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MNI US MARKETS ANALYSIS - Equities Recover as Russian Recognition Seen as Limited


  • Equities recover as Russian recognition limited in eastern Ukraine
  • Oil surging, Brent nears $100/bbl for first time since 2014
  • Eyes on Western response, with Nordstream 2 in sanctions scope

US TSYS SUMMARY: Treasuries See Sizeable Bear Flattening

  • Cash Tsys have seen a sizeable bear flattening on the day after opening firmer on Russian escalation fears. The intraday sell-off has been across the curve and has gathered pace of late, but the long end had opened that much firmer.
  • 2YY +7.7bps at 1.543%, 5YY +4.9bps at 1.869%, 10YY +1.9bps at 1.948% and 30YY +1.4bps at 2.254%. This pushes 2s10s back to 41bps, close to early last week flats of 38bps having touched highs of 53bps on Thu.
  • TYH2 has dropped 27 ticks intraday but is only 7 ticks down on yesterday’s close at 126-14. It's through yesterday's low but remains above support at the bear trigger of 125-17+ (Feb 10), whilst resistance is still seen at 127-01 (Feb 7 high).
  • Fedpeak: Bostic (non-voter) with moderated Q&A, no text (1530ET)
  • Data: Various house price indices, Markit preliminary PMIs for Feb and Conference Board consumer confidence
  • NY Fed buy-op: TIPS 1Y-7.5Y, appr $1.025B vs. $2.025B prior (1030ET).
  • Tsy issuance: $60B 13-W, $51B 26-W bill auctions (1130ET), $34B 52-W and $52B 2-Y notes (1300ET).

STIR SUMMARY: Back To Fully Pricing 6 Hikes In 2022

  • Fed Funds implied hikes have firmed notably in the past three hours kicked off by the Russian parliament planning to ratify agreements that don’t specify the exact borders of the self-proclaimed separatist entities with further headlines that could limit sanctions pressure for Russia.
  • The US coming in after Presidents’ Day will see Mar 16 pricing almost back where it was prior to NY Fed’s Williams on Fri saying he didn’t see a compelling reason for a big rate increase at 33bps.
  • In rare mon pol commentary, Governor Bowman said yesterday she will watch data closely to judge the size of the March increase (25 or 50bps) with her intent to take forceful action to cool inflation.
  • Meetings further out have seen larger moves, more firmly pricing in 4 consecutive hikes to July (106bps) and back to 6 hikes for 2022 (155bps).

Fed Funds futures cumulative pricing for March, July and December meetings. Source: Bloomberg

EGB/GILT SUMMARY: Ukraine Crisis Escalates

European government bonds have traded mixed this morning with curves broadly flattening.

  • Core European sovereign bonds opened higher, before selling off through the morning. Conversely, European stocks initially opened lower before recovering through the morning and now trading up on the day.
  • News of Russian troops moving into Eastern Ukraine after President Putin yesterday recognized the separatist regions of Donestk and Luhansk has underpinned this morning's volatility.
  • The gilt curve has twist flattened with the 2s30s spread narrowing 3bp.
  • The bund curve has bear flattened with the 2s30s spread trading down 2bp.
  • OATs have traced out a similar path to gilts with the curve 2bp flatter on the day.
  • BTPs have firmed across the curve with cash yields down 2-4bp.
  • German IFO data came in a touch above expectations for February.
  • Supply this morning came from Austria (ATBs, EUR1.54bn).

RUSSIA: EU Discussed Punishing Firms, Banks Financing UKR Separatists

Headlines hitting wires from unnamed EU Commission source regarding potential EU sanctions on Russia:

  • RTRS: According to a EU Commission source, EU ambassadors discussed punishing corporations and banks implicated in financing separatist actions in eastern Ukraine's breakaway regions.
  • RTRS: EU ambassadors discussed banning trade in Russian state bonds in European market EU Commission source says.
  • RTRS: EU Foreign Affairs ministers could agree on Russia sanctions package at talks in Paris later today, EU Commission source says.
  • RTRS: EU ambassadors discussed kicking breakaway regions out of FTA between EU and Ukraine EU Commission source says.
  • Silvia Amaro at CNBC tweets: "After #EU ambassadors meeting, EU diplomat says: All countries explicitly support new #Russia sanctions, except for one: Hungary. They stressed the importance of dialogue and wanted to reconvene with capital. More on EU sanctions this afternoon"
  • German Chancellor Olaf Scholz states that he is 'confident' EU to agreee to 'robust and massive' sanctions against Russia.


