THE NEWS

US equity futures and global stocks rose as the threat of a US government shutdown receded, removing at least one element of uncertainty confronting investors. Meanwhile, gold hit a record above $3,000 an ounce as the precious metal already anticipates the stimulus flood that is coming over the horizon.As of 8:00am S&P futures are higher by 0.9% as a stopgap funding bill is set to pass in Congress after top Senate Democrat Chuck Schumer caved and opted not to block the measure. That helped lift the mood after the benchmark index extended its three-week rout beyond a 10% correction on Thursday. Nasdaq 100 futures advanced 1.2% with Nvidia leading premarket gains among the Mag7. In Europe, the Stoxx 50 advances 1.3% with outperforming sectors including consumer staples and materials; Asian stocks were also higher. Bond yields are 1-3bp higher this morning; the USD fell as the EUR surged after politicians agreed to a deal to drown Germany in debt to fund “military spending.” Commodities are higher led by Oil (WTO +1.0%) and Iron (+1.5%). Since yesterday’s close, there has been some positive developments on macro policies: meeting between Lutnick and Ontario’s Ford was viewed as positive; the US government managed to avoid the shutdown. Internationally, China will hold a press briefing next Monday to outline some additional measures boost consumer; Japan announced the largest pay hike in over three decades (+5.36% average pay gain and +3.84% base pay vs. 3.8% JPMe vs. 3.7% last year), a positive catalyst for consumption growth, yet not enough to push the yen higher. Today’s calendar includes March preliminary University of Michigan sentiment at 10am where consensus expects a 63.0 print.

In premarket trading, Nvidia is leading gains among the Magnificent Seven stocks as the group attempts to stage a rebound after the S&P 500 tumbled into its first 10% correction in almost two years. Alphabet +0.9%, Amazon +1.2%, Apple +0.5, Microsoft +0.7%, Meta +1.5%, Nvidia +2% and Tesla +1.7%. Applied Optoelectronics surges 55% after the maker of fiber-optic networking products entered a warrant agreement with Amazon. Ulta Beauty jumped 6% after reporting earnings per share for the fourth quarter that beat the average analyst estimate. Here are some other notable premarket movers:

• Crown Castle rises 5% after agreeing to sell separate parts of its fiber business to an EQT AB fund and Zayo Group Holdings Inc. for a combined value of $8.5 billion.
• DocuSign jumps 9% after the e-signature software company posted quarterly results that beat expectations and gave a billings outlook that’s seen as positive.
• Gogo rises 13% after the in-flight broadband company forecast revenue for 2025 that beat the average analyst estimate.
• Peloton Interactive gains 6% as Canaccord upgrades its rating and says the company is set to reap the benefits of being the “clear leader” in the connected fitness market.
• Radius Recycling soars 110% after Toyota Tsusho’s US unit, Toyota Tsusho America, agreed to buy all shares in cash for $30 a share.
• Rubrik surges 18% after the data security software company gave an outlook that is stronger than expected.
• Semtech rises 12% after the semiconductor device company gave an outlook that’s seen as better than feared.
• Xponential Fitness drops 31% after the franchiser of boutique fitness brands gave disappointing full-year forecasts.

Spot gold briefly rose above $3,000/oz for the first time while broader risk sentiment improved after Senate Democratic leader Chuck Schumer dropped his threat to block a Republican spending bill, thus lowering the chances of a US government shutdown on Saturday. 

“It looks like the budget bill is still going through despite some opposition from Democrats and this has lifted sentiment in the US and probably there is also some spillover effect to Europe,” Julius Baer & Co. economist Sophie Altermatt said. “This might be just some reprieve, given we had so many uncertainties with erratic policy moves in the US,” she added.

Avoiding a government shutdown would remove a concern for traders, already fretting over threats to the world economy from President Donald Trump’s tariff war. Two months into Trump’s presidency, $5 trillion has been erased from US stocks. Those risks are spurring demand for haven assets, with investors the most bullish on Treasuries relative to stocks for at least three years, according to Bloomberg Markets Live Pulse survey. It’s also pushed gold to successive record highs, with the yellow metal now up more than 14% year-to-date.

