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Free AccessMNI EUROPEAN OPEN: Plenty Of Major Risk Events Due Thursday
EXECUTIVE SUMMARY
- U.S. FLAGS POTENTIAL FOR RUSSIA TO USE BIOLOGICAL/CHEMICAL WEAPONS IN UKRAINE
- WHITE HOUSE BRACING FOR THURSDAY INFLATION REPORT
- EX-OFFICIALS: WAR MAKES FED MORE CAUTIOUS ON TIGHTENING (MNI)
- RBA DEPUTY GOVERNOR DEBELLE TO STEP DOWN UNEXPECTEDLY (BBG)
- UAE ENERGY MINISTER: UAE COMMITTED TO OPEC+ AGREEMENT AND EXISTING MECHANISM (RTRS)
- MARKETS AWAIT LAVROV-KULEBA MEETING IN TURKEY, ECB DECISION & U.S. CPI
Fig. 1: EUR 5-Year/5-Year Forward Inflation Swaps (%)
Source: MNI - Market News/Bloomberg
UK
FISCAL: Chancellor Rishi Sunak faces a "huge judgment call" over whether to borrow more or allow household budgets to be squeezed, new research suggests. The Institute for Fiscal Studies (IFS) says the soaring cost of living and war in Ukraine present fresh challenges ahead of the Spring Statement. Without extra protection, many households will struggle to keep up with bills, it suggests. The cost of living recently hit a 30-year high. Prices surged by 5.5% in the 12 months to January, up from 5.4% in December, due to rising energy, fuel and food prices. Inflation, which measures how quickly the cost of living increases over time, is now rising faster than wages and is expected to climb above 7% this year. As Vladimir Putin's invasion of Ukraine pushes energy costs, fuel and other commodities even higher, the IFS says Chancellor Rishi Sunak faces three big decisions. The first is whether to borrow billions more or allow household incomes to take a bigger hit than at any time since at least the financial crisis. The government has already increased borrowing in recent years to pay for Covid-related measures such as the furlough scheme. Mr Sunak must also weigh whether to allow inflation to impose effective pay cuts on teachers, nurses and other public sector workers - or to spend less than anticipated on other parts of public services, if borrowing is not an option. Public sector workers face an average pay cut of about £1,750 once inflation is taken into account, the IFS research says. (BBC)
INFLATION: Chiefs from industries ranging from energy to hospitality have told the business secretary that inflationary pressures exacerbated by the war in Ukraine risk sending prices surging for cash-strapped British households. Sky News understands that Kwasi Kwarteng hosted a call with trade association bosses on Tuesday on which he was told that their members were facing unprecedented cost pressures. Sources said that among those who attended the virtual meeting were executives representing the building materials, energy, hospitality and retail industries. (Sky)
EUROPE
FISCAL: Brussels has told EU countries to use the €200bn of unused loans available under the bloc’s recovery plan before considering more collective borrowing, as capitals seek ways of coping with the shocks reverberating from the Ukraine war. Valdis Dombrovskis, the European Commission’s executive vice-president, told the Financial Times that the “first line” reaction for member states was to tap the unused capacity of the union’s €800bn Recovery and Resilience Plan. This, he said, could be channelled into investments in energy security and “moving away from Russian gas and oil”. The EU was also working on temporary state aid rules to help member states support companies hard-hit by the crisis, as well as additional measures for a “co-ordinated EU response”, he added. (FT)
U.S.
FED: There is a high risk the Federal Reserve will raise interest rates by half a percentage point sometime this year, according to economists polled by Reuters who also upgraded their inflation outlooks and said they may have to do so again. Russia’s invasion of Ukraine has sent the price of crude oil up by about 25% and pushed the average U.S. price for regular unleaded gasoline to near a record high this week, with little chance of any respite soon. With the Fed’s benchmark overnight interest rate at the near-zero level and U.S. consumer price inflation already surging at its fastest pace in 40 years, most economists say the Fed needs to take action soon. (RTRS)
FED: MNI: War Makes Fed More Cautious On Tightening –Ex-Officials
- Federal Reserve officials are likely to tighten monetary policy more cautiously than previously intended despite high inflation as they assess the hit to growth from surging energy prices in the wake of Russia’s invasion of Ukraine, former top policymakers and staffers told MNI - on MNI Policy MainWire now, for more details please contact sales@marketnews.com.
