The bond market is under pressure again. US yields are at 3-year highs after Fed Governor Lael Brainard warned of faster monetary policy tightening, while the euro zone is spooked by the prospect of Marine Le Pen winning the French presidency later this month. U.S. indexes will open lower and the day’s main M&A event will be rival JetBlue’s bid to buy Spirit Airlines. For China’s service sector, March was a bad month due to COVID-19, and oil prices rose as executives from major oil companies prepare for congressional hearings from concerned Democratic lawmakers. Here’s what you need to know about the financial market on Wednesday, April 6.

1. BONDS UNDER PRESSURE AFTER BRAYNARD COMMENTS; DB PREDICTS RECESSION IN 2023

The bond market was back in the spotlight a day after Lael Brainard, U.S. President Joe Biden’s nominee to become vice chairman of the Federal Reserve, warned of a rapid shrinking of the Fed’s balance sheet as early as May.

In response to her comments, Deutsche Bank became the first major bank to announce a U.S. recession in 2023 caused by tighter monetary policy.

The yield on the nation’s benchmark 10-year Treasury bond hit its highest level in 3 years after Brainard warned of the paramount need to reduce inflation using both interest rate and quantitative tightening. After a modest consolidation, yields rose again the day before and remained within 1 basis point of Tuesday’s high of 2.63%.

More details on the Fed’s discussion of the interaction between the interest rate and quantitative easing will likely emerge when the Fed releases the minutes of its March meeting at 2:00 pm ET (6:00 pm GMT).

2. EUROZONE MARKET SHAKEN BY LE PEN’S PROGRESS

The bond market in the eurozone is also under pressure, but from a different angle The chances of Marine Le Pen winning this month’s French presidential election have surged in recent days as the far-right, anti-EU leader has capitalized on falling living standards due to soaring inflation.

Macron has cut his lead over Le Pen in the two-way contest from 15 percentage points to just 3 points over the past month. The first round of voting will take place on Sunday.

The spread between 10-year French and German bond yields, a barometer of political risk at the center of the eurozone, widened to 46 basis points, its widest in more than 3 years.

As with the U.S., inflation fears are also haunting the European bond market. Producer prices in the eurozone rose 31% year-on-year in February, although mainly due to supply cuts rather than “overheating” demand.

3. US MARKET SET FOR A DOWNTURN AT THE OPEN; JETBLUE’S BID FOR SPIRIT IN THE SPOTLIGHT

Stock indices in the US are set to open lower again after Tuesday’s sharp drop in response to comments from Brainard and Kansas City Fed chief Esther George, who also warned of the need for faster monetary policy tightening.

By 06:15 a.m. ET (11:15 a.m. GMT), the Dow Jones futures were down 195 points, or 0.6 percent. The S&P 500 futures were down 0.7% and the Nasdaq 100 futures were down 1.0%. The 3 major cash indexes fell 0.8-2.3% on Tuesday.

The stock that will likely be in focus a little later is Spirit Airlines after JetBlue “spoiled the life” of rival Frontier Airlines by making an offer to buy the airline for cash.

AT&T and Discovery are also likely to attract attention after Warner Media CEO Jason Kilar and Ann Sarnoff, CEO of Warner Media Studios & Networks, said they would resign ahead of Discovery’s planned merger with AT&T’s media assets.


4. A BAD MARCH FOR THE CHINESE ECONOMY

China’s services sector followed the country’s manufacturers in March and suffered a downturn as the hotel and tourism sectors were negatively impacted by increasingly widespread quarantine restrictions.

The Caixin Services PMI index fell to 42 in March, the lowest level since April 2020 and well below the 50 reading that separates growth from contraction.

Official estimates of money spent by tourists during the Qingming holidays fell to less than 40% of pre-pandemic levels, while Nomura economists noted that about 193 million people, about 22% of China’s GDP, are now affected by public health measures of varying degrees of severity to combat the coronavirus. These include a near-total restriction of activities in Shanghai.

5. OIL COMPANY EXECUTIVES ADDRESS CONGRESS; EIA INVENTORY DATA

Representatives of the major oil companies will appear before Congress a little later today to assure lawmakers that they are not using this year’s rise in oil prices to drive up prices.

Exxon Mobil Chairman Darren Woods and Chevron CEO Mike Wirth are likely to face criticism from Democratic lawmakers who risk losing control of both houses of the legislature in this year’s midterm elections because of popular anger over rising prices and declining living standards.

By 06:25 a.m. ET (11:25 a.m. GMT), WTI crude futures rose 1.6 percent to $103.55 a barrel, while Brent crude futures rose 1.5 percent to $108.15 a barrel. Both contracts reacted to talk in Europe expressing dissatisfaction with the softness of the bloc’s latest sanctions package. The EU’s top diplomat Josep Borrell noted that the bloc has sent €35 billion in energy payments to Russia since the start of the special operation in Ukraine, while Ukraine itself has received only €1 billion.

Weekly U.S. oil inventory data will be released at 10:30 a.m. ET (3:30 p.m. GMT), a day after data from the American Petroleum Institute showed the first rise in crude stockpiles in 3 weeks.