens official said there has been no rapprochement so far and will continue to reject the draft legislation; remarks which knee-jerked Bunds, but proved fleeting. Ultimately focus will be on the debate at 11:00 GMT / 07:00 EDT. Ahead, a slew of ECB members are set to speak throughout the day.
• Gilts are lower by a handful of ticks and directionally in-fitting with peers; UK-specific newsflow has been light this week, but picks up in the form of GDP figures on Friday.
• Italy sells EUR 6.75bln vs exp. EUR 5.5-6.75bln 2.65% 2028, 2.45% 2033, 4.30% 2054 BTP and EUR 1.5bln vs exp. EUR 1.25-1.5bln 4.00% 2031 Green BTP.

Commodities

• Crude has been exceptionally choppy today, but is now firmly in the red and resides at session lows. Early morning trade saw a pick up in oil prices, but lacked any fundamental driver. Thereafter, crude dipped off best levels and continued lower after some US-Russia related updates; the first bout of pressure stemmed from reports that US Envoy Witkoff’s plan crossed the Russia border (has since landed). A second leg lower was seen after Russia’s Kremlin said President Putin may have an international call later on Thursday, and also pushed back on reports that it had laid out demands for talks. Brent’May currently at the bottom end of a USD 70.43-71.25/bbl range.
• Spot gold is firmer by around USD 12/oz, continuing the upward momentum following the US CPI report on Wednesday. Currently sits at the top end of a USD 2,933.03-2,947.15/oz range.
• Base metals hold a negative bias, following a subdued session in Asia overnight. 3M LME copper resides in a current USD 9,721.42-9,811.90/t range.
• Citi forecasts Dutch TTF and JKM gas prices are likely to be rangebound in respective EUR 34-35/MWh and USD 11.50-13.50/MMBtu ranges during Q2-2025.
• IEA OMR: Cuts 2025 oil demand growth forecast to 1.03mln BPD (prev. 1.1mln BPD); „the scope and scale of tariffs remains unclear, and with trade negotiations continuing apace, it is still too early to assess the impact on the market outlook”.
• Saudi Crude oil supply to China set to fall to 34mln/bbls in April, according to Reuters sources.
• Qatar set to start supplying Syria with gas via Jordan with Washington’s approval, according to Reuters sources.

Geopolitics: Middle East

• Hamas official said they welcomed US President Trump’s apparent retreat from calls for the displacement of Gazans.

Geopolitics: Ukraine

• Russian Foreign Minister says the deployment to Ukraine of foreign military personnel under any flag as unacceptable. Russia considers any foreign military bases in Ukraine as unacceptable. Deployment of troops or building bases in Ukraine would mean direct involvement of these countries into the conflict with Russia. Russia would respond with all available means to deployment of foreign troops and bases in Ukraine.
• US Envoy Witkoff has arrived in Moscow, according to TASS.
• Russia’s Kremlin says Russian President Putin may have an international phone call on later on Thursday; on reports that Russia has laid out demands for talks, says there is a huge amount of misinformation out there; confirms US envoy is flying to Russia. US National Security advisor Waltz spoke with Russia’s Ushakov
• US Envoy Witkoff’s plane has crossed the Russian border, according to Tass citing Flightradar.
• Russian President Putin said troops should defeat the enemy in the Kursk region and completely liberate the region, while it was also reported that Russia’s Chief of the General Staff said Kyiv’s plans in Kursk region failed and Ukrainian forces in the Kursk region are surrounded, according to IFX. It was later reported that the Kremlin said the operation in the Kursk region is at the final stage, according to TASS.
• „Kremlin: Putin may comment today on the proposal for a ceasefire in Ukraine”, according to Al Arabiya.

Geopolitics: Other

• Polish President Duda urged for the US to move nuclear warheads to Polish territory, according to FT.

US Event Calendar

• 08:30: Feb. PPI Final Demand MoM, est. 0.3%, prior 0.4%
  • Feb. PPI Final Demand YoY, est. 3.3%, prior 3.5%
  • Feb. PPI Ex Food and Energy MoM, est. 0.3%, prior 0.3%
  • Feb. PPI Ex Food and Energy YoY, est. 3.5%, prior 3.6%
• 08:30: March Initial Jobless Claims, est. 225,000, prior 221,000
  • March Continuing Claims, est. 1.89m, prior 1.9m
• 12:00: 4Q US Household Change in Net Wor, prior $4.77t

DB’s Jim Reid concludes the overnight wrap

Standby for an exciting special announcement from DB Research this morning. No its not me stepping down and spending more time with my family. That would be far too stressful and unaffordable.

Ahead of our exciting new announcement, the market selloff has finally begun to stabilise over the last 24 hours, with the S&P 500 (+0.49%) posting a recovery that kept it clear of correction territory for now. However the next hurdle is a potential US government shutdown this Saturday if not enough moderate Democrats vote for the Republican stopgap funding bill in the Senate ahead of the weekend. We will see if a deal can be made. The uncertainty has perhaps helped S&P (-0.57%) and Nasdaq (-0.87%) futures to give up their gains from yesterday so we will see how this story plays out.

Before this, the softer-than-expected US CPI print had dominated, reassuring investors that the Fed would still have the space to cut rates if required. But even with the weaker inflation print, the rally faded as the day progressed. There was still a lot of concern about ongoing tariffs, particularly after various retaliatory measures were announced against the United States. So that meant the S&P gave up the bulk of its initial +1.26% move straight after the open, closing at +0.49%, with nearly two thirds of S&P 500 constituents lower on the day and a lot of other risk assets still struggling to gain traction.

