MNI EUROPEAN OPEN: Sunak Still Subject To Headwinds

EXECUTIVE SUMMARY

• MACRON’S POPULARITY REACHES THREE-YEAR LOW IN IFOP POLL (BBG)
• RISHI SUNAK FORCED TO ‘PAUSE’ PROTOCOL DEAL AMID BACKLASH FROM SENIOR TORIES AND DUP (TELEGRAPH)
• RISHI SUNAK READY TO DEFY DUP OVER BREXIT DEAL IN NORTHERN IRELAND (THE TIMES)
• US, CHINA TOP DIPLOMATS HOLD FIRST MEETING AFTER BALLOON CRISIS (BBG)
• NZ’S ROBERTSON SAYS RBNZ CAN LOOK THROUGH CURRENT EVENTS (BBG)
• NORTH KOREA LAUNCHES LATEST VOLLEY OF MISSILE TESTS
• CHINA CENTRAL BANK ASKS BANKS TO SLOW DOWN LENDING IN FEBRUARY (RTRS SOURCES)
• CHINA'S FEB LOAN PRIME RATE UNCHANGED (MNI)

Fig. 1: GBP/USD Vs. EUR/GBP

Source: MNI - Market News/Bloomberg

UK

ECONOMY: Nearly 15,000 British retail jobs have already been cut since January in a “brutal start to the year” for the high street. (Guardian)

FISCAL: Rishi Sunak is facing a major Budget rebellion over his corporation tax hike, The Telegraph can reveal. (Telegraph)

FISCAL: Britain’s biggest employers group has called on the chancellor to use next month’s budget to reverse contentious changes to investment tax incentives, address late payments and tackle the threat of “the highest tax burden since Clement Attlee and Stafford Cripps in 1948”. (The Times)

BREXIT: Rishi Sunak has been forced to “pause” his Northern Ireland protocol deal amid a backlash from senior Tories and unionists. (Telegraph)

BREXIT: Rishi Sunak has been warned that more than 100 Tory MPs could rebel over a deal with the EU to help break the post-Brexit deadlock in Northern Ireland, as Boris Johnson launched a major intervention calling for him to take a tougher line with Brussels. (Guardian)

BREXIT: Britain and the EU have an understanding on what needs to be done to resolve issues surrounding the Northern Ireland Protocol but a deal is "by no means done", Rishi Sunak has said. (Sky)

BREXIT: Rishi Sunak would be willing to press ahead with a Brexit deal even if it did not get the support of the Democratic Unionist Party. In a challenge to the Conservative right, which believes any agreement with Brussels to change the Northern Ireland protocol must gain the approval of the DUP, the prime minister is prepared to decide for himself whether the deal works for the province. (The Times)

BREXIT: An intervention by former Prime Minister Boris Johnson on post-Brexit trading arrangements for Northern Ireland is not "entirely unhelpful", Commons leader Penny Mordaunt has said. (BBC)

EUROPE

EU/FISCAL: Hungary must bolster the independence of its judiciary "very soon" to stand a realistic chance of getting any of the 15.4 billion euros envisaged for Budapest from the European Union's COVID recovery stimulus, said a top official in the bloc. (RTRS)

FRANCE: French President Emmanuel Macron’s popularity fell to its lowest level in three years, as opposition to his plan to reform the nation’s pension system remains steady. (BBG)

IRELAND: Ireland’s central bank governor has defended the country’s world-beating economic growth against accusations that it is an artificial product of big US companies taking advantage of Dublin’s low taxes. (FT)

RATINGS: Sovereign credit rating reviews of note from after hours on Friday included:

• Fitch affirmed Slovakia at A; Outlook Negative
• Fitch affirmed Finland at AA+; Outlook Stable
• Moody's affirmed Switzerland at Aaa, Outlook Stable
• S&P affirmed Poland at A-; Outlook Stable
• DBRS Morningstar confirmed Spain at A, Stable Trend

BANKS: Europe’s top banking regulators have told Deutsche Bank they are “not satisfied” with its probe into the mis-selling of risky foreign exchange derivatives in Spain, people briefed on the matter told the Financial Times. (FT)

U.S.

