Stocks edge higher ahead of Biden’s NATO meeting, PMIs

European bourses are set for a mildly higher start as oil prices ease from $120 and PMI data is due.

• Biden is in Brussels for a series of meetings on Ukraine, more sanctions likely
• UK, EZ & US PMIs expected to show growth slowed in March
• USDJPY rises to a new 6 year high on central bank divergence

After a solid start to this week, European bourses took a turn for the worse yesterday, falling away from monthly highs.

Oil prices jumped over 4% to $120 after Putin demanded payment for Russian gas in Rubles, fuelling concerns over Europe’s energy security, particularly Germany’s. Expectations of higher energy, food, and fuel prices, and the squeeze on households and companies prompted risk aversion. European consumer confidence tumbled to its lowest level since May 2020.

The DAX closed 1.2% lower, while the FTSE, supported by oil majors and resource stocks, closed down 0.2%.

NATO meeting

Today the stocks are pointing to a mildly stronger start, but a cautious mood is expected as President Biden has arrived in Brussels for a series of meetings to discuss the Ukraine war. The US leader will meet with NATO and European leaders and could announce more sanctions on Russia. Geopolitical headlines are expected to be a key driver of risk sentiment in the broader financial market.

PMIs

In addition to the Ukraine crisis, investors will also be looking towards releasing PMI data for the UK, eurozone, and the US.  This will be the first glimpse of how the Russian war and surging inflation affected business activity in March.

Across the board, the PMIs are expected to show that business activity slowed in March, compared to February. Still, manufacturing and service sector activity is expected to remain substantially above the critical 50 level, separating expansion from contraction. 

The German manufacturing PMI could be a key data point watch. Manufacturers are facing rising input costs and the shut down of trade to Russia due to sanctions, a key export market for some industries. Meanwhile, China, another important exports market, is experiencing an economic slowdown. The German manufacturing PMI is forecast to fall from 58.4 last month to 56 in March, although this could be a little optimistic. Weaker than forecast, PMIs could hit risk sentiment and pull indices lower.

US data & a hawkish Fed

Looking ahead to the US open, there is plenty of data to digest. In addition to the PMI reports, durable goods and jobless claims will be in focus, with investors looking for continued signs of recovery. While jobless claims are expected to fall to 211k, durable goods are expected to also fall 0.5% MoM in February, after rising 1.6% in January.

Fed speakers will continue to hit the airwaves. This week, expectations for a more hawkish Fed have picked up considerably. Fed speakers have been vocal about the need to raise interest rates more aggressively to tame inflation. 

USDJPY trades at a fresh six-year high on the back of increasingly hawkish Fed expectations, which contrast sharply with the BoJ, which remains firmly accommodative in its stance. Comments from BoJ’s Kataoka that a weak Japanese yen is positive for the economy are also helping to keep the yen under pressure. USDJPY trade at 121.70, the January 2016 high.