In terms of that CPI release, the February numbers were the mirror image of the previous month, as both headline and core CPI surprised on the downside. For instance, headline CPI fell to just +0.22% on the month (vs. +0.3% expected), which pushed the year-on-year rate down to +2.8% (vs. +2.9% expected). That monthly print was the weakest since August, and it meant the 3m annualised rate finally moved down to +4.3%, ending a run of 6 consecutive increases in the measure. Meanwhile for core CPI, there was also a decent story, with the monthly number at +0.23% (vs. +0.3% expected), which pushed the year-on-year rate down to +3.1% (vs. +3.2% expected). You can see our US economists’ full CPI recap here.

As discussed, the release immediately led to a surge in US equity futures, as investors hoped it would keep the Fed on course to cut rates this year. However, that initial positivity began to tail off as the market focus returned back to tariffs, and whether that might lead to a fresh rebound in the inflation numbers. Indeed, yesterday saw Canada retaliate against the latest US steel and aluminium tariffs, announcing tariffs on around C$30bn of US products, targeting steel and aluminium as well. And that followed on from the EU’s own announcement yesterday morning, who proposed countermeasures covering €26bn of American goods, which would come into force over April. So collectively, the fear is that this ratchet could be increasingly hard to climb down from over the months ahead. Amidst a visit to Ireland, Trump himself continued to make comments implying that tariffs would go up, saying that the US would respond to the EU countermeasures, that he wasn’t happy with the EU and that April 2 would be a very big day, when he’s planning to impose reciprocal tariffs. He also referred to Ireland’s large pharmaceuticals trade surplus against the US. Remember as well that Trump has said he considers VAT to be like a tariff, so that could seriously affect a lot of European countries.

With all that in hand, the S&P 500 (+0.49%) ultimately ended the day higher, but that was mainly thanks to a strong bounceback for the Magnificent 7 (+2.27%), which put in their best daily performance in six weeks. Indeed, the recovery was a pretty narrow one, with most constituents in the S&P moving lower on the day (65%), which left the equal-weighted index down -0.46%, while the Dow Jones fell -0.20%. Small-cap stocks also lagged, with the Russell 2000 only up +0.14%. But despite the caveats, the moves took the S&P further away from the -10% threshold that would mark a technical correction, leaving it -8.87% beneath its peak, while moderating volatility saw the VIX index (-2.69pts to 24.23) post its biggest decline of the year so far.

The modest risk-on tone meant that US Treasuries struggled yesterday, despite the softer-than-expected CPI print. So yields rose across the curve, with the 2yr yield (+4.5bps) up to 3.99%, whilst the 10yr yield (+3.2bps) moved up to 4.31%, its highest level in two weeks before dipping back to 4.295% in Asia this morning. In addition, the equity recovery also helped alleviate fears that the US was heading into recession, and investors dialled back their expectations for Fed rate cuts this year, despite the softer CPI print. So by the close, the rate priced in for the December meeting had actually moved up +5.7bps on the day, with futures only pricing in 70bps of cuts this year.

Over in Europe, the narrative was more consistently positive yesterday, with the STOXX 600 (+0.81%) ending a run of 4 consecutive declines, whilst the DAX saw a larger +1.56% gain. For what it’s worth, that’s now the 8th consecutive session where the DAX has moved by at least 1% in either direction, and if we get a 9th today, it would be the first time that’s happened since the pandemic turmoil of H1 2020. Bond yields also came off their recent highs, with yields on 10yr bunds (-1.9bps), OATs (-3.4bps) and BTPs (-2.3bps) all moving lower. And there was a fresh tightening in sovereign bond spreads too, with the Franco-German 10yr spread down to 67.6bps, which is the tightest it’s been since July. Today sees a debate in the reconvened outgoing Bundestag which kicks off the constitutional process leading us to potentially see the largest domestic fiscal stimulus since at least German reunification. See our economists’ note „Crunchtime in the Bundestag” previewing this.

Otherwise yesterday, the Bank of Canada delivered a 25bp rate cut in their latest policy decision, taking their overnight rate down to 2.75%, in line with expectations. Their statement acknowledged the ongoing trade war, saying that “heightened trade tensions and tariffs imposed by the United States will likely slow the pace of economic activity and increase inflationary pressures in Canada.” The Canadian dollar strengthened by +0.45% against the US Dollar yesterday, making it the strongest-performing G10 currency, and the statement acknowledged that they would need to assess “the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs.”

Asian equity markets are lower overnight with the Hang Seng (-1.42%) leading losses and heading for its fifth successive loss while the CSI (-0.58%) and the Shanghai Composite (-0.75%) are also trading lower alongside the KOSPI (-0.38%) and the S&P/ASX 200 (-0.48%). The Nikkei (+0.07%) is clinging on to gains after a larger earlier rally.

To the day ahead now, and US data releases include PPI inflation for February and the weekly initial jobless claims. Meanwhile in the Euro Area, we’ll get industrial production for January. Otherwise, central bank speakers include ECB Vice President de Guindos, and the ECB’s Rehn, Vujcic, Makhlouf, Holzmann, Villeroy and Nagel.