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Hopes for peace and worries that lockdowns in China will drive down demand for energy has kept oil prices in check, with Brent back below $110. Stocks too continue to show signs of relief as European bourses made further advances after a solid day for Wall Street, with faltering oil prices and optimism for a diplomatic solution to the war in Ukraine helping to lift sentiment. Rates are steady with the US 10yr under 2.5%, its spread with the 2yr note down to just 7bps. 

 

Tech stocks popped despite rising rates, still defying gravity. Tesla rallied 8% after announcing a stock split…the FTSE 100 trades near yesterday’s highs at 7,540, whilst the DAX in Frankfurt rose to its highest in a month. 

 

Risk assets were buoyed as hopes for peace grow somewhat as Russia dropped its demand Ukraine be “de-Nazified” and said it is prepared to let Kyiv join the EU as long as they stay militarily neutral. Talks continue today in Turkey.

 

OPEC is signalling it won’t budge on output, with Saudi’s energy minister saying that they “leave the politics outside of the door”. Prices slumped overnight as a new lockdown in Shanghai raised fears that demand will be affected in the world’s largest oil importer. The scale of the pullback for oil futures pointed to fears that lockdowns might spread to other cities. Brent fell under $110 to trade at its lowest since March 18th. Meanwhile G7 nations have rejected Russian demand to pay for fossil fuels in rubles. 

 

In FX land, eyes remain on the Japanese yen, which has come under immense pressure lately. After spiking at 125 yesterday, USDJPY has retreated to 123.60 area since the Bank of Japan’s offer to buy unlimited amounts of 10-year JGBs at 0.25% for the first four days of this week. The yen has been under pressure in large part because the BoJ’s yield curve control policy has kept its benchmark 10yr paper to within a range of 0.25%, whilst global bond yields have broken out.  

 

On the data front, US JOLTS job openings and consumer confidence data will be the ones to watch later. 

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