MNI ASIA OPEN - Western Response Eyed as Putin Recognizes LPR, DPR

NEWS:

US-RUSSIA (Bloomberg/MNI): Putin Recognizes LPR, DPR, West Responds With Sanctions
Russian President Vladimir Putin signed a decree officially recognizing two self-proclaimed separatist republics in eastern Ukraine, a move that likely torpedoes European-mediated peace talks and further escalates tensions with the West. It drew immediate condemnation from the European Union including states in the bloc’s east.

EU/US/RUSSIA/UKRAINE (Bloomberg/MNI): EU, US Respond With Trade Sanctions:
The U.S. President will issue an executive order Monday prohibiting U.S. investment, trade, and financing to separatist regions of Ukraine after Putin’s move to officially recognize the breakaway territories.The executive order will allow the U.S. to sanction individuals operating in the area, and the U.S. will also “soon” announce additional measures “related to today’s blatant violation of Russia’s international commitments,” White House press secretary Jen Psaki said. Since Russian-backed separatists took control of the regions eight years, trade and investment has plummeted.

Ursula von der Leyen and Charles Michel said in a joint statement that Putin’s move was “a blatant violation of international law as well as of the Minsk agreements,” referring to the agreement where Russia had recognized the two regions as part of Ukraine.Any sanctions would have to be unanimously adopted and the bloc has yet to agree which specific measures to take in response. Polish Prime Minister Mateusz Morawiecki said the European Council should call an urgent meeting to impose “immediate sanctions” against Russia.

FED (MNI): Fed Gov Bowman: Watching Data On March Hike Size
Federal Reserve Governor Michelle Bowman said Monday she'll judge whether interest rates should increase by more than a quarter point next month based on data, adding that inflation is "much too high" and could stay that way. "I support raising the federal funds rate at our next meeting in March and, if the economy evolves as I expect, additional rate increases will be appropriate in the coming months. I will be watching the data closely to judge the appropriate size of an increase at the March meeting," she said in remarks prepared for the American Bankers Association community banking conference.

UK (MNI): Pandemic Leaves UK Labour Market Less Slack
The largest single driver of the shrinkage in the UK workforce has been a rise in claims of ill health, potentially reducing measures of labour force slack being closely watched by the Bank of England as it tightens monetary policy, Stephen Evans, a former Treasury official now heading the Learning and Work think tank told MNI.

DATA:

EUROZONE DATA (MNI): Feb flash PMIs outpace forecasts across Eurozone

• In this morning's Eurozone flash PMIs, February prints were significantly stronger than the consensus forecasts.
• French services rose to a 49-month high of 57.9, outpacing the 54.0 forecasted and jumping 4.8 points from January.
• French manufacturing strengthened to a seven-month high of 57.6, up 2.1 points from the January print and February forecast which expected growth to remain unchanged.
• German manufacturing disappointed in the flash estimate at 1.3 points weaker than January and the consensus forecast. However, new orders were strong and supply chain bottlenecks and pressures notably continued to ease.
• Services were significantly stronger than predicted, rebounding to a six-month high of 56.6, up 4.4 points from January and 3.5 points stronger than expected.
• The Eurozone composite print also beat forecasts, growing 3.5 points from January. Overall, prices continued to rise at record rates, however, strong demand, easing Covid restrictions, accelerated private-sector output and supply chain pressures underpinned strong growth.

FOREX: USDRUB Breaches 80.00 As Geopolitical Tensions Significantly Rise

• Despite US market closures due to the President’s Day holiday, markets have had a volatile start to the week as Russia headlines were once again in focus.
• Russian President Vladimir Putin has spoken on Russian television outlining the historical justification for today's recognition of the breakaway republics in Donbas. Prior to and throughout, USDRUB has had a steep upward trend on Monday rising from 76.15 lows all the way to a peak of 80.2589 as of writing.
• In turn, global equity index futures suffered throughout the latter half of the trading day which prompted a recovery in broad dollar indices, despite relatively narrow ranges.
• There was a very strong RUB bounce following the end of the Putin address with potential profit taking/liquidity in play given the US holiday. USDRUB fell back below 79.00, however, now resides around 79.42, up 2.5% for the session.
• Most notable move in G10 FX was relative strength of the Swiss Franc. The souring risk sentiment bolstered CHF with both EURCHF and USDCHF falling over 0.6%.
• EUR/CHF stumbled through both the 50-dma at 1.0429 as well as Friday's 1.0426 low. This marks the fourth consecutive session of lower lows in EUR/CHF and losses were exacerbated through the Feb lows at 1.0383 marking a bearish development with 1.03 the most notable support/target below.
• RBA Assist Gov Kent Speaks overnight before German IFO data headlines the European data docket. There may also be comments from BOE MPC Member Ramsden, however the more notable event will be left on Wednesday with the February RBNZ decision/statement.

US TSYS SUMMARY: Closed Firmer On Geopolitical Risk

• TYH2 closed up 6+ ticks on the day at 126-28, having drifted higher over the last 40mins of trading on headlines that Putin will address the nation “soon” with plans for recognition of separatist states, raising risks of further escalation as sanctions are likely imposed.
• It earlier touched new session highs of 126-31+, briefly clearing the 20-day EMA of 126-30+ and leaving it just shy of 127-01 (Feb 7 high) after which it could open 127-24 (Feb 4 high).
• Volumes were unsurprisingly low with the US out on Presidents’ Day.
• Tomorrow: Fed's Bostic (non-voter) plus various house price indices, Markit preliminary PMIs for Feb and Conference Board consumer confidence.
• NY Fed buy-op on tap plus issuance for 13W, 26W & 52W bills and 2Y notes.

TYH2 - 10Y Note (CBT) Mar22Source: Bloomberg