FED: Two of the Federal Reserve board’s seven governors abstained from supporting the selection of former Obama aide Austan Goolsbee to become president of the Chicago Fed, according to a record of the vote. (BBG)

FED: The Federal Reserve won’t be able to get US inflation down to its 2% target without “crushing the economy,” economist Mohamed El-Erian warned on Friday, but he said the central bank is unlikely to officially change that goal post. (BBG)

ECONOMY: The U.S. economy is on a steady footing and the unemployment rate is superlow. Yet a rising number of Americans are falling behind on their car payments. Some 9.3% of auto loans extended to people with low credit scores were 30 or more days behind on payments at the end of last year, the highest share since 2010, according to an analysis by Moody’s Analytics. (WSJ)

OTHER

GLOBAL TRADE: U.S. Trade Representative Katherine Tai on Friday met with European Union Executive Vice President Valdis Dombrovskis and discussed the U.S. Inflation Reduction Act, Tai's office said in a statement. (RTRS)

GLOBAL TRADE: European business groups and lawmakers have hit out at the White House after it announced fresh measures aimed at promoting investment in homegrown green technology. (FT)

GLOBAL TRADE: U.S. and European multinational firms are getting more cautious about their capital investments in China due to geopolitical concerns, according to a risk consultancy. (CNBC)

U.S./CHINA: The United States will not set any preconditions for President Joe Biden to speak with Chinese President Xi Jinping, the White House said Friday, amid heightened tensions over a suspected Chinese spy balloon. (Kyodo News)

U.S./CHINA: US Secretary of State Antony Blinken warned China’s top diplomat against providing lethal aid to Russia’s invasion of Ukraine and rebuked him over an alleged Chinese spy balloon that heightened tensions between the world’s largest economies. (BBG)

U.S./CHINA: Wang Yi, China's top diplomat, called the U.S. reaction to the balloon incident "absurd and hysterical" in his remarks at the Munich Security Conference on Saturday. (Axios)

U.S./CHINA: Wang told Blinken the United States must "face up to and resolve the damage" to bilateral relations "caused by the indiscriminate use of force", China's foreign ministry said on Sunday. (RTRS)

U.S./CHINA: U.S. Vice President Kamala Harris on Saturday warned that Chinese support for Russia in its war in Ukraine would reward aggression, as the two powers traded barbs at a prominent security conference in Germany. (RTRS)

U.S./CHINA/TAIWAN: The Pentagon's top China official, Deputy Assistant Secretary of Defense Michael Chase, has arrived in Taiwan, two sources familiar with matter said on Friday, beginning a visit that could exacerbate tensions between Beijing and Washington. (RTRS)

U.S./CHINA/TAIWAN: The White House will next week hold secret talks with Taiwan’s foreign minister Joseph Wu and national security adviser Wellington Koo as part of a special diplomatic dialogue intended to remain private to avoid sparking an angry reaction from China. (FT)

U.S./CHINA/TAIWAN: The two sides may sign bilateral trade agreements on five topics in the first half of the year, earlier than the planned goal of year-end, before expanding the BTA to include 12 topics, Taipei-based Commercial Times reports, citing unidentified people familiar with the matter. (BBG)

CHINA/TAIWAN: A group of Chinese officials arrived in Taiwan on Saturday on the first visit in three years since the COVID-19 pandemic began, to attend a cultural event at a time of soaring military tensions across the Taiwan Strait. (RTRS)

EU/CHINA: China and the European Union should prepare for a meeting of their leaders, Beijing’s top foreign policy official said, a sign of the Asian nation’s efforts to court Europe amid worsening ties with the US. (BBG)

NATO: The prime minister of Sweden has warned against delinking his country’s Nato membership bid from Finland’s, after the alliance acknowledged for the first time that the two might have to join separately owing to Turkey’s obstruction. (FT)

GEOPOLITICS: NATO Secretary-General Jens Stoltenberg said Saturday that China is closely watching Russia’s success in Ukraine, with the outcome of Europe’s war likely to have wide-reaching implications for Beijing’s behavior in Asia-Pacific. (CNBC)

BOJ: Bank of Japan watchers are flagging the outside risk that Governor Haruhiko Kuroda may surprise international markets one last time next month with adjustments to smooth the transition process for his nominated successor Kazuo Ueda. (BBG)

BOJ: The Japanese government's picks to lead the Bank of Japan underscore the waning influence of the proponents of aggressive easing who had steered monetary policy for a decade. (Nikkei)

BOJ: The Bank of Japan tweaking its yield curve control before achieving its price goal would risk pushing the world’s third- largest economy back into deflation, former Deputy Governor Kikuo Iwata said, warning the central bank’s incoming leadership against a hasty exit from stimulus. (BBG)

JAPAN/CHINA: Japan and China will hold security talks next week, Japanese foreign minister Yoshimasa Hayashi said after meeting his Chinese counterpart on the sidelines of the Munich Security Conference on Saturday. (RTRS)

AUSTRALIA: Australia’s superannuation system must be “equitable and sustainable”, the federal government has declared, in a move that will fuel speculation about a future budget crackdown on tax concessions at the top end. (Guardian)

RBNZ: Shadow Board members recommend that the Reserve Bank continue increasing the Official Cash Rate (OCR). The broad view was a 50 basis-points increase in the OCR at the Reserve Bank’s February meeting, given inflation pressures in the New Zealand economy remain strong. (NZIER)

