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MNI US OPEN - Kharkiv Clashes Intensify

EXECUTIVE SUMMARY:

  • UKRAINE CRISIS PERSISTS AS KHARKIV CLASHES INTENSIFY
  • POWELL TO TESTIFY TO HOUSE PANEL
  • BANK OF CANADA TO LAUNCH TIGHTENING CYCLE
  • EUROZONE CPI HITS FRESH RECORD
Figure 1: Eurozone inflation surges to new high, raising stagflation fears

NEWS: 

UKRAINE UPDATE (MNI/BBG/The Times): Russia’s invasion of Ukraine is entering a new phase, promising a more deadly time ahead for the country’s civilians and its remarkably determined army, according to Western military officials. Early signs are that Russian commanders are abandoning the approach that marked the first days of the conflict, in which they relied on lightning strikes into cities they assumed would be half-heartedly defended, the officials said.

  • Fierce fighting was seen for a seventh day in Ukraine today as the Russian army claimed to have taken control of a strategic southern Ukrainian port and paratroopers assaulted the city of Kharkiv in the northeast.
  • The defence ministry in Moscow said that Kherson, a key port on the Black Sea, was “under full control” of Russian divisions as other urban centres came under heavy bombardment from President Putin’s forces.
  • Airborne troops had landed in Kharkiv, the country’s second biggest city, the Ukrainian army said, adding that there were immediate clashes.

US-RUSSIA (MNI): Lavrov: 'WW3 Would Be Nuclear & Destructive'
Russian state-run outlets TASS and RIA reporting that Russian Foreign Minister Sergey Lavrov has said that 'World War III will be nuclear and destructive, and Joe Biden is experiences, and said that there is no alternative to sanctions other than world war'. Other comments from Lavrov include:

  • Russia will not allow Ukraine to obtain nuclear weapons: TASS
  • Lavrov: 'Ukraine stalling on negotiations at behest of U.S.'
Russian FM Lavrov on Russia-Ukraine conflict: The issue of ownership of Crimea is not negotiable, The authorities of Ukraine should represent all nationalities living in the country, Russia has many friends, and it cannot be isolated. Russia was ready for sanctions but did not expect them to target athletes, journalists, representatives of cultural sector - FM Lavrov

UKRAINE/RUSSIA (MNI): IAEA To Hold Emergency Meeting On Ukraine Situation
International Atomic Energy Agency Director-General Rafael Grossi has convened an emergency Board of Governors meeting in Vienna to discuss the situation of nuclear power plants in Ukraine.

  • Earlier today Russia informed the IAEA that its forces have taken control of the Zaporizhzhia Nuclear Power Plant (NPP). The site, near the city of Enerhodar, is Ukraine's largest NPP and one of the 10 largest in the world.
  • Clearly serious concern that NPPs falling into Russian hands could lead to a destabilisation of the situation should proper procedures not be followed in the event of military conflict near to the plants.
  • Regarding the situation at the site of Chernobyl, the Radiation and Nuclear Safety Authority of Finland tweeted earlier: "State Nuclear Regulatory Inspectorate of Ukraine (SNRIU) has confirmed that the situation in the country's four operating nuclear power plants is stable. In Chernobyl, radiation levels have returned to typical for the area. "

CHINA-RUSSIA (MNI): China Will Not Impose Financial Sanctions On Russia
China will not participate in financial sanctions against Russia and will keep normal trade and financial cooperation, Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission (CBIRC) said on Wednesday in a briefing to reporters. China disagrees with financial sanctions, particularly unilateral ones, which are "not good" and lack a legal basis, said Guo, also party chief of the People's Bank of China (PBOC)., see: MNI: Select Russian Banks Barred From SWIFT By U.S. And Allies

CHINA (MNI): China Banks To Boost Credit Demand-CBIRC
Chinese lenders will enhance support to boost consumption and investment at a targeted pace while the economy faces headwinds, Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission (CBIRC) said on Wednesday in a briefing to reporters. Support will be targeted to small and medium-sized companies, rural revitalisation, technology and green growth and include migrant workers, noted Guo, also party chief of the People's Bank of China.

