MNI US OPEN - Markets Watch Russian Column Headed to Kyiv

NEWS:

RUSSIA/UKRAINE UPDATE (MNI):

• Russia have stated they are to continue the Ukraine operation until goals have been met, according to Interfax
• Russia's foreign minister Lavrov added that the West must not build military facilities in countries of the former Soviet Union, and that Russia is ready for joint work with the US on strategic stability
• Italian Prime Minister Draghi said Italy is ready to apply further restrictive measures on Russia if necessary, especially against Oligarchs
• UK PM Johnson is to meet with the Polish and Estonian leaders on the NATO borders today to discuss the current situation.
• The Russian central bank notified markets late yesterday that there is to be no stock trading during the March 1 session.
• Freedom Square in central Kharkiv, Ukraine's second city, has been hit by a Russian strike, causing a huge explosion. The missile hit the regional government's headquarters in the city near the Russian border. Ukraine's President Zelensky condemned the bombardment as a war crime and said civilians were deliberately targeted.
• Kyiv Independent says Belarusian troops have entered Ukraine. According to parliament, Belarusian troops have entered Ukraine’s Chernihiv Oblast to assist Russia in its war against Ukraine.

RUSSIA/UKRAINE (THE TIMES): A massive convoy of Russian armour and support vehicles stretching for as much as 40 miles is bearing down on the capital Kyiv, according to satellite images released last night updating a previous assessment of 17 miles. Maxar, a US surveillance company, said that “along parts of the route, some vehicles are spaced fairly far apart while in other sections military equipment and units are travelling two or three vehicles abreast on the road”. It added that cloud cover earlier had prevented a full appraisal of the extent of the convoy.

FRANCE (MNI): Macron Reaches Multi-Month High In Latest Poll Amidst Ukraine Crisis
French President Emmanuel Macron recorded support of 28% in the latest first round opinion poll from Ifop-Fiducial published on 28 February. This is the highest first round support the incumbent has garnered since November 2021. With Macron almost certain to make the second round run-off, a three-way contest for second place is ongoing between right-wing nationalist Rassembelement National (RN) leader Marine Le Pen, centre-right Les Republicains (LR) nominee Valerie Pecresse, and far-right polemicist Eric Zemmour.

RBA (BBG): The Reserve Bank of Australia said it will remain “patient” as it assesses risks stemming from Russia’s invasion of Ukraine and the resulting jolt to energy prices. The central bank -- as expected -- kept its cash rate at a record low 0.1% on Tuesday, Governor Philip Lowe said in a post-meeting statement. He reiterated that while inflation has picked up, it’s “too early to conclude” that it’s sustainably within the RBA’s 2-3% target. “The war in Ukraine is a major new source of uncertainty,” Lowe said. “Inflation in parts of the world has increased sharply due to large increases in energy prices and disruptions to supply chains at a time of strong demand.”

DATA

*MNI: UK FINAL FEB MFG PMI 58.0R; JAN 57.3
EUROZONE FINAL FEB MFG PMI 58.2R; JAN 58.7
GERMANY FINAL FEB MFG PMI 58.4r; JAN 59.8
FRANCE FINAL FEB MFG PMI 57.2r; JAN 55.5
ITALY FEB MFG PMI 58.3; JAN 58.3
SPAIN FEB MFG PMI 56.9; JAN 56.2

*MNI: BAVARIA FEB CPI +1.2% M/M, +5.3% Y/Y; JAN +4.7%R Y/Y
BADEN-WUE FEB CPI +0.8% M/M, +4.7% Y/Y; JAN +4.6% Y/Y

ITALY DATA: Flash Feb Inflation Surges Further, Outpaces Expectations
FEB PRELIMINARY HICP +0.8% M/M, +6.2Y/Y (JAN +5.1%)
FEB PREL HICP CORE INFLATION +1.9% Y/Y VS JAN +1.5% Y/Y
FEB NIC CORE INFLATION +1.7% Y/Y VS JAN +1.5% Y/Y

• Italian inflation outpaced expectations this morning, hitting a fresh euro-era record high of +6.2% Y/Y in the February flash estimate, 0.7% higher than the consensus forecast and 1.1% higher than the January print.
• On the month, inflation surged by 0.8%, significantly stronger than the downwardly revised 0.0% seen in January.
• Energy price growth softened, albeit still jumping +38.6% y/y (compared to +45.9% y/y in January).
• Grocery prices grew strongly on the month +0.8% m/m and +4.2% y/y.