RBNZ: Finance Minister Grant Robertson speaks to reporters Monday in Wellington after being asked whether the anticipated 50 basis point cash rate increase this week is appropriate. “The minister of finance will say what I always say that that is an independent decision of the Reserve Bank”. “It is clearly a very challenging time with inflation for everybody. The Reserve Bank, within their mandate, can to use their phrase look through current events, so that will be part of their thinking.” (BBG)

NEW ZEALAND: The Government has promised a Cyclone Gabrielle emergency package of $250 million for roads and $50 million for businesses, while extending the national state of emergency for another seven days and creating a cyclone recovery taskforce. (NZ Herald)

NEW ZEALAND: The New Zealand government expects the cost from the devastating cyclone that ravaged the country’s North Island this week to be in the “multi-billions,” Finance Minister Grant Robertson said in an interview with local media Sunday. (BBG)

NORTH KOREA: North Korea fired two more ballistic missiles off its east coast on Monday, as the powerful sister of leader Kim Jong Un warned U.S. forces to halt military drills, saying the reclusive nuclear state could turn the Pacific into a "firing range". The launches come just two days after North Korea fired an intercontinental ballistic missile (ICBM) into the sea off Japan's west coast, prompting the United States to hold joint air exercises with South Korea and separately with Japan on Sunday. (RTRS)

BRAZIL: Brazil’s justice minister has vowed there will be no amnesty for radical supporters of rightwing former president Jair Bolsonaro who last month stormed Congress, the Supreme Court and presidential palace in Brasília. (FT)

RUSSIA: European Union members may agree to pool ammunition purchases as early as next month in a push to secure badly needed firepower for Ukraine. (BBG)

RUSSIA: The US has formally concluded that Russia has committed crimes against humanity in Ukraine, vice-president Kamala Harris said on Saturday, vowing that those who had perpetrated crimes and their superiors “will be held to account”. (FT)

RUSSIA: The U.S.' declaration that it has formally determined that Russia has committed crimes against humanity during the war in Ukraine is an attempt to "demonize Russia," Anatoly Antonov, Russia's ambassador to the United States, told reporters Saturday. (Axios)

RUSSIA: Hungarian Prime Minister Viktor Orban said on Saturday that Europe was "indirectly at war with Russia" as several European countries pledge to send battle tanks to help Ukraine fight Moscow's invasion. (RTRS)

RUSSIA: European Commission President Ursula von der Leyen said Saturday it would be “unthinkable” for Russia not to pay for Ukraine’s reconstruction. (CNBC)

RUSSIA: British Prime Minister Rishi Sunak said NATO allies should finalize a security guarantee for Ukraine when the alliance’s leaders meet at a summit in July. (BBG)

RUSSIA: Poland’s head of state has called on Nato powers to give postwar security guarantees to Ukraine, on the eve of a visit by the US president to Warsaw to reaffirm the west’s support for Kyiv a year into Russia’s war. (FT)

RUSSIA: The United States will directly warn companies against evading U.S. sanctions imposed on Russia over the war in Ukraine, Deputy Treasury Secretary Wally Adeyemo said, as Washington seeks to further squeeze Russia's economy. (RTRS)

RUSSIA: President Joe Biden’s administration is planning to impose new export controls and a fresh round of sanctions on Russia, targeting key industries a year after Vladimir Putin started his invasion of Ukraine. (BBG)

RUSSIA: Speaking after a meeting with Moldovan president Maia Sandu in Munich, Blinken said the US was alarmed by “some of the plotting that we’ve seen coming from Russia to try to destabilise the government”. (FT)

RUSSIA: More than a year after Western authorities sought to shut down the pipeline supplying Russia in its war in Ukraine, exports of small, nimble Chinese drones are still providing the Kremlin with an effective way to target Ukrainian forces, according to Western officials, security analysts and customs data. (WSJ)

RUSSIA: Russia's central bank said on Friday that inflationary pressures across the economy had remained strong during the first two weeks of February, citing a slump in the rouble as a factor. (RTRS)

SOUTH AFRICA: Just after 10:30pm on Sunday 19 February Eskom announced: “Stage 6 load shedding will be implemented continuously until further notice”. This means SA will kick off the all-important “Budget 2023” work week at stage 6 rolling blackouts. (MoneyWeb)

IRAN: International atomic monitors in Iran last week detected uranium enriched to levels just below that needed for a nuclear weapon, according to two senior diplomats, underscoring the risk that the country’s unrestrained atomic activities could prompt a new crisis. (BBG)

IRAN: Israeli Prime Minister Benjamin Netanyahu on Sunday said that Iran was responsible for a reported attack on an oil tanker last week. (RTRS)

PERU: Peru's Congress passed a constitutional complaint against former President Pedro Castillo, who was ousted in December, for alleged crimes of corruption in his administration Friday. (RTRS)