“Gold is in a secular bull market,” said Peter Kinsella, head of foreign exchange strategy at Union Bancaire Privee UBp SA, who expects prices to reach $3,300 an ounce by year end. “For sure, that’s down to uncertainty caused by US trade policies but central bank demand is also a big factor.”

Some strategists reckon relief could be on the horizon for risk assets after the recent selloff. While the S&P 500 has plunged 10% off its February peak into correction territory, Bank of America’s Michael Hartnett said there’s unlikely to be a slide into a new bear market: “Fresh declines in stock prices will provoke flip in trade and monetary policy,” Hartnett wrote in a note, recommending buying the S&P 500 at 5,300 points, a 4% drop from current levels.

In Europe, German conservative leader Friedrich Merz reached a tentative agreement with the Green party on a debt-funded spending package for defense and infrastructure. The deal needs to be approved by party lawmakers and would release defense spending from debt restrictions and set up a €500 billion fund for infrastructure investment.

The Stoxx 600 climbs 0.4% as miners gained on expectations of economic support measures from China, even as benchmark indexes headed for a second straight week of declines. Carlsberg jumps on an upgrade from RBC, while Kering sinks after appointing a new artistic director to its key Gucci brand. Here are the biggest movers Friday:

• Carlsberg gains as much as 4.1% after it and its peer Heineken were upgraded to outperform at RBC, noting the companies have been “prudent” in setting expectations in what is in an unusually “opaque” outlook
• Adecco gains 3.6% and Hays gains 7% after BNP Paribas Exane upgraded Adecco to outperform, and double upgrades Hays to outperform, as staffing agencies are moved to the top of broker’s sub-sector preferences
• Sectra gains as much as 12%, the most since December 2023, after the Swedish healthcare and cybersecurity firm reported 3Q earnings which beat expectations on most metrics, including revenues and profit
• European sectors with heavy China exposure are getting a boost on Friday as the Chinese benchmark stock index rallied the most in two months on expectations of economic support from Beijing
• Brunello Cucinelli shares rise as much as 3.7% as a broadly in-line set of earnings from the Italian luxury goods maker demonstrated its resilience against a tough backdrop for the broader sector
• Kering falls as much as 10%, the biggest one-day drop in a year, after the luxury goods maker caught investors off-guard with its surprise appointment of Demna Gvasalia as Gucci’s new artistic director
• Universal Music Group slumps as much as 11% after shareholder Pershing Square offloaded shares in the music company at a discount to yesterday’s close. Shares have fallen below the offer price
• BMW falls as much as 4.5% after the German automotive firm reported disappointing guidance and missed expectations in its 4Q report, with analysts flagging the firm’s margin outlook as a particular disappointment
• Swiss Life shares fall as much as 6.2%, the most in a year. The financial services company reported results that matched expectations, but were deemed insufficient by analysts
• Bodycote slumps as much as 18%, the most in five years, after the heat-treatment specialist delivered its FY results, with analysts cite automotive and industrial weakness for likely mid-single-digit cuts
• GN Store Nord shares are among the worst performers in the Stoxx 600 Health Care Index on Friday morning, after Bernstein re-initiated coverage of the stock with an underperform rating
• El.En shares dropped as much as 8.5% in Milan trading, the most since May 16, after the Italian medical devices company reported FY earnings, indicating a “complex” outlook for 2025

Earlier in the session, Asian equities also advanced, propelled by a rally in Chinese shares as investor optimism for more policy support rose ahead of a press briefing on government efforts to boost consumption. The MSCI Asia Pacific Index rose as much as 0.9%, with Tencent and Alibaba among the biggest boosts. China’s onshore CSI 300 Index and Hong Kong’s Hang Seng China Enterprises Index each jumped more than 2%. China optimism rose on the announcement that officials from the finance ministry, commerce ministry, central bank and other government bodies are scheduled to hold a briefing on consumption Monday. The news provided traders further assurance that Beijing is determined to fix one of the weakest links in the economy. Word of the press conference “fanned expectations” for policy support, said Shen Meng, a director at Beijing-based investment bank Chanson & Co. “But if it falls short of providing details on increasing income, such optimism may weaken to some extent.” Stocks in Japan and Australia also rose, and US futures rebounded following the S&P 500’s drop into a technical correction Thursday. Rising prospects for a stopgap funding bill to avoid a US government shutdown provided some reassurance for markets amid continued concerns over economic growth and tariffs.