DATA:

EZ Feb HICP Tops Forecasts; Hits New Record (MNI)

  • Eurozone inflation jumped by 0.9% between January and February, taking the annual rate to 5.8% from 5.1% in January, according to flash data released by Eurostat on Wednesday, making the European Central Bank's upcoming policy meeting an even greater communications challenge for them. The February inflation rate exceeded analysts' expectations of a gain to 5.6% and marks a new euro-area high.
  • Core HICP - excluding energy, food, alcohol and tobacco - resumed its ascent after easing in January, rising by 0.5% in February for an annual gain of 2.7%, up from 2.3% in January. Energy prices surged by 3.3% in February or by 31.7% over February 2021.
MNI: GERMANY FEB UE RATE (SA) 5.0%; JAN 5.1%
  • FEB UE CHANGE (SA) -33K; JAN -48K
  • FEB UE TOTAL (SA) 2.312MN; JAN 2.345MN

BOND SUMMARY: Some retracement of yesterday; Powell's comments the highlight

Cored fixed income has come under some pressure today, with some decent moves, particuarly in gilts and Bunds, and especially at the front-end of the UK curve. However, despite these large moves, they generally account for well under 50% of a retracement of yesterday's rally.

  • Russia-Ukraine headlines continue to be the focus of the market, with some hope of a slowdown in the approach of Russian troops to Kyiv.
  • Data this morning has largely been ignored. German unemployment was lower than expected while the Eurozone flash HICP print came in above the stale consensus, but largely in line with the surprises seen in the national prints in recent days. ADP employment is the highlight of the US data session.
  • However, rather than focusing on data, markets will be more closely watching central bankers today, with Powell's testimony to the House at 15:00GMT / 10:00ET the highlight. There's a chance we might have a pre-release of the text 90 mins before that (13:30GMT / 08:30ET). In the past its sometimes been released the day prior to delivery after the US close (which is wasn't this time), sometimes ahead of the US Open, and sometimes there is no pre-release. There is no official confirmation either way.
  • We are also due to hear from Fed's Evans, Bullard, ECB;s Lane and BOE's Tenreyro and Cunliffe.
  • TY1 futures are down -0-12 today at 128-11+ with 10y UST yields up 1.9bp at 1.749% and 2y yields up 4.6bp at 1.389%.
  • Bund futures are down -0.12 today at 170.18 with 10y Bund yields up 3.8bp at -0.38% and Schatz yields up 4.1bp at -0.704%.
  • Gilt futures are down -0.34 today at 125.72 with 10y yields up 6.6bp at 1.192% and 2y yields up 13.6bp at 0.940%.

FOREX: CAD Inching Higher as BoC Seen Launching Tightening Cycle

  • CAD is outperforming in early Wednesday trade, higher against all others in G10 ahead of the Bank of Canada rate decision at 1500GMT/1000ET. The BoC are expected to begin a protracted tightening cycle with a 25bps hike to 0.50%, running slightly against the recent trade in market pricing.
  • Elsewhere, the Ukraine tail risk continues to exert influence on global currencies, with regional currencies again underperforming. SEK and NOK are the weakest in G10, with the single currency also trading softer. EUR/USD printed 1.1059 in early Wednesday weakness, putting the rate again at the lowest level since mid-2020.
  • Latest reports from the region suggest Russian military units are switching to ranged, artillery based attacks, which may suggest a slowdown in their approach to central Kyiv. Talks between Russian and Ukrainian representatives remain a hope for markets, however both sides talked down the likelihood of an imminent return to negotiations absent a solid agenda.
  • The schedule for the Wednesday session is busy: Fed's Powell testifies in front of the House Panel, with markets watching to see the extent to which the recent Ukraine crisis has impacted Fed policy-setting. Markets unwound bets for Fed tightening throughout the Tuesday session. Fed's Evans, Bullard and Logan also speak ahead of the release of the Fed's Beige Book. ECB's Lane and BoE's Cunliffe make up the rest of the docket.