INFLATION: The White House is bracing for a new inflation report coming out Thursday that it expects will show continued high prices for Americans. The consumer price index, a key report indicating inflation in the US, will be released by the Bureau of Labor Statistics at 8:30 a.m. ET Thursday. Last month's report showed inflation rose to 7.5% in the 12 months ending in January, a near-40-year high.” As we're looking ahead, we certainly assess that we expect to see a high headline and headline inflation in tomorrow's February inflation data," White House press secretary Jen Psaki said Wednesday. (CNN)
FISCAL: The U.S. House of Representatives on Wednesday voted to rush $13.6 billion in aid to Ukraine as it battles invading Russian forces, along with $1.5 trillion to keep U.S. government programs operating through Sept. 30 and avoid agency shutdowns this weekend. The House approved the wide-ranging appropriations in bipartisan votes, sending the legislation to the Senate which aims to act by a midnight Friday deadline when existing U.S. government funds expire. The aid for Ukraine is intended to help bolster its military in its battle against Russian forces and provide humanitarian assistance to citizens, including an estimated 1.5 million refugees already seeking safety abroad. House Speaker Nancy Pelosi indicated that the $13.6 billion is likely to be just the tip of a much broader aid effort. "All of us will have to do more" to help Ukraine in coming weeks or months and over the long-term to help it rebuild, Pelosi told reporters at her weekly news conference. (RTRS)
EQUITIES: Amazon.com Inc.'s shares rose roughly 7% to $2,969.60 in after-hours trading after its board on Wednesday approved a 20-for-1 stock split and authorized the e-commerce giant to repurchase up to $10 billion of its common stock. The stock split and share-repurchase increase are subject to shareholder approval at Amazon's annual shareholder meeting, which is scheduled for May 25. Amazon shareholders of record as of May 27 would have 19 additional shares for every one share in June. Trading is expected to begin on a split-adjusted basis on June 6. Amazon's stock closed Wednesday at $2,785.58, up 2.4%. Through Wednesday's close, shares are down 9% over the last 12 months. (MarketWatch)
OTHER
GLOBAL TRADE: Russia appears to be letting some ships carrying grains exit the Azov Sea, the first signs of activity since shipping in the waterway linked to the Black Sea was suspended following the attack on Ukraine. Around 30 vessels have been allowed to leave Russian ports and sail out of the waterway straddled by Russia and Ukraine, Interfax reported. Saban Buttanri, owner of Istanbul-based Agrolino Grains and Oilseeds, says he’s also aware of ships carrying sunflower oils, grains and feeds sailing out of the Azov Sea toward Turkey, including three of his vessels carrying sunflower oil. “This is great news as this is the first time we can see vessels leaving Russia,” Buttanri said Wednesday in an interview. “We hope for a breakthrough and a deal.” (BBG)
U.S./CHINA: The US called on China on Wednesday to ensure that a planned visit by UN human rights chief Michele Bachelet includes “unhindered and unsupervised access” to all areas of the Xinjiang region to investigate alleged abuses of Uygurs. Bachelet announced on Tuesday that she had reached an agreement with China for a long-sought visit, foreseen in May, including a stop in Xinjiang. It would be the first visit to China by a UN High Commissioner for Human Rights since 2005. (SCMP)
U.S./CHINA/RUSSIA: White House Press Secretary Jen Psaki said Wednesday that the administration had observed China “largely [abiding] by the sanctions that have been put in place.” “I would note, though, that if any country tries to evade or work around our economic measures, they will experience the consequences of those actions,” Psaki said. (CNN)
JAPAN: Japanese Prime Minister Fumio Kishida said the government will need to implement a more detailed response to combat the wide-spread effects of higher energy prices. Speaking to reporters at the Toyosu fish market in Tokyo, Kishida also said he hopes to work with incoming S. Korean President Yoon Suk-yeol on bilateral relations. (BBG)
RBA: Australia’s central bank said Thursday that Deputy Governor Guy Debelle will step down from his position effective March 16. Debelle, who sits on the Reserve Bank’s policy-setting board, will join Fortescue Future Industries in June, the RBA said in a statement. Debelle is also part of a regulatory climate change working group and is the chair of the global foreign exchange committee. “I have often spoken about the opportunities for business to help address climate change. This new position gives me the opportunity to make a significant contribution in this area,” Debelle said in a statement. Debelle’s replacement will be appointed by Treasurer Josh Frydenberg. (BBG)
RBNZ: The Reserve Bank of New Zealand said on Thursday that Paul Conway will join the central bank as Chief Economist and Director of Economics. Conway is currently the Chief Economist at Bank of New Zealand and prior to that he was the economics and research director at government agency the Productivity Commission. Conway will take over the role on May 2 from Yuong Ha, who is due to leave later this month. Ha was one of a number of senior staff to announce their departure from the central bank in the past year. Bank Governor Adrian Orr has attributed the departures to operational changes and individual choice. (RTRS)
