Investors watch flash PMIs amid geopolitical developments

Today is another busy day for financial markets, as various economic, political, and environmental factors influence the markets. After considerable storm damage to the oil terminal in the Caspian Pipeline Consortium (CPC), Investors await a series of PMIs from Germany, the UK and Europe and job data from the US. Meanwhile, US President Joe Biden arrived in Brussels for a series of summit meetings on the Ukraine War, in which he will announce a set of sanctions against Russia.

Oil prices keep rallying again

Oil futures rose sharply in the first part of the week, ramping up 5%, with Brent hitting 120 dollars again and WTI staying above the 115 mark as traders weigh the possibility of further supply disruptions after reports of storm damage to a major export terminal system in the Caspian Pipeline Consortium (CPC). Russia's Deputy Prime Minister said oil supplies could be stopped for two months.

Investors keep an eye on flash PMIs

It is expected that the European open will rebound modestly on Thursday, despite soft sentiment in Asia, ahead of the latest insight into economic activity in March, with the challenges that come with the sharp rise in energy prices seen in recent weeks, with the latest flash PMI numbers from France, Germany, the UK, and the US.

According to the European Commission, consumer confidence in the EU dropped from -8.8 to -18.7 in March, the lowest reading since May 2020. The extent of that drop raises whether expectations for services flash PMIs are a bit too high. France's services PMI is expected to fall modestly from 55.5 to 55, while Germany's could fall to 53.7 from 55.8, although a more significant drop would not be surprising.

Manufacturing PMI is expected to drop to 55.1 in France and 56 in Germany. There will be a slight slowdown in the UK in March as manufacturing PMI is expected to fall to 57 from 58, and services PMI will tumble from 60.5 to 58, concluding a good first quarter, but this may be the high point of the year as economic activity contracts in April.

The latest US flash PMIs are also expected to show modest slowdowns, while weekly jobless claims remain steady at 210k, and continuing claims will fall to 1.4m.

Treasury yields retreated from multi-year peaks

On Thursday morning, the dollar gained ground while commodity currencies pulled back from their recent steep gains. As for the bond market, the yield on benchmark 10-year Treasury notes last stood at 2.3098% in Tokyo trading, down from a nearly three-year high of 2.4170% overnight.

The two-year yield, which is more influenced by traders' expectations for the fed funds rate, stood at 2.1233%, down from an almost three-year high of 2.2020%.

Geopolitics is top of the mind

Joe Biden is scheduled to attend an emergency NATO summit later in the day. Biden will meet with G7 leaders and address leaders of the European Union, with the markets watching for any escalation of sanctions against Russia.

A two-day EU summit is expected to agree on Thursday to buy gas jointly in an effort to reduce reliance on Russian fuels and build a buffer against supply shocks. Still, sanctions against Russian oil and gas remain unlikely.