MNI ASIA OPEN - Ministers Set To Announce Launching of EU’s Red Sea Mission

NEWS: 

US (MNI): Biden Says He "Hopes" Navalny's Death Will Compel GOP To Pass Ukraine Aid
US President Joe Biden, speaking to reporters in Delaware, says he "hopes" the death of Russian opposition figure Alexei Navalny will convince House Republicans to approve new aid for Ukraine. Biden says, when asked if Navalny’s death will make a difference on Republicans re: the Senate-passed foreign aid package: “I hope so, but I'm not sure..." With the House of Representatives on scheduled recess until late next week, it is unclear when the chamber could next consider the foreign aid bill.

US (Wall Street Journal): Capital One Is Buying Discover Financial
Capital One plans to buy Discover Financial Services in a deal that would marry two of the largest credit-card companies in the U.S. The all-stock deal could be announced Tuesday, according to people familiar with the matter. Discover has a market value of about $28 billion, and the takeover would be expected to value it at a premium to that. Buying Discover would give Capital One, a credit-card lender with a market value of a little over $52 billion, a network that would vastly increase its power in the payments ecosystem.

EUROPE (MNI): France Backs Proposal For Joint EU Retail Bonds - Officials
A draft paper prepared by European Union finance officials with support from countries including France proposes a joint eurozone retail bond or a similar market-based savings product as part of a package aimed at injecting new momentum into plans for Capital Markets Union, with other proposals including an overhaul of market supervision, easing obstacles to stock market consolidation and further convergence of listing requirements.

UK: MNI Gilt Week Ahead - PMIs and Fiscal Data Due
Looking ahead to this week, the data highlight will be the February Flash PMI data on Thursday. Markets will certainly pay attention to this release, albeit again we don’t think it will really alter the course of monetary policy over the next couple of meetings – further out the curve growth data should have more impact though. This week will also see the release of public finance data on Wednesday. These data are not normally too market moving, but this release is likely to be more closely watched as we suspect it will be the last release to be used in the upcoming OBR forecasts that are due to be published alongside the Budget on 6 March.

EU COMMISSION (MNI): Von Der Leyen To Seek Second Term As President-dpa
Germany's dpa reporting that European Commission President Ursula von der Leyen is set to seek a second term in office following the upcoming European Parliament elections in June. It was widely expected but not assured that VdL - hailing from the German Christian Democratic Union (CDU) that sits within the centre-right European People's Party (EPP) group - would seek a second five-year spell. Nominations for the EPP's lead candidate close on 21 Feb, making VdL's announcementa timely one. The EPP conference in Bucharest on 6-7 March will officially nominate the group's lead candidate.

MNI POLITICAL RISK ANALYSIS - Week Ahead 19-25 February
The Foreign Affairs Council meeting of EU foreign ministers takes place in Brussels. Ministers are set to announce the launching of the EU’s Red Sea naval mission, the Aspides, intended to defend commercial shipping with links to the EU in and around the Red Sea from Houthi attacks. The operation will sit separately from the US-led Operation Prosperity Guardian, which includes the support of some EU member states, and has directed and carried out the majority of airstrikes on Houthi targets over the course of the campaign of attacks on shipping.

EU (MNI): New EU Fiscal Rules May Be Credit Negative - Scope
The EU’s new fiscal regime may prove credit negative, Scope Ratings says in a report out Monday, as it only partially meets the EU’s initial objective of creating a simple, flexible and credible framework better than the existing regime.

SPAIN (MNI): PP Breathes Sigh Of Relief As It Retains Majority In Galicia Stronghold
Spain's main opposition centre-right Popular Party (PP) has narrowly retained its majority in the regional Parliament of Galicia in a development that will ease pressure on PP leader Alberto Nunez Feijóo. Galicia is Feijóo's home region where he served as regional president from 2009-22. It is an historic stronghold for the PP, which has held power in the autonomous community for all bar four years from 1990 onwards.

MIDEAST (MNI): Houthis Claim Stricken Ship Sinking; EU Launches Red Sea Mission
Houthi military spox brigadier general Yahya Saree has claimed that following a missile attack a container ship in the Red Sea has suffered 'catastrophic' damage and "As a result [...] it is now at risk of potential sinking." While not naming the vessel, it is widely believed to be the Belize-flagged, British-registered Rubymar. With the crew having been forced to abandon ship due to the damage, this attack would appear to be the most serious incident of the Houthi's campaign to-date. The continued threat posed by the Houthis has been further highlighted by reports that for the first time asubmarine dronewas deployed by the group in the Red Sea on 18 Feb.

CHINA (MNI): LPR Cuts Possible Despite Steady MLF
China’s reference lending rate will likely fall this month following the central bank’s reduction of the reserve requirement ratio and some relending rates to lower lenders' funding costs, and despite the medium lending facility rate holding steady. The Loan Prime Rate, based on the People’s Bank of China’s medium-term lending facility (MLF) rate and quotes submitted by 20 banks, could fall 5-10 basis points on Tuesday from the current 3.45% for the one-year maturity and 4.2% for the over-five-year maturity.

CHINA (MNI): China Export Container Shortage To Improve
China’s shipping container shortage, which caused a recent 260% spike in the China-EU freight cost index, will continue to disrupt global trade but improvements over March and April will help avoid a supply side-shock to the world economy, a leading Chinese shipping expert has told MNI.

DATA

MNI: CANADA JAN INDUSTRIAL PRICES -0.1% MOM; EX-ENERGY +0.1%
CANADA JAN RAW MATERIALS PRICES +1.2% MOM; EX-ENERGY +0.2%

US TSYS: Drift Lower In Shortened Session As Fed Minutes Come Into View

Monday trade proved characteristically quiet for a holiday (Presidents' Day) marked by a cash close in Treasuries, with futures weakening slightly throughout the session.

