MNI ASIA OPEN: Stocks Recover From Post-Invasion Rout

EXECUTIVE SUMMARY

• MNI: Fed Asset Sales To Rein In Inflation Seen As Risky
• MNI: Fed's Mester Says Ukraine Crisis Adds Risk To Outlook
• CANADA: Trudeau Outlines Russia Sanctions
• MNI: Pres Biden: 'SWIFT Sanctions Not Included At This Time'
• U.K. PM PUSHES FOR RUSSIA TO BE EJECTED FROM SWIFT SYSTEM: FT
• EU SANCTIONS PLAN TO LIMIT RUSSIA'S ACCESS TO FINANCIAL MARKETS: Bbg
• EU PENALTIES INCLUDE CURBS ON PURCHASING SECURITIES, BORROWING: Bbg
• NEW U.S. SANCTIONS ON RUSSIA NOT EXPECTED TO SEVERELY TARGET ENERGY SECTOR: POLITICO

US

FED: Some Fed officials favor using active sales of longer-dated Treasuries and MBS to fight inflation, but the potential for market disruption and political optics of possible losses for the central bank could keep such a plan grounded, former Fed staffers told MNI.

• Many officials already favor eventually selling the Fed's MBS holdings in order to hasten the transition to a primarily Treasuries portfolio over the long run, but stubbornly high inflation and strong wage growth are emboldening some to call for asset sales to cool the economy in the nearer term.
  
• Fed presidents James Bullard and Esther George have mentioned outright sales of longer term assets as an option if inflation doesn't moderate in response to the initial phase of rate hikes and passive QT.
  
• After the January FOMC meeting, "given the subsequent strong employment and high inflation data, high retail sales, you’re hearing more urgency from many in terms of removing monetary stimulus," said Bill Nelson, former deputy director of the Division of Monetary Affairs at the Fed Board and current chief economist at the Bank Policy Institute. For more see MNI Policy main wire at 1317ET.

CANADA

Canadian Prime Minister Justin Trudeau has delivered remarks on the Canadian response to Russia.

• Trudeau: 'President Putin has launched a horrific, unprovoked attack on Ukraine. Canada is unequivocal in our condemnation of Russia.'
  
• 'On Tuesday Canada announced initial series of sanctions on those responsible and two Russian banks. We have prohibited Canadians from participating in Russian sovereign debt and deployed additional troops to support NATO. We are imposing further severe sanctions... On 58 individuals connected to Putin regime
• Wagner Group and major Russian banks; Direct sanctions on Russian Defence Minister, Finance Minister, and Justice Minister and families. Effective immediately Canada is cancelling all exports permits and banning further permits to Russia

US TSYS: Swift Action, Not SWIFT Sanction

• Not how the session started -- negative reaction to Russia invading Ukraine on multiple fronts: sharp drop in Tsy yields (30YY 2.1590 low), SPX eminis fell to 4101.75 low, Gold soared over $50/oz and WTI crude climbed over $100.0/bbl.
• Heads of state announced more sanctions -- UK PM Boris Johnson called for 'Massive Package Of Sanctions' including access to SWIFT banking system; French Pres Macron include "sanctions against Russia will factor in the energy sector and will be without weakness". But calm didn't emerge until Pres Biden would not limit access to SWIFT (holding in reserve), relief rally as Biden focused on shoring up NATO support and not putting US troops on Ukraine soil.
• Heavy overall volumes (TYH2>3.7M) -- due in large part to ongoing Mar/Jun quarterly roll ahead next Mon's first notice.
• Long-end Tsys inched off session lows, two-way trade on modest reaction to $50B 7Y note auction (91282CEB3) stop: 1.915% high yield vs. 1.905% WI; 2.36x bid-to-cover steady vs. last month.
• Friday Data Roundup: Durables, Cap Goods, PCE, Home Sales, U-Mich, NY Fed buy-op rolled to Friday due to technical difficulties.
• After the bell, 2-Yr yield is down 3.8bps at 1.5637%, 5-Yr is down 4.8bps at 1.8553%, 10-Yr is down 3.1bps at 1.9599%, and 30-Yr is down 1.7bps at 2.2767%.