EQUITIES: Some recovery for US/European stocks this morning

  • Japan's NIKKEI down 451.69 pts or -1.68% at 26393.03 and the TOPIX down 37.23 pts or -1.96% at 1859.94.
  • China's SHANGHAI closed down 4.643 pts or -0.13% at 3484.192 and the HANG SENG ended 417.79 pts lower or -1.84% at 22343.92.
  • German Dax up 44.03 pts or +0.32% at 13954.51, FTSE 100 up 41.09 pts or +0.56% at 7371.86, CAC 40 up 15.72 pts or +0.25% at 6412.54 and Euro Stoxx 50 up 27.62 pts or +0.73% at 3794.73.
  • Dow Jones mini up 249 pts or +0.75% at 33506, S&P 500 mini up 32.25 pts or +0.75% at 4336.5, NASDAQ mini up 116.25 pts or +0.83% at 14122.5.

COMMODITIES: Oil flirting with $110/bbl

  • WTI Crude up $5.81 or +5.62% at $109.19
  • Natural Gas (NYM) up $0.19 or +4.05% at $4.756
  • Natural Gas (ICE Dutch TTF) up $38.41 or +31.57% at $161.58
  • Gold spot down $20.02 or -1.03% at $1925.28
  • Copper up $3.25 or +0.71% at $462.75
  • Silver down $0.39 or -1.55% at $24.9739
  • Platinum up $9.28 or +0.88% at $1066.64

DateGMT/LocalImpactFlagCountryEvent
02/03/20221100/1200EUECB de Guindos Q&A at Universidad Carlos III
02/03/20221200/0700**US MBA Weekly Applications Index
02/03/20221315/0815***US ADP Employment Report
02/03/20221400/0900USChicago Fed's Charles Evans
02/03/20221430/0930USSt. Louis Fed's James Bullard
02/03/20221500/1000***CA Bank of Canada Policy Decision
02/03/20221500/1000USFed Chair Pro Tempore Jerome Powell
02/03/20221530/1030**US DOE weekly crude oil stocks
02/03/20221600/1700EUECB Lane lecture at Hertie School Berlin
02/03/20221630/1130*US US Treasury Auction Result for Cash Management Bill
02/03/20221830/1830UKBOE Tenreyro speech to Economic Research Council
02/03/20221900/1400US Fed Beige Book
02/03/20222000/2000UKBOE Cunliffe speech at Oxford Union
02/03/20222130/1630USNew York Fed's Lorie Logan
03/03/20222200/0900*AU IHS Markit Final Australia Services PMI
03/03/20220030/1130**AU Trade Balance
03/03/20220030/1130*AU Building Approvals
03/03/20220030/0930**JP IHS Markit Final Japan Services PMI
03/03/20220145/0945**CN IHS Markit Final China Services PMI
03/03/20220700/0200*TR Turkey CPI
03/03/20220730/0830**SE Manufacturing PMI
03/03/20220730/0830**SE Services PMI
03/03/20220730/0830***CH CPI
03/03/20220815/0915**ES IHS Markit Services PMI (f)
03/03/20220845/0945**IT IHS Markit Services PMI (f)
03/03/20220850/0950**FR IHS Markit Services PMI (f)
03/03/20220855/0955**DE IHS Markit Services PMI (f)
03/03/20220900/1000**EU IHS Markit Services PMI (f)
03/03/20220930/0930**UK IHS Markit/CIPS Services PMI (Final)
03/03/20221000/1100**EU retail sales
03/03/20221000/1100**EU unemployment
03/03/20221000/1100**EU PPI
03/03/20221330/0830**US WASDE Weekly Import/Export
03/03/20221330/0830**US Jobless Claims
03/03/20221330/0830**US Non-Farm Productivity (f)
03/03/20221445/0945***US IHS Markit Services Index (final)
03/03/20221500/1000***US ISM Non-Manufacturing Index
03/03/20221500/1000**US factory new orders
03/03/20221500/1000USFed Chair Pro Tempore Jerome Powell
03/03/20221530/1030**US Natural Gas Stocks
03/03/20221630/1130**US NY Fed Weekly Economic Index
03/03/20221630/1130*US US Bill 08 Week Treasury Auction Result
03/03/20221630/1130**US US Bill 04 Week Treasury Auction Result
03/03/20221630/1130CA BOC Governor Macklem speech, "Economic Progress Report."
03/03/20222030/1530CA BOC Governor Macklem testifies at House committee.
03/03/20222130/1630US New York Fed's Lorie Logan
03/03/20222300/1800USNew York Fed's John Williams
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com

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