In FX, the Bloomberg Dollar Spot Index drops; The Japanese yen is the weakest of the G-10 currencies, falling 0.7% against the dollar even as Japan’s largest labor union group said its workers secured the highest pay deal in more than three decades. The pound falls 0.2%, extending its drop after data showed the UK economy unexpectedly shrank at the start of 2025. The Euro jumped above 1.09 after German conservative leader Friedrich Merz reached a tentative agreement with the Green party on a debt-funded spending package for defense and infrastructure. The deal needs to be approved by party lawmakers and would release defense spending from debt restrictions and set up a €500 billion fund for infrastructure investment.

In rates, treasury futures trend lower into the early US session. Treasury yields are cheaper by 1bp to 3bp across the curve with 10-year trading around 4.18%, cheaper by 3bp on the day with bunds lagging by 4bp in the sector and 10-year French bonds lagging 2bp.  Bunds slid to lows of the day and French 30-year yields rose to the highest since 2011, after a report that German parties have reached an agreement with the Greens on a debt package. Advance in US stock futures adds to cheapening pressure on Treasury yields with University of Michigan sentiment data the focus for the US session. 

In commodities, WTI rises 1% to ~$67 a barrel. The upbeat mood is evident elsewhere as Bitcoin climbs rises 3% toward $83,000. Gold traded briefly at a record price just above $3000 before modestly fading gains. 

Looking at today’s calendar, the US economic data calendar includes March preliminary University of Michigan sentiment at 10am. Fed officials are in external communications blackout ahead of March 19 policy announcement.

Market Snapshot

• S&P 500 futures up 0.9% to 5,576
• STOXX Europe 600 up 0.4% to 542.64
• MXAP up 0.5% to 185.46
• MXAPJ up 0.9% to 581.19
• Nikkei up 0.7% to 37,053.10
• Topix up 0.6% to 2,715.85
• Hang Seng Index up 2.1% to 23,959.98
• Shanghai Composite up 1.8% to 3,419.56
• Sensex down 0.3% to 73,828.91
• Australia S&P/ASX 200 up 0.5% to 7,789.68
• Kospi down 0.3% to 2,566.36
• German 10Y yield little changed at 2.88%
• Euro little changed at $1.0854
• Brent Futures up 0.9% to $70.51/bbl
• Brent Futures up 0.9% to $70.51/bbl
• Gold spot up 0.0% to $2,990.02
• US Dollar Index little changed at 103.93

Top Overnight News

• US equity futures are rallying after Senate Democratic leader Chuck Schumer dropped his threat to block a key spending bill, cutting the risk of a disruptive March 15 shutdown. BBG
• US Senate Minority Leader Schumer said he will vote to keep the government open and not shut it down. It was separately reported that multiple US Democratic Senators and aides indicated sufficient Democratic support for cloture on the House-passed continuing resolution in Friday morning’s vote: Punchbowl.
• US President Trump is to sign executive orders on Friday at 12:00EDT/16:00GMT.
• US Vice President Vance said can never predict the future but thinks the economy is strong when asked if he could rule out a recession, according to a Fox News interview,
• US Treasury Secretary Bessent said they hopefully won’t get a recursive ‘Biden-flation’ and said they are very vigilant and it could happen again. Bessent added that before they can bring down inflation, they also want to help affordability and as they bring down inflation, they want to bring the absolute price level down through deregulation and bringing down interest rates for house payments and car payments.
• Merz Said to Reach Tentative Deal With Greens on German Debt: BBG
• Ontario Premier Doug Ford lauded his Thursday meeting with Commerce Secretary Howard Lutnick as “positive” and “productive” after their public rift over tariffs on imported goods. “We shared a tremendous amount of views back and forth, and I’m feeling very positive,” Ford told reporters outside the U.S. Department of Commerce building. The Hill
• Chinese stocks jumped on Friday after Beijing promised new measures to help consumers, defying a Wall Street sell off and pushing the country’s main stock index into positive territory for the year. Chinese authorities announced late on Thursday that they would hold a press conference on “boosting consumption” on Monday. FT
• China is increasingly concerned not just about US tariffs, but also the risk that Washington will direct other countries (like Mexico, Brazil, etc.) to ramp duties on Chinese imports as well. NYT
• China may slash pay by 50% for fund managers who underperform their benchmarks, people familiar said, as part of a broader overhaul of the country’s mutual fund industry. BBG
• Ukrainian drones attacked Moscow for the second day in a week, as US special envoy Steve Witkoff left the country, Russian news services reported. The attacks also triggered a massive fuel tank fire at one of Russia’s biggest oil refineries. BBG
• The UK economy unexpectedly shrank 0.1% in January, hit by declines in manufacturing and construction. The pound slipped. BBG
• Investors are the most bullish on Treasuries relative to stocks in at least three years, according to a MLIV survey. As tariff policies threaten US exceptionalism, some 77% see bonds giving a better volatility-adjusted return over the next month. BBG