OVCERNIGHT DATA

• US JOBLESS CLAIMS -17K TO 232K IN FEB 19 WK
  
• US PREV JOBLESS CLAIMS REVISED TO 249K IN FEB 12 WK
• US CONTINUING CLAIMS -0.112M to 1.476M IN FEB 12 WK

• US Q4 GDP +7.0%

• CANADA FLASH JAN FACTORY SALES +1.3%
• CANADA DEC PAYROLL EMPLOYMENT BREAKS PRE-PANDEMIC LEVEL

MARKETS SNAPSHOT

Key late session market levels:

• DJIA down 97.52 points (-0.29%) at 33030.23
• S&P E-Mini Future up 38.25 points (0.91%) at 4260.75
• Nasdaq up 368.7 points (2.8%) at 13406.02
• US 10-Yr yield is down 2.6 bps at 1.9651%
• US Mar 10Y are up 6/32 at 126-15
• EURUSD down 0.01 (-0.88%) at 1.1207
• USDJPY up 0.62 (0.54%) at 115.62
• Gold is down $16.63 (-0.87%) at $1892.27

US TSY FUTURES CLOSE

• 3M10Y +1.371, 163.705 (L: 145.531 / H: 166.02)
• 2Y10Y +2.347, 40.709 (L: 35.468 / H: 43.276)
• 2Y30Y +4.33, 72.984 (L: 65.55 / H: 75.028)
• 5Y30Y +4.307, 43.231 (L: 38.056 / H: 44.46)
• Current futures levels:
• Mar 2Y up 2.875/32 at 107-21.875 (L: 107-18.875 / H: 107-28)
• Mar 5Y up 5.5/32 at 117-30 (L: 117-23 / H: 118-15)
• Mar 10Y up 5.5/32 at 126-14.5 (L: 126-06 / H: 127-12.5)
• Mar 30Y down 7/32 at 152-11 (L: 152-07 / H: 154-26)
• Mar Ultra 30Y down 1-0/32 at 180-25 (L: 180-07 / H: 185-23)

US 10Y FUTURES TECHS: (H2)‌‌ Corrective Cycle Still In Play

• RES 4: 128-22+ High Jan 24
• RES 3: 128-11+ High Feb 1
• RES 2: 127-31 50-day EMA
• RES 1: 127-12+ High Feb 24
• PRICE: 126-14+ @ 20:27 GMT Feb 24
• SUP 1: 126-03/125-17+ Low Feb 23 / Low Feb 10 and bear trigger
• SUP 2: 125-06+ Low May 30 2019 (cont)
• SUP 3: 125-04+ 2.00 proj of the Jan 13 - 19 - 24 price swing
• SUP 4: 123-22+ 2.0% 10-dma envelope

Treasuries rallied Thursday to 127-12+ before giving back most of today’s gains. The climb however signals scope for an extension of the current corrective cycle and attention is on the 50-day EMA at 127-31. Note that MA studies still highlight a broader bearish trend condition and the 50-day EMA is seen as an important resistance point. On the downside watch support at 126.03, Feb 23 low and 125-17+, the Feb 10 low and bear trigger.

US EURODOLLAR FUTURES CLOSE

• Mar 22 +0.0525 at 99.3775
• Jun 22 +0.090 at 98.855
• Sep 22 +0.075 at 98.445
• Dec 22 +0.055 at 98.10
• Red Pack (Mar 23-Dec 23) +0.020 to +0.040
• Green Pack (Mar 24-Dec 24) +0.005 to +0.020
• Blue Pack (Mar 25-Dec 25) +0.015 to +0.020
• Gold Pack (Mar 26-Dec 26) steady to +0.015

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements:

• O/N +0.00000 at 0.07743% (+0.00186/wk)
• 1 Month +0.02171 to 0.20857% (+0.03786/wk)
• 3 Month +0.01029 to 0.50786% (+0.02829/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month -0.02186 to 0.80443% (+0.02314/wk)
• 1 Year -0.05057 to 1.28629% (+0.00043/wk)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 0.08% volume: $72B
• Daily Overnight Bank Funding Rate: 0.07% volume: $201B

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 0.05%, $902B
• Broad General Collateral Rate (BGCR): 0.05%, $334B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $326B
• (rate, volume levels reflect prior session)

NY Fed Purchase Operation: The Desk plans to purchase approximately $20 billion, ending Thu, March 9.

• Next scheduled purchases -- Thursday's operation delayed until Friday:
• Fri 02/25 1010-1030ET: Tsy 0Y-22.5Y, appr $6.225B
• Tue 03/01 1100-1120ET: TIPS 7.5Y-30Y, appr $0.625B vs. $1.225B prior
• Thu 03/03 1100-1120ET: Tsy 7Y-10Y, appr $1.625B vs. $3.225 prior
• Tue 03/08 1010-1030ET: Tsy 22.5Y-30Y, appr $1.825B steady
• Thu 03/09 1010-1030ET: Tsy 2.25Y-4.5Y, appr $4.025B

FED Reverse Repo Operation, Usage Recedes

NY Fed reverse repo usage recedes to $1,650.399B w/ 78 counterparties vs. $1,738.322B (2022 high) prior session -- remains well off all-time high of $1,904.582B on Friday, December 31.

PIPELINE

No new corporate issuance Thursday, total high-grade issuance at $16.4B between Tue-Wed.

EGBs-GILTS CASH CLOSE: Eyeing A Dovish ECB Shift On Ukraine

The Russian invasion of Ukraine predictably dominated European markets Thursday with yields dropping sharply on the open, and again later in the session on signs that geopolitics could hold back central bank tightening.

