Geoffrey Smith 

Investing.com — The bond markets are again under threat. After Lael Brainard, the Fed’s chief economist, warned that the Fed would tighten policy faster than usual and the U.S. yields have reached three-year records, the Eurozone’s fear is that Marine Le Pen will win the French presidency in the next month. JetBlue’s offer to rival the Fed will cause stocks to fall. Spirit Airlines (NYSE:) providing the day’s main M&A action. China’s service sector suffered a terrible March because of Covid-19. Oil prices have risen as Big Oil executives get ready for an interview in Congress by worried Democratic legislators. This is what you should know about financial markets Wednesday 6 April.

1. Following Brainard’s remarks, bond prices are falling; DB projects a downturn in 2023

Bond markets are front and center again a day after Lael Brainard, President Joe Biden’s nominee as vice-chair for the Federal Reserve, warned of a “rapid” reduction of the Fed’s balance sheet as early as May.

I will be responding to all the comments. Deutsche Bank (DE:), the first major bank, called a U.S. economic recession 2023 due to tightening monetary policies.

Benchmark 10-year Treasury yields hit their highest in three years after Brainard warned of the “paramount” need to bring inflation down, using both interest rates and quantitative tightening. After a modest consolidation, they rose again overnight to stand within 1 basis point of Tuesday’s high of 2.63%.

More detail on the Fed’s discussion of the interplay between interest rates and quantitative policy is likely to emerge when the Fed publishes the minutes of its March meeting at 2 PM ET (1800 GMT).

2. Le Pen Progress rattles the Eurozone Markets

The Eurozone’s bond markets are under threat, however from a slightly different perspective. Marine Le Pen has increased the chances of her winning the presidency elections in this month. This is because the anti-EU, far-right leader has capitalised on the fall in living standards caused by soaring inflation.

In the past month, Macron’s lead over Le Pen has dwindled from 15 to 3 percentage points. On Sunday, the first round of voting will take place.

Spread between German and French 10-year bond yields has widened by 46 basis points. This is its largest in over three years.

Inflation fears also plague European bond markets, just as they do in the U.S. In February 2013, Eurozone producer prices rose by 31% year on year, although this is mainly due to increased supply rather than overheating demands.

3. Stocks will open lower, JetBlue bids for Spirit

After falling on Tuesday, the U.S. stock market is set to open lower. This was in response to statements by Esther George (Cleveland Fed President) and Brainard (US Stock Markets). George also warned that monetary policy needs to be tightened faster.

They were at 0.6%, down 195 points by 6:15 am ET. were at 0.7%, while they were at 1.0%. These three cash indices were down 0.8% to 2.3% Tuesday.

Stocks likely to be in focus later include Spirit Airlines, after JetBlue crashed Frontier Airlines’ party with an all-cash bid for the discount flyer.

AT&T (NYSE:) and Discovery (NASDAQ:) are also likely to gain attention after WarnerMedia CEO Jason Kilar and Ann Sarnoff, CEO of WarnerMedia Studios and Networks, both said they will step down ahead of the planned merger of Discovery with AT&T’s media assets.

4. The Chinese economy has a terrible March

China’s services sector followed the country’s manufacturers into contraction territory in March as ever-broader lockdowns damped the hospitality and travel sectors.

Caixin Services PMI dropped to 42 in March. This is its lowest level since April 2020, and far below the 50 line which separates growth from decline.

Money spent by tourists during the Qingming holiday weekend fell to less than 40% of pre-Covid levels, according to official estimates, while economists at Nomura noted that around 193 million people – accounting for some 22% of China’s GDP – are currently affected by public health measures of varying degrees of severity. This includes Shanghai’s near total lockdown.

5. Big Oil in Congress; EIA inventories due

Big Oil representatives are to testify in Congress later to give assurances that they are not exploiting this year’s surge in crude prices to indulge in price gouging.

Exxon Mobil (NYSE) Chair Darren Woods Chevron (NYSE:) CEO Mike Wirth are both likely to face a grilling from Democratic lawmakers who risk losing their control of both houses of the legislature in this year’s midterms due to popular anger at rising prices and squeezed living standards.  

At 6:25 AM ET futures had risen 1.6% to $103.55/barrel, and 1.5% to $108.15/barrel. Both contracts were reacting to talk out of Europe expressing discontent at the mildness of the bloc’s latest sanctions package. The EU’s top diplomat Josep Borrell noted that the bloc has sent Russia 35 billion euros in payments for energy since it invaded Ukraine, compared to only 1 billion euros to Ukraine itself.

 The U.S. government’s weekly stockpiles data are due at 10:30 AM ET, a day after the American Petroleum Institute’s numbers showed the first rise in crude stocks in three weeks.