This data will be uncomfortable for the ECB, which had shifted towards more flexibility in rhetoric over monetary policy in their last meeting. However, the current Russian invasion of Ukraine has put an end to expectations of any rate hikes this year with the conflict possibly decreasing Eurozone growth by 1%.

BOND SUMMARY: Central bank repricing trumps inflation concerns today

Markets are more focused on downside risks to medium-term growth than on near-term inflation risks this morning. There have been a couple of legs higher helped by headlines such suggesting Russia would continue its "operation until goals met" (IFX) and further (as yet unsubstantiated) talk that Belarussian troops have also entered Ukraine to assist their Russian counterparts.

• Against this backdrop we have seen Italian inflation surprise to the upside this morning with the HICP measure rising 0.8%M/M against expectations of a 0.2%M/M print while German regional data suggests some (small) upside risks to the German print due later today. However, this seen to be trumped by a repricing of central bank expectations - both in terms of extended ECB QE (see peripheral spreads tightening) and pushing back rate hike expactations. Note also, the MNI sources story released yesterday stating that even the ECB's hawks now don't expect hikes in 2022 (full story here).
• Euribor futures as much as 17 ticks higher at writing, with similar moves in SONIA futures (although less at the front-end) and the Eurodollar strip up to 14 ticks higher.
• TY1 futures are up 0-16 today at 127-30 with 10y UST yields down -5.9bp at 1.768% and 2y yields down -7.3bp at 1.361%.
• Bund futures are up 2.08 today at 169.12 with 10y Bund yields down -10.8bp at 0.024% and Schatz yields down -9.7bp at -0.636%.
• Gilt futures are up 1.53 today at 124.61 with 10y yields down -11.4bp at 1.294% and 2y yields down -9.6bp at 0.934%.

FOREX: Buoyant Commodities Tilt AUD Higher Despite Dovish RBA

• Markets trade in a broadly risk-off fashion, with European equities sitting in negative territory (EuroStoxx50 off 2%, Germany's DAX off 2.3%) as traders watch the progress of sizeable military units headed toward Kyiv. The Russian defense minister further stressed that the Ukraine operation is to continue until Russia's goals are met. Russian capital markets remain largely closed for business throughout the Tuesday session, leaving markets to bid commodities higher alongside haven FX including CHF and JPY.
• USD/JPY is making headway on a move through the Y115.00 handle, and is narrowing the gap with next key support layered between last week's low at 114.41 and the 100-dma of 114.42.
• Elsewhere, AUD trades most solidly following the RBA rate decision overnight. While the bank kept policy rates unchanged (alongside expectations) and stressed that the current Ukraine crisis provides a major new source of uncertainty, buoyant commodity markets continue to underpin the currency, with oil futures and iron ore both on the front foot headed into the NY crossover.
• Regional German CPI data is followed by the national read at 1300GMT/0800ET today, with focus then turning to Canadian GDP for Q4 and the February ISM manufacturing release. CB speakers of note include BoE's Saunders & Mann and Fed's Bostic & Mester.

EQUITIES: European stocks under pressure despite resiliance in Asian markets

• Japan's NIKKEI up 317.9 pts or +1.2% at 26844.72 and the TOPIX up 10.24 pts or +0.54% at 1897.17
• China's SHANGHAI closed up 26.529 pts or +0.77% at 3488.835 and the HANG SENG ended 48.69 pts higher or +0.21% at 22761.71
• German Dax down 325.9 pts or -2.25% at 14136.72, FTSE 100 down 53.08 pts or -0.71% at 7401.49, CAC 40 down 154.95 pts or -2.33% at 6503.06 and Euro Stoxx 50 down 94.38 pts or -2.41% at 3830.07.
• Dow Jones mini down 213 pts or -0.63% at 33623, S&P 500 mini down 25.75 pts or -0.59% at 4342.75, NASDAQ mini down 106.25 pts or -0.75% at 14120.25.

COMMODITIES: European natgas fades early weakness and up 10% on the day

• WTI Crude up $3.31 or +3.46% at $98.67
• Natural Gas (NYM) up $0.07 or +1.68% at $4.476
• Natural Gas (ICE Dutch TTF) up $10.41 or +10.55% at $109.5
• Gold spot up $9.21 or +0.48% at $1917.95
• Copper up $5.45 or +1.22% at $452.15
• Silver up $0.07 or +0.27% at $24.5173
• Platinum up $8.92 or +0.85% at $1056.7