RXJ2 162/159.50ps sold at 41/40 in 10k (ref 167.04). Said to be an unwind

OEJ2 131.00/130.00ps 1x1.5, bought for 18.5/19 in 5k (bought yesterday in 10k)
DUJ2 111.20/111.00/110.80p fly, bought for 1.75 in 2k
DUJ2 111.30/111.10/110.90p fly, bought for 3.25 in 4k

ERU2 100.25/100.125/100.00p fly, bought for 1.25 in 4k (ref 100.225)
2RH2 99.125/99.00/98.875p fly, bought for 1.25 in 4k
2RH2 99.125/99.00ps, bought the 1 for 0.75 in 5.75k

FVJ2 118.25c prints on block, bought for 32 in 5k, this has been bought for 30.5/31.5/32 in 15k total

FOREX: Markets Await Western Response to Russian Actions

  • Global equity markets are recovering off lows ahead of the NY crossover, with the e-mini S&P rallying back above the Monday close to look more settled after a shakier overnight session. For currency markets, this has translated to weaker haven currencies, resulting in the CHF and JPY being among the session's worst performers in contrast with the Monday session.
  • The proto risk-on sentiment seen across assets seems counter-intuitive as the Russian Parliament formally adopt the 'Friendship Treaty' with the separatist states in Donetsk and Luhansk, sending military supplies and aid to the disputed territories. Nonetheless, there are indications of a cautious stabilization and stalemate for now that lowers the risk of a near-term armed conflict. The separatist territories have talked down the requirement of military assets, while Western leaders appear to be favouring a step-by-step approach to sanctions for now. This suggests a fragile de-escalation is the most likely path forward for now.
  • Commodity-tied currencies are leading gains, with NOK outstripping all others as oil prices surge further still. Brent crude futures touched $99.50/bbl, the highest level since 2014 - with the Russia - Europe Nordstream 2 gas pipeline expected to be a victim of any sanctions response on the continent. As a result, USD/NOK has reversed well back below the 9.00 handle.
  • Data due Tuesday includes prelim US PMI data for February and the conference board consumer confidence release. Central bank speakers include BoE's Ramsden and Fed's Bostic.

FX OPTIONS: Expiries for Feb22 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.1300-05(E788mln), $1.1330-35(E998mln), $1.1350-60(E817mln), $1.1400(E614mln)
  • USD/JPY: Y115.20-25($1.8bln)
  • EUR/JPY: Y115.20-25($1.3bln)
  • AUD/USD: $0.7200(A$1.6bln), $0.7300(A$805mln)
  • USD/CAD: C$1.2600-10($1.1bln), C$1.2700($1.2bln), C$1.2800($747mln)
  • USD/CNY: Cny6.3600($700mln)