SOUTH KOREA: Former top prosecutor Yoon Suk-yeol won election as South Korea’s president, returning the conservative opposition to power after five years and signaling a hawkish turn in the country’s relations with China and North Korea. The political newcomer edged out former Gyeonggi Governor Lee Jae-myung by less than one percentage point, the country’s closest presidential contest ever. Yoon, 61, resigned from President Moon Jae-in’s government last year after a falling out over investigations into the leader’s associates, and the election campaign was dominated by party infighting, ethical scandals and emotional debates over age and gender divides in Asia’s fourth-largest economy. (BBG)
BOK: Stubbornly high inflation overshadowing South Korea’s economic recovery is likely to continue for a considerable time, the Bank of Korea said Thursday, citing the crisis in Ukraine and rising food prices among risks. While South Korea will probably maintain sound economic growth this year amid pandemic uncertainties, inflation is expected to stay above the BOK’s target of 2% for some time, the central bank said in a quarterly report. The BOK will therefore appropriately adjust the degree of accommodation of its monetary policy, it added. The report comes after the bank held its benchmark interest rate at 1.25% last month as it paused to assess the impact of its three hikes since August. The latest policy statement suggests the BOK is on track for a potential quarter percentage point hike in April or May to tamp down inflationary pressures. (BBG)
BOC: MNI INTERVIEW: BOC Price Forecast Under Strain-Biz Chamber
- The Bank of Canada’s view that inflation will slow late this year is being sorely tested by surging energy costs following the Ukraine invasion and earlier struggles to rebuild supply chains, Canadian Chamber of Commerce chief economist Stephen Tapp told MNI - on MNI Policy MainWire now, for more details please contact sales@marketnews.com.
RUSSIA: Russia’s delegation at peace talks with Ukraine “will not concede a single negotiating point,” RIA news agency cited negotiator Leonid Slutsky as telling a television station on Wednesday. (RTRS)
RUSSIA: Russia's Foreign Minister Sergey Lavrov arrived in the Turkish city of Antalya on Wednesday evening, ahead of the first high-level talks with his Ukrainian counterpart Dmytro Kuleba since Russia launched its invasion two weeks ago. Although delegations from both sides have met three times already to discuss humanitarian ceasefires, Thursday's talks will mark the first time the two countries' top diplomats will meet face-to-face amid open conflict. Ukrainian President Volodymyr Zelenskyy told German newspaper Bild that: "In any negotiation, my goal is to end the war with Russia. And I am also ready to take certain steps." "Compromises can be made, but they must not be the betrayal of my country," Zelenskyy said. (DW)
RUSSIA: The Ukrainian government is preparing for the potential need to move its data and servers abroad if Russia's invading forces push deeper into the country, a senior cybersecurity official told Reuters on Wednesday. Victor Zhora, the deputy chief of Ukraine's State Service of Special Communications and Information Protection, emphasized his department was planning for a contingency, but that it is being considered at all suggests Ukrainians want to be ready for any Russian threat to seize sensitive government documents. (RTRS)
RUSSIA: U.S. Secretary of State Antony Blinken and Ukrainian Foreign Minister Dmytro Kuleba, in a phone call on Wednesday, discussed additional security and humanitarian support for Ukraine after Russia's invasion, the State Department said in a statement. Blinken and Kuleba also discussed Russia's "unconscionable attacks harming population centers," the statement said. (RTRS)
RUSSIA: The White House on Wednesday said Russia's claims about alleged U.S. involvement in biological weapons labs and chemical weapons development in Ukraine were false. "We took note of Russia’s false claims about alleged U.S. biological weapons labs and chemical weapons development in Ukraine," White House press secretary Jen Psaki said in a series of tweets. She said Russia could possibly be laying the groundwork for use of chemical or biological weapons in Ukraine "or to create a false flag operation using them" but did not offer evidence. (RTRS)
RUSSIA: The United States on Wednesday closed the door on supplying combat aircraft to Ukraine, saying the intelligence community assessed it would be a "high risk" move that could increase the chances of a Russian escalation with NATO. (RTRS)
RUSSIA: Liz Truss will warn the West must "never again" allow aggression like Vladimir Putin's "to grow unchecked" - as the Ukraine invasion enters its third week. The foreign secretary will use a speech at the Atlantic Council think tank in Washington DC on Thursday - the 15th day of the Ukraine invasion - to call for an end to "the era of complacency". She is expected to say: "How we respond today will set the pattern for this new era. We must start with the principle that the only thing aggressors understand is strength, and we must start by working together to stop Putin's offensive in Ukraine. "We must rise to this moment. We must pledge that never again will we allow such aggression to grow unchecked. That means acting now. "It means being tough - because we know that the costs will only rise if we don't. (Sky)