IMF: The IMF is weeks away from finalizing a fully-fledged program of support for Ukraine, the fund’s Managing Director Kristalina Georgieva told CNBC Saturday. (CNBC)

WORLD BANK: Developing nations have warned against reshaping the World Bank in the aftermath of David Malpass’s departure as its head in a way that would imperil the institution’s ultra-high credit rating. (FT)

OIL: The International Energy Agency’s executive director said Friday that the biggest uncertainty facing global energy markets is the extent to which China rebounds from its extended closure. (CNBC)

OIL: U.S. crude oil exports that have been boosted by a trade flow reshuffle in the aftermath of Russia's invasion of Ukraine will remain elevated this year as Europe and Asia search for supplies, company officials and analysts said. (RTRS)

OIL: A $2.2 billion fleet of oil tankers has been assembled to keep Russian crude and fuels exports flowing. Now, as some freight rates surge, executives are starting to ponder if they’ll ever return to serving everyone else. (BBG)

CHINA

PBOC: China's central bank has told some banks to slow the pace of lending to contain risks after new bank loans jumped to a record in January, three bankers with knowledge of the matter said. The People's Bank of China (PBOC) sent the informal instructions, or the so-called "window guidance", earlier this month to some lenders that asked them to issue loans "under an appropriate growth rate", the bankers said. The banks were told to control the scale of new loans in February to avoid issuing new loans at a too-quick pace, the sources said. (RTRS)

PBOC: China’s central bank is less likely to cut interest rates or reserve requirement ratio after injecting large amounts of cash via reverse repos Friday, according to a report in the 21st Business Herald Monday. (BBG)

PBOC: China's reference lending rate remained unchanged on Monday, according to a statement on the People's Bank of China website, which was in line with market expectations as the central bank kept a key policy rate steady on February 15. (MNI)

ECONOMY: Economic data for January showed a “good start” as the continuous optimisation of epidemic prevention policies and real estate regulation took effect, but the economic recovery remains uneven, according to Guan Tao, a former official at the State Administration of Foreign Exchange. (MNI)

INFLATION: Pork prices will not fall further due to the recent National Development and Reform Commission announcement to increase storage by 20,000 tons, and because many loss making breeders are unable to absorb any further decrease in price, according to the Securities Daily Network. (MNI)

SWAPS: The PBOC has issued a proposal outlining Swap Connect, a new program that will allow offshore investors access to the mainland interest rate swap market via Hong Kong, according to a statement published on the central bank's website. The PBOC said that transactions of interest rate products will be in yuan, and gave some detail on offshore investor participation requirements. (MNI)

BANKS: Chinese regulators issued an exposure draft on Saturday to solicit public opinions on the management measures of commercial banks' capital, as they consider dividing commercial banks into three layers to match with different supervision schemes. (Global Times)

CHINA MARKETS

PBOC NET INJECTS CNY224 BILLION VIA OMOS MONDAY

The People's Bank of China (PBOC) conducted CNY270 billion via 7-day reverse repos on Monday, with the rates unchanged at 2.00%. The operation has led to a net injection of CNY224 billion after offsetting the maturity of CNY46 billion reverse repos today, according to Wind Information.

• The operation aims to keep banking system liquidity reasonable and ample, the PBOC said on its website.
• The 7-day weighted average interbank repo rate for depository institutions (DR007) fell to 2.0444% at 9:27 am local time from the close of 2.2492% on Friday.
• The CFETS-NEX money-market sentiment index closed at 45 on Friday, compared with the close of 63 on Thursday.

PBOC SETS YUAN CENTRAL PARITY AT 6.8643 MON VS 6.8659 FRI

The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 6.8643 on Monday, compared with 6.8659 set on Friday.

CHINA CFETS YUAN INDEX DOWN 0.17% IN WEEK OF FEBRUARY 17

The CFETS Weekly RMB Index was 100.36 on February 17, compared with 100.53 as of February 10.

• The gauge, which compares the yuan to a basket of currencies from China's 24 major trading partners, has increased 1.71% this year, when compared to 98.67 on Dec. 30, 2022.

OVERNIGHT DATA

NEW ZEALAND JAN NON-RESIDENT BOND HOLDINGS 61.0%; DEC 60.7%

UK FEB RIGHTMOVE HOUSE PRICE INDEX 0.0% M/M; JAN +0.9%
UK FEB RIGHTMOVE HOUSE PRICE INDEX +3.9% Y/Y; JAN +6.3%

MARKETS

UP TODAY (TIMES GMT/LOCAL)

Date	GMT/Local	Impact	Flag	Country	Event
20/02/2023	0700/0800	***		SE	Inflation report
20/02/2023	1000/1100	**		EU	Construction Production
20/02/2023	1500/1600	**		EU	Consumer Confidence Indicator (p)
21/02/2023	2200/0900	***		AU	Judo Bank Flash Australia PMI