Price Signal Summary - Equities Remain Bearish And Volatile

  • In the equity space, S&P E-minis remain vulnerable and a bearish threat remains present. Note though that price action is likely to trade in a volatile manner. The focus is on this year’s low of 4212.75, the Jan 24 low and the bear trigger. The 50-day EMA - at 4528.69 - marks the key resistance. EUROSTOXX 50 futures are recovering from today’s earlier low of 3874.00. The outlook remains bearish though and the clearance of a number of support levels this week highlight the current bearish threat. The focus is on 3844.00, May 13 2021 low (cont).
  • In FX, EURUSD remains above a key short-term support at 1.1280, the Feb 14 low. The broader outlook is positive and while 1.1280 holds, attention is on the next resistance at the Feb16 high of 1.1396. A break of this level would improve the outlook for bulls and expose 1.1495, the Feb 10 high and bull trigger. GBPUSD maintains a bullish short-term tone despite the pullback from Monday’s high. A resumption of gains would open 1.3662 next, Jan 20 high. The support to watch lies at 1.3487, Feb 15 low. USDJPY has traded below its 50-day EMA - at 114.74 - but has so far found support below this average. The next key short-term support to watch is 114.16, the Feb 2 low. The area between 114.74-16 represents a firm zone. A resumption of strength would refocus attention on the 116.34/35 key resistance, the Feb 10 / Jan 4 highs.
  • On the commodity front, Gold remains in an uptrend and maintains the current strong impulsive bull rally. Price is approaching the medium-term upside target of $1916.6, the Jun 1 2021 high and a key bull trigger. Note that the top of the bull channel drawn from the Aug 9 2021 low intersects at $1936.7. WTI futures remain in an uptrend and have rallied once again today. The contract has probed resistance at $95.82, Feb 14 high. This confirms a resumption of the uptrend and opens $98.24, 3.00 projection of the Dec 2 - 9 - 20 price swing.
  • In the FI space, Bund futures remain vulnerable and recent gains are likely a correction. The 20-day EMA has been probed however levels above the average are providing resistance - the EMA intersects at 166.84 today. The bear trigger is 164.34, the Feb 16 low and a break would expose the 164.00 handle. Trendline resistance drawn off the Dec 20 high intersects at 167.54 today. The trend condition in Gilts remains down although a corrective cycle is still in play. Price has traded above the 20-day EMA and this suggests potential for a climb towards the 122.00 handle and the 50-day EMA at 122.64. The latter is a key resistance.

EQUITIES: Stocks Recover Further as Russian Recognition More Limited

  • The e-mini S&P surges further, with prices nearing 4360 as the Russian foreign ministry clarifies that Russian recognition of breakaway Ukrainian territories refers to borders already controlled by separatists. This is a more limited recognition than expected, eliminating the outside risk that Russia could expand the areas of recognition to the 2/3 of the Luhansk and Donetsk under Ukrainian control.
  • As such, the headlines represent somewhat of de-escalation of tensions, helping equities squeeze higher while USD/JPY hits the best levels of the day.

COMMODITIES: Brent Nears $100 as Nordstream 2 Seen as Sanctions Target

  • Oil markets trade solidly ahead of the Tuesday open, with Brent crude futures rallying further to touch $99.50/bbl - the highest rate since 2014. Moves come alongside the formal recognition of independence for both the Luhansk and Donetsk separatist controlled territories, with European leaders considered a set of counter-sanctions against Russian individuals - particularly those in senior military positions and close to Putin himself.
  • The crux for energy markets is the progress (or lack thereof) for the Nordstream 2 pipeline, with Germany's Scholz this morning stating that no certification can happen right now. As a result, Germany is to reassess their gas import sources, diversifying their supply further.
  • Tuesday price action marks an extension of the bullish price sequence of higher highs and higher lows for Brent and paves the way for a climb towards the key psychological barrier of $100/bbl. Strength there here opens $101.49 and above.
  • Gold remains in an uptrend and maintains the current strong impulsive bull rally. Price is approaching the medium-term upside target of $1916.6, the Jun 1 2021 high and a key bull trigger. Note that the top of the bull channel drawn from the Aug 9 2021 low intersects at $1936.7.


22/02/20221330/0830**US Philadelphia Fed Nonmanufacturing Index
22/02/20221355/0855**US Redbook Retail Sales Index
22/02/20221400/0900**US S&P Case-Shiller Home Price Index
22/02/20221400/0900**US FHFA Home Price Index
22/02/20221400/0900**US FHFA Quarterly Price Index
22/02/20221400/1500**BE BNB Business Sentiment
22/02/20221445/0945***US IHS Markit Manufacturing Index (flash)
22/02/20221445/0945***US IHS Markit Services Index (flash)
22/02/20221500/1000***US Conference Board Consumer Confidence
22/02/20221500/1000**US Richmond Fed Survey
22/02/20221630/1130**US NY Fed Weekly Economic Index
22/02/20221630/1130*US US Treasury Auction Result for 26 Week Bill
22/02/20221630/1130*US US Treasury Auction Result for 13 Week Bill
22/02/20221800/1300**US US Treasury Auction Result for 52 Week Bill
22/02/20221800/1300*US US Treasury Auction Result for 2 Year Note
22/02/20222030/1530US Atlanta Fed's Raphael Bostic
MNI London Bureau | +44 203-865-3809 |
MNI London Bureau | +44 203-865-3809 |

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