Tariffs/Trade

• Canada’s Finance Minister LeBlanc said they agreed to continue discussions in the meeting with US Commerce Secretary Lutnick, while they have been clear that they will not reopen USMCA provisions on dairy and didn’t discuss that with Lutnick.
• Canada’s Industry Minister Champagne said there was a mutual understanding that there is an impact on both sides of the border from tariffs and they talked about issues around economic security and national security with US Commerce Secretary Lutnick. Furthermore, they talked about Canadian aluminium steel and how they can help the US
• Ontario’s Premier Ford said they had a productive meeting with US Commerce Secretary Lutnick and will have another meeting next week, while he feels temperatures are decreasing and said it was the best meeting they had since tariff talks began.
• ECB President Lagarde said US President Trump’s policy decisions cause concern and warned trade conflict will damage the worldwide economy, according to an interview with BBC.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly positive as risk sentiment gradually improved following the negative lead from Wall St where the S&P 500 slipped into a technical correction amid tariff concerns after President Trump threatened 200% tariffs on EU wine and champagne. ASX 200 gained as strength in mining, materials, resources and utilities atoned for the losses seen in the energy, financials and tech industries. Nikkei 225 staggered at the open with pressure from recent currency strength but then recovered soon after as the yen steadily pared its recent gains. Hang Seng and Shanghai Comp advanced with the Hang Seng resuming the outperformance which has helped the index notch gains of around 22% so far this year, while the PBoC reiterated support pledges and stated that it will lower rates and the RRR at a ‘proper time’, keep liquidity ample and guide social financing costs lower.

Top Asian News

• China’s financial regulator said financial institutions should boost financial support for consumption and will provide loan renewal support to eligible personal consumption loan borrowers.
• DeepSeek is focusing on research over revenue and customers from sectors such as healthcare and finance bought API access to DeepSeek’s R1 and V3 models. Furthermore, DeepSeek’s founder declined to entertain interest from China’s tech giants and venture and state-backed funds to invest in the group for the time being, while it may find limited access to NVIDIA’s (NVDA) new generation of more advanced chips a potential bottleneck in the long run and could consider future partnerships that can help solve this issue, according to FT citing sources.
• Rengo, Japan’s largest labour union, says first-round data shows average wage hike of 5.46% in FY25 (demand of 6.09%); initial wage hike exceeds 5% for the second straight year.
• Chinese regulators have issued a requirement for the labelling of AI generated content.
• China Feb YTD Aggregate Financing (CNY) 9.29tln (exp. 9.757tln); M2 Money Supply 7% (exp. 7%); New Yuan Loans 6.14tln (exp. 6.38tln)

European bourses are mostly firmer, in what has been a choppy session thus far; initial weakness at the cash open has been entirely pared with indices generally towards the top end of the day’s ranges. European sectors hold a slight positive bias; Basis Resources tops the pile, buoyed by strength in the metals complex, amid the risk sentiment and strong Chinese price action overnight. Media is found at the foot of the pile. Consumer Products is also higher today, benefiting from the strength in Chinese trade overnight; though Kering (-13%) slips after appointing Demna as Gucci’s artistic director, a move JP Morgan brands as “controversial”.