• As of an hour before the close, front Treasury futures were down 3 ticks at 109-21, drifting lower through the latter half of the session and remaining within tight ranges throughout (Hi 109-27, Lo 109-20) and in any case well within Friday's price parameters.
• The just-under 200k contracts traded represents around 1/6th of Friday's volumes at the same point, by comparison.
• Reminder that Globex trade concludes at 1300ET for the day, before re-opening at 1800ET preceding normal session hours Tuesday.
• Implied Fed cutting expectations remain basically unchanged on the day, with 89bp in reductions seen in FF futures through the remainder of 2024, about 1bp less than Friday's close. A first cut in June remains the centrally priced scenario.
• The data and speaker slate remains relatively thin until Wednesday afternoon when we get the minutes to the January FOMC meeting and potentially some further insight into balance sheet runoff plans. Following up on the minutes will be multiple speakers Thursday including Jefferson, Bowman, Harker, Cook, Kashkari, and Waller.
• The next major data focus this week will be Thursday's jobless claims and PMIs.

EGBs-GILTS CASH CLOSE: Core FI Twist Steepens, BoE Speak / ECB Wages Eyed

Bunds and Gilts closed relatively unchanged Monday, with trading activity, macro developments and headlines all dulled by a US market holiday.

• Yields bottomed by mid-morning without any major catalysts evident, before drifting higher - though all very much within Friday's ranges. In futures terms, 450k March Bund contracts traded - around half of the usual volume.
• The German and UK curves leaned twist steeper with yields across almost all tenors closing within 1.0bp of Friday's close. Periphery spreads were mixed, with BTPs underperforming and PGBs outperforming, but the moves were fairly negligible.
• ECB pricing remained relatively steady: still around 104bp of ECB rate cuts seen through 2024 (first cut fully priced by June), while the 69bp priced for the BoE was about 4bp more than seen at Friday's close (first cut remains fully priced by Aug though now a little more firmly).
• Turning to Tuesday, focus will be on supply (EU syndication, German Schatz auction among others) and ECB negotiated wage data (scheduled for 1000GMT release).
• BoE's Bailey, Broadbent, Greene and Dhingra give testimony on the February Monetary Policy Report.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is unchanged at 2.816%, 5-Yr is down 0.3bps at 2.387%, 10-Yr is up 0.9bps at 2.411%, and 30-Yr is up 2.5bps at 2.569%.
• UK: The 2-Yr yield is down 0.6bps at 4.614%, 5-Yr is down 0.2bps at 4.134%, 10-Yr is unchanged at 4.108%, and 30-Yr is down 0.4bps at 4.644%.
• Italian BTP spread up 0.8bps at 149.1bps / Greek down 0.7bps at 107.9bps

FOREX: USD Index Unchanged, NZD Remains atop G10 Leaderboard

• G10 currency ranges remained predictably contained on Monday, with the closure of US markets for President’s Day offsetting any potential impact from China markets returning after the LNY break. The dollar index is unchanged as we approach the APAC crossover.
• NZDUSD has consolidated its modest outperformance overnight. The pair was last 0.6145, marginally above Friday highs and continue to operate above the 20 and 50-day EMAs of 0.6120/6135. Continued strength could see a test of the highs from Jan 31 at 0.6174. As noted earlier, local bank BNZ pushed back the timing of RBNZ cuts to November from August, as well as the services PMI rebounding to 52.1 in Jan, from 48.8 prior. With AUD lagging somewhat, AUDNZD has drifted back towards the notable 1.0600 pivot point.
• For USDJPY, despite drifting lower in early session to 149.88 lows, the pair traded with a more supportive tone and stands closer to 150.20 as Monday’s holiday thinned session comes to a close. Speculation continues around the BoJ NIRP exit. The latest MNI policy insight is at this link, which looks at the chances of a shift at the March meeting.
• Above here, 151.43, the November 16 high remains the focus, inching ever closer to the multi-decade highs at 151.95. Initial support moves up to 148.75, the 20-day EMA.
• RBA minutes will be the highlight of Tuesday’s APAC docket before the focus turns to Canadian CPI for January.

COMMODITIES: WTI Crude Futures Marginally Higher On Session

• WTI is up marginally on the day but has erased some of the additional gains made across European trading hours. Further attacks in the Red Sea continue to weigh against concerns for near-term global demand growth. WTI MAR ‘24 is up 0.1% at 79.27$/bbl
• Houthi rebels struck the Belize-flagged Rubymar in the Bab el-Mandeb Strait on Sunday, which the Houthis claimed, albeit unverified, that the attack resulted in the ship sinking.
• Separately, Iraq will improve its compliance with OPEC+ output cuts after reviewing estimates of its production, Iraqi Oil Minister Hayyan Abdul Ghani said. OPEC+ is likely to extend some if not all oil production cuts into Q2 which would reduce the market surplus according to Energy Aspects last week.
• For precious metals, spot gold edged higher once more, extending the recovery back above the $2,000/oz mark and further eating into the US CPI inspired decline on February 13.
• Silver did not fare as well, declining 1.7%, although price remains closed to last Friday’s opening level around $23.00. Most recent gains appear to be corrective with initial key resistance to watch at $23.534, Jan 12 high. Clearance of this level would instead highlight a stronger reversal.
• Elsewhere, both iron ore and copper are in the red, with Iron ore futures (on SGX) tumbling roughly 1.5%, with market participants weighing prospects for near-term demand in China, the world’s largest metals consumer.