• ECB hawk Holzmann said in late afternoon that the Ukraine conflict may delay the bank's exit from monetary stimulus.
• The biggest reaction came from 10Y BTP spreads which dropped 10bp immediately, reversing earlier widening. But short-end Bund yields also came off the highs they had spent most of the session clawing towards after an opening drop.
• Germany outperformed the UK, the latter seen again as potentially less directly impacted by the Ukraine crisis.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 5.7bps at -0.416%, 5-Yr is down 8bps at -0.072%, 10-Yr is down 5.6bps at 0.172%, and 30-Yr is down 2.4bps at 0.443%.
• UK: The 2-Yr yield is down 3.8bps at 1.258%, 5-Yr is down 3.5bps at 1.296%, 10-Yr is down 3.2bps at 1.447%, and 30-Yr is up 0.9bps at 1.573%.
• Italian BTP spread down 6.8bps at 164.5bps / Spanish down 2.6bps at 100.7bps

FOREX: US Dollar Index Briefly Makes 19-Month High, Advance Limited To 0.85%

• The greenback was firmly back in favour on Thursday as markets sought a flight to safety following the Russian invasion of Ukraine sparked widespread risk-off across global markets.
• At one point the dollar index rose to the best level since June 2020, prompting weakness for all other G10 currencies. A late bounce in equities saw the dollar fall from best levels but remains just under 1% in the green approaching the start of the APAC session.
• In turn, EURUSD fell steeply to a low of 1.1106, breaching the late January lows that resided around 1.1320. The geography of the events exacerbated moves in the single currency with EURUSD close to down 2% at its worst levels before regaining some poise back to 1.12.
• Similar price action across the G10 space, with GBP (-1.03%), AUD (-0.91%), NZD (-1.2%) all bearing the brunt of the dollar strength, however, JPY, CAD and CHF also all retreated just over 0.5%.
• Severe volatility in the Russian Ruble as expected. Early session highs of 88.2670 in USDRUB were approached around midday ET before the relief rally for risk prompted some support for the faltering RUB. Following the Biden press conference, USDRUB fell sharply to 84.00 before consolidating around the 85.00 mark, down 4.5% for the session.
• Souring risk sentiment filtered through to emerging market FX was hit significantly, with CEE and Latam FX notably struggling throughout the day and unable to benefit from the late bounce in equities.
• New Zealand Retail Sales kick off the APAC session before potential comments from Fed’s Waller. Tomorrow in the US, markets will receive US Core PCE Price Index and Durable Goods data. ECB’s Lagarde is then scheduled to hold an online press conference about Russia's invasion of Ukraine.

Friday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
25/02/2022	0001/0001	**		UK	Gfk Monthly Consumer Confidence
24/02/2022	0125/2025			US	Fed Governor Christopher Waller
25/02/2022	0700/0800	**		SE	PPI
25/02/2022	0700/0800	***		DE	GDP (f)
25/02/2022	0745/0845	***		FR	HICP (p)
25/02/2022	0745/0845	**		FR	Consumer Spending
25/02/2022	0745/0845	***		FR	GDP (f)
25/02/2022	0745/0845	**		FR	PPI
25/02/2022	0800/0900	**		ES	PPI
25/02/2022	0900/1000	**		IT	ISTAT Business Confidence
25/02/2022	0900/1000	**		IT	ISTAT Consumer Confidence
25/02/2022	0900/1000	**		EU	M3
25/02/2022	0900/1000	*		NO	Norway Unemployment Rate
25/02/2022	1000/1100	*		EU	Business Climate Indicator
25/02/2022	1000/1100	**		EU	Economic Sentiment Indicator
25/02/2022	1000/1100	*		EU	Consumer Confidence, Industrial Sentiment
25/02/2022	1115/1215			EU	ECB Lagarde at Eurogroup Press Conference
25/02/2022	-			EU	ECB Lagarde & Panetta at Eurogroup meeting
25/02/2022	-			EU	ECB Lagarde & de Guindos at ECOFIN meeting
25/02/2022	1330/0830	**		US	durable goods new orders
25/02/2022	1330/0830	**		US	Personal Income and Consumption
25/02/2022	1330/0830	*		CA	Capital and repair expenditure survey
25/02/2022	1500/1000	**		US	NAR pending home sales
25/02/2022	1500/1000	***		US	Final Michigan Sentiment Index
25/02/2022	1600/1100			CA	Finance Dept monthly Fiscal Monitor (expected)
25/02/2022	1800/1800			UK	BOE Pill unwinding QE remarks at BEAR Conference
26/02/2022	1145/1245			EU	ECB de Guindos at ECOFIN press conference
26/02/2022	-			EU	ECB Lagarde & de Guindos at ECOFIN meeting