Top European News

• Germany’s CDU/CSU to hold special parliamentary faction meeting this afternoon, according to Reuters sources
• Goldman Sachs cuts its UK 2025 GDP growth forecast to 0.9%, down from 1.0% previously.
• DIW institute says the German economy is expected to stagnate in 2025, down from the previously expected growth of 0.2%; economy expected to grow by 1.1% in 2026, down from the previously expected 1.2%
• BoE/Ipsos Inflation Attitudes Survey – February 2025. Median expectations of the rate of inflation over the coming year were 3.4%, up from 3% in November 2024.
• UK PM Starmer reportedly suffered a cabinet uprising over planned welfare and public spending cuts, but insisted tough choices are needed and said he will not bend fiscal rules to allow more borrowing, according to FT.
• EU Diplomatic Service proposes that member nations deliver military aid to Ukraine in 2025 worth at least EUR 20bln and potentially up to EUR 40bln, via Reuters citing a paper; aid to be provided in line with nations economic “weight”.
• ECB’s Villeroy says will be inflation to 2% this year in Europe; EU has the resources to retaliate against the US admin tariffs on wine and liquor.
• EU Envoys agree to remove three individuals from the sanctions list, agree to renew sanctions on more than 2400 individuals and entities.

FX

• USD is flat after trading firmer for most of the European morning; now currently towards the lower end of a 103.79-104.09 range. Trade updates on Thursday included President Trump noting he will not change his mind on the April 2nd tariffs. As for US Government shutdown developments, things seem to be improving with US Senate Minority Leader Schumer suggesting he will vote to keep the government open and not shut it down. Focus ahead will be on the US UoM survey and then Trump executive orders thereafter.
• EUR is firmer and trading towards the upper end of a 1.0831-1.0875 range. There has been little by way of trade updates, after Trump threatened the EU with 200% tariffs on alcoholic products on Thursday, if the EU do not remove their countermeasures on the US. Focus today will be on any potential updates on German spending plans, after the debate in the prior session – Reuters reported that Germany’s CDU/CSU is to hold a special parliamentary faction meeting this afternoon – a report which may be attributed to the modest upside in the Single-Currency; elsewhere, focus will be on a Fitch credit review on France.
• JPY is the clear underperformer today, with early morning losses facilitated by the risk-on mood; have peer CHF is also a touch softer. Further pressure was seen after Japan’s largest labour union, Rengo, said the first-round data shows an average wage hike of 5.46% in FY25 (demand of 6.09%). There spurred some further pressure in the JPY, with USD/JPY lifting from 148.65 to briefly top 149.00.
• GBP is subdued in reaction to the regions softer than expected GDP figures, which saw the UK unexpectedly contract in January; the downside was primarily driven by a slowdown in manufacturing. However, such an outturn was not entirely unexpected given the jump seen in December’s release. Money market pricing incrementally moved dovishly, and is ultimately unlikely to have too much of an impact for the BoE as it remains focussed on inflation and other price points. Cable saw some modest downside on the release, and currently trades towards the lower end of a 1.2918-59 range.
• Antipodeans are the best performing G10 currencies today, benefiting from the positive risk tone, which was lifted by remarks by a China’s financial regulator who said financial institutions should boost financial support for consumption and will provide loan renewal support to eligible personal consumption loan borrowers.

Fixed Income

• USTs hold a slight downward bias, in-fitting peers; currently sitting in a 110-24 to 110-31 range. Some of the bearish action stems from the positive risk tone, as well as a weaker-than-average 30yr auction on Thursday. Trade updates on Thursday included President Trump noting he will not change his mind on the April 2nd tariffs. As for US Government shutdown developments, things seem to be improving with US Senate Minority Leader Schumer suggesting he will vote to keep the government open and not shut it down. Focus ahead will be on the US UoM survey and then Trump executive orders thereafter.
• Bunds are on the backfoot by around 12 ticks, and currently just off the day’s trough at 127.15. As above, pressure stems from the risk tone and as markets digest the latest Trump threats on the EU (200% tariffs on alcohol, should the EU not remove their countermeasures). For Germany, Wholesale Prices jumped Y/Y whilst German inflation figures were revised a touch lower. And on German spending, updates have been light thus far CDU/CSU is to hold special parliamentary faction meeting this afternoon, according to Reuters sources, Scheduled EU-specific events are light for the remainder of the day, but focus will be on Fitch’s credit review on France.
• Gilts are flat but still outperforming today, with gains facilitated by the softer-than-expected UK GDP figures, which saw the UK surprisingly contract in January. A softer print than the market had been looking for, driven primarily by a slowdown in manufacturing. However, such an outturn was not entirely unexpected given the jump seen in December’s release. Gilts are flat, but have held a downward bias in-fitting with peers; currently in a 91.67-92.03 range.
• JGBs are modestly higher as Japanese paper reacted to the latest Rengo update, with initial data pointing towards 5.46% avg. wage hike vs demands of 6.09%. Initial hawkish reaction as it highlights the continued wage pressures in the region, but this proved short-lived as it was less than initial demands.

Commodities

• Crude is on a firmer footing with WTI and Brent currently higher by around USD 0.74/bbl and USD 0.70/bbl respectively. Upside today stems from a paring of the prior day’s losses and in tandem with the pick up in sentiment. On Russia/Ukraine, Russian President Putin supported the idea of a ceasefire but stressed that the ceasefire must lead to a final settlement of the conflict and solve the root causes of the conflict. More recently, Russia’s Kremlin said it held late night talks with US Envoy Witkoff; Russia and the US will determine a timing of Russian President Putin/Trump call once Witkoff has briefed Trump. Brent’May currently in a USD 70.00-70.75/bbl range.
• Spot gold is on a firmer footing, and has made a fresh ATH just above the USD 3k mark. ANZ sets its short-term price target of USD 3,050/oz.
• Base metals are entirely in the green, with the complex boosted by the risk tone and support measure commentary from China overnight.
• Russian Deputy Prime Minister Novak says global oil demand will rise during driving season and OPEC+ takes this into account; resumption of gas exports to Europe via Nord Stream pipelines is irrelevant for now. No talks about possible resumption of Russian oil exports to Germany via the Druzhba pipeline.
• Qatar lowered the May term price for Al-Shaheen crude oil to USD 1.29/bbl above Dubai quotes.
• Russian President Putin and Saudi Arabia’s Crown Prince MBS discussed cooperation in OPEC+, as well as US-Russia ties and the Ukraine conflict.
• US President Trump’s administration unlocked a USD 4.7bln loan for TotalEnergies (TTE FP)

Geopolitics: Middle East

• Israel’s Channel 12 quoted an Israeli source stating if there is no progress in negotiations within the next two days, the team will return to Israel, according to Al Jazeera.
• US and Israel look to Africa for resettling Palestinians uprooted from Gaza, according to AP.
• UN Security Council agreed to the Russia and US-drafted statement condemning widespread violence in Syria’s Latakia and Tartus, while the statement called for Syria’s interim authorities to protect all Syrians, regardless of ethnicity or religion and to hold the perpetrators of the mass killings accountable.

Geopolitics: Ukraine

• Russia’s Kremlin says it held late night talks with US Envoy Witkoff, conveyed signals to US President Trump via Witkoff, Russia and the US will determine a timing of Russian President Putin/Trump call once Witkoff has briefed Trump. There are grounds for cautious optimism. Both sides understand there is a need for such a call. Putin got information from US Envoy on US thinking on Ukraine. Putin is in solidarity with Trump’s position but there is a lot of work to do
• Ukraine Foreign Minister says the nation has begun forming a team to develop ways to control a possible ceasefire.
• EU Foreign Policy chief Kallas said she is quite optimistic G7 can reach accord on a joint communique and if they cannot agree on G7 communique, it shows division between member countries. Kallas also said it is most likely that Russia will say yes to the US proposal for a ceasefire with Ukraine but with conditions and the US is telling G7 members they understand the Russians may want to extend the process by blurring the picture. Furthermore, she said the red line is Ukraine giving away territory and that territorial integrity is an important element, as well as noted that without the EU, any deal cannot be implemented because there are elements for which Europe has the card.
• Saudi Crown Prince MBS and Russian President Putin spoke on the phone and the Saudi Crown Prince affirmed the kingdom’s commitment to exerting all efforts to facilitate dialogue and achieve a political solution to the Ukraine crisis.

Geopolitics: Other

• Senior officials from China, Iran and Russia hold talks in Beijing over Iran’s nuclear issues, according to CCTV.
• US Pentagon has been tasked with providing military options to ensure US access to the Panama Canal, according to CNN.
• US President Trump said they are going to have to make a deal on Greenland and thinks the annexation will happen, while he added the US is going to order 48 icebreakers.

US Event Calendar

• 10:00: March U. of Mich. Sentiment, est. 63.0, prior 64.7
  • March U. of Mich. Current Conditions, est. 64.4, prior 65.7
  • March U. of Mich. Expectations, est. 63.0, prior 64.0
  • March U. of Mich. 1 Yr Inflation, est. 4.3%, prior 4.3%
  • March U. of Mich. 5-10 Yr Inflation, est. 3.4%, prior 3.5%

DB’s Jim Reid concludes the overnight wrap

After my promise of an exciting special announcement, yesterday we announced the launch of the Deutsche Bank Research Institute (DBRI), a new offering designed to provide valuable insights for corporates, investors and policymakers navigating today’s complex and rapidly evolving global landscape. The Institute will connect the world to Europe and Europe to the world, across geopolitics, macroeconomics, technology, and the evolving corporate landscape. Going forward, we will be delivering more in-depth analysis through engaging and accessible formats, including videos, podcasts, webinars, events and reports, which will be available on our new public Institute website.

The inaugural paper for DBRI is called “What Germany’s economy needs now”, which lays out how the country’s economic prosperity has been under severe pressure from geopolitical and technological changes, which have exposed Germany’s structural weaknesses. It outlines a series of necessary reforms which will demand a historic effort from the next government. The challenges beyond the fiscal injections are enormous but the good news is that Germany has its future prosperity and security in its own hands. You can read the English version here and the German version here. Stand by for more papers over the coming weeks and months from our new Deutsche Bank Research Institute.
The market sell-off resumed in earnest yesterday, with the S&P 500 (-1.39%) down to another 6-month low and into technical correction territory, with the index down -10.13% from its peak as recently as February 19. This is the first correction since October 2023, and Bloomberg reported that this was the seventh-fastest correction in data back to 1929, taking just 16 sessions for it to happen. Other asset classes also continued to struggle, with US HY spreads (+22bps) reaching their widest level since August, at 335bps. And as investors poured into perceived safe havens, gold prices (+1.85%) hit a record high of $2,989.

Once again, the main driver was a fresh volley of tariff threats from President Trump, who made several posts criticising the EU yesterday. In terms of the latest, President Trump said that if the EU continued with its 50% tariff on American whisky, then the US would respond with a 200% tariff on EU wines, champagnes and alcoholic products. That immediately caused issues for several European beverage companies, with Pernod Ricard (-3.97%) posting the worst performance in France’s CAC 40 yesterday, and Remy Cointreau (which produces cognac) fell -4.67%. More broadly though, President Trump’s comments reignited fears that the EU could soon face a much more serious trade escalation, particularly with reciprocal tariffs set for April 2. Indeed, earlier in his post on the 200% tariff, he described the EU as “one of the most hostile and abusive taxing and tariffing authorities in the World, which was formed for the sole purpose of taking advantage of the United States”. Bear in mind that President Trump has said he considers VAT to be like a tariff, so that could cause considerable issues for EU member states.

Matters weren’t helped yesterday by the potential threat of a US government shutdown, with funding set to run out at midnight tonight. However, after the US close, the Democratic Senate Minority Leader Chuck Schumer said that he would vote to advance the Republican bill rather than see a shutdown. So that’s helped futures to recover a decent amount of ground this morning, with those on the S&P 500 up +0.76%. The Republicans do have a majority in both chambers of Congress, but in the Senate they only have a 53-47 margin, and require 60 votes to prevent a filibuster happening, so they had to get at least some Democratic support to pass their funding bill.

Nevertheless, that news came too late to prevent US markets taking a fresh hit yesterday, with the S&P 500 (-1.39%) now down -10.13% from its record high, and surpassing the 10% threshold that makes it a technical correction. Moreover, the decline for this week alone now stands at -4.31%, which if realised would be the worst weekly performance since the week of SVB’s collapse two years ago. As in recent days, the Magnificent 7 (-2.49%) led the declines, moving back into bear market territory having shed -20.25% since its December peak. And even though tech led the losses, it was still a broad-based decline, with the equal weighted S&P 500 (-1.00%) struggling as 78% of its constituents lost ground on the day.

Whilst investors were concerned about tariffs and the latest shutdown threat, there was little respite from the latest PPI inflation data either. To be fair, it was softer than expected, with monthly headline PPI flat (vs. +0.3% expected), taking the year-on-year rate down to +3.2% (vs. +3.3% expected). But the problem was that the components that feed into PCE inflation (the Fed’s target measure) were relatively stronger, which added to concern that the Fed would struggle to meaningfully cut rates this year. The 10y Treasury yield traded as much as +3.8bps higher on the day following the release, but the bond sell-off turned into a rally as risk sentiment soured, with 10yr yields down -4.3bps to 4.27% by the close. At the front end, 2yr yields were -3.1bps lower to 3.96%.

Over in Europe, there were fresh developments over Ukraine as discussions around a ceasefire continued. Russian President Putin said on the ceasefire proposal that “The idea itself is correct and we certainly support it, but there are issues that we need to discuss”, in particular mentioning that Ukraine could use the ceasefire to mobilise and re-arm. So that fit with expectations that Russia would softly push back against the idea of a ceasefire without preconditions. Later on, Ukrainian President Zelenskiy criticised President Putin’s comments as “very manipulative”. President Putin was also due to meet US envoy Steve Witkoff last night but we have not yet heard any comments from that meeting.

Elsewhere in Europe, the other big story for markets has been the start of the debate in the German Bundestag on changing the constitutional debt brake. The debate is being conducted with the old pre-election Bundestag, where the combination of the CDU/CSU, the SPD and the Greens still have a two-thirds majority. It still isn’t clear whether the Greens will offer support to the proposals, although talks are still ongoing. Nevertheless, the debate did include frustration between Merz and the Greens, with Merz saying “What more do you want than what we have proposed to you?” 

Meanwhile, Katharina Dröge, co-leader of the Green caucus in the Bundestag, said that “If you now wonder why the talks between us and you are going the way they are, then we can tell you: Because we don’t trust in your word”.

With all that going on, European assets echoed the global risk-off move yesterday. That saw the STOXX 600 (-0.15%) post a modest decline, although there were bigger losses for France’s CAC 40 (-0.64%) and the German DAX (-0.48%). In the meantime, the move into perceived safe havens meant German bunds outperformed their counterparts, with 10yr yields down -2.3bps, in contrast to those on 10yr OATs (+0.5bps) and BTPs (+1.3bps) which rose slightly.

Overnight in Asia, markets are performing well as it looked like the US would avoid a government shutdown. Moreover, Chinese markets got a fresh boost after it was announced that several government bodies would host a press conference on Monday about boosting consumption. So those developments helped support the major indices across the region, with gains for the Nikkei (+0.89%), the Hang Seng (+1.89%), the CSI 300 (+2.24%) and the Shanghai Comp (+1.56%). The main exception to that has been South Korea’s KOSPI, which has fallen -0.28%. Meanwhile in Japan, the country’s 30yr government bond yield (+3.0bps) moved up to its highest level since 208, at 2.61%.

Lastly, there wasn’t much other data yesterday, although the US weekly initial jobless claims were better than expected over the week ending March 8, falling to 220k (vs. 225k expected). Moreover, the continuing claims for the week ending March 1 fell to 1.870m (vs. 1.888m expected).

To the day ahead, and US data releases include the University of Michigan’s preliminary consumer sentiment index for March, along with UK GDP for January. Central bank speakers include the ECB’s Escriva and Cipollone.