RUSSIA: The United Nations nuclear watchdog has lost touch with its remote systems that monitor nuclear material at the Zaporizhzhia nuclear power plant in Ukraine, it said on Wednesday. The International Atomic Energy Agency (IAEA) announcement came a day after it said the same thing had happened at the radioactive waste facilities at Chernobyl, near the defunct power plant that was the site of the world's worst nuclear disaster in 1986. Both sites are under Russian forces' control but are being operated by Ukrainian staff in conditions that the IAEA says endanger the safety of the facilities. IAEA chief Rafael Grossi is "concerned about the sudden interruption of such data flows to the IAEA's Vienna headquarters from the two sites, where large amounts of nuclear material are present in the form of spent or fresh nuclear fuel and other types of nuclear material," the IAEA said in a statement. Grossi has called for a trilateral meeting with Ukraine and Russia to ensure the safety of Ukraine's nuclear facilities. He said on Wednesday he would travel to the Turkish city of Antalya on Thursday, where the Russian and Ukrainian foreign ministers are due to meet. (RTRS)
RUSSIA: The White House is weighing new sanctions against lawmakers in the upper-chamber of the Russian parliament, as the United States seeks to increase financial pressure on Russia over its invasion of Ukraine, two people with knowledge of the matter said. The potential U.S. sanctions on members of Russia's Federation Council — also known as the country's senate — would represent just the latest measure of at least a half-dozen major actions already taken by the White House to harm Russia's financial elite and its economy more broadly over the assault on Ukraine. (The Washington Post)
RUSSIA: The Biden administration is considering imposing sanctions on Russia’s state-owned atomic energy company, Rosatom Corp., a major supplier of fuel and technology to power plants around the world, according to people familiar with the matter. No final decision has been made and the White House is consulting with the nuclear power industry about the potential impact, said the people, who were granted anonymity to discuss private deliberations. (BBG)
RUSSIA: British Prime Minister Boris Johnson on Wednesday told Ukraine’s President Volodymyr Zelenskiy he is committed to further tightening sanctions to impose maximum economic cost on Russia, a Downing Street spokesperson said. The spokesperson said Johnson discussed the situation in Ukraine on a call with Zelenskiy on Wednesday evening. Zelenskiy tweeted that the two leaders had also discussed “further support for Ukraine in fighting the aggressor, including defense assistance”. He did not give details. (RTRS)
RUSSIA: Britain is seeking to fully exclude Russia from the SWIFT payments messaging system and also an end to use of Russian oil and gas across the G7 as sanctions are ratcheted up over the invasion of Ukraine, foreign minister Liz Truss said. "We must double down on our sanctions. That includes a full SWIFT ban, and the G7 ending its use of Russian oil and gas," Truss said at a news conference in Washington on Wednesday. (RTRS)
RUSSIA: Ukraine's central bank on Wednesday asked central banks in Armenia, Kazakhstan, Tajikistan, Vietnam, Turkey and Kyrgyzstan to suspend all transactions with cards of Russia's Mir payments system. In a statement, it said it had asked the banks to stop accepting Mir cards in their ATMs and to make it impossible to use these cards in e-commerce and person-to-person transfers. "This appeal comes amid the urgent need to scale up global financial pressure on the aggressor country as it proceeds with its assault on Ukraine," the statement said. (RTRS)
RUSSIA: Russia's government legislative commission approved measures Wednesday that pave the way for the nationalization of property of Western companies that are exiting the country. The commission's role includes reading and assessing laws that the government intends to propose to the State Duma, the lower house of the Russian parliament. Russia's dominant political party, United Russia, said on Wednesday that the latest measures seek to prevent bankruptcies and preserve jobs at organizations that are more than 25% owned by foreign entities of "unfriendly Governments." (Dow Jones)
RUSSIA: Rio Tinto on Thursday became the latest corporation to cut ties with Moscow saying it was ending all commercial relations with Russian businesses. "Rio Tinto is in the process of terminating all commercial relationships it has with any Russian business," a Rio spokesman said in a message sent to Reuters. The announcement from the Anglo-Australian firm comes after a top executive said the company was looking for alternative fuel sources for its Mongolian copper operations at Oyu Tolgoi but did not believe it can stop buying from Russia altogether. (RTRS)
RUSSIA: Citigroup Inc said on Wednesday it is operating its Russian consumer business on a more limited basis following the country's invasion of Ukraine, while sticking with its previous plans to divest the franchise. In a post on a Citigroup site the bank also said it is supporting its corporate clients in Russia as they suspend and unwind their business there. "With the Russian economy in the process of being disconnected from the global financial system as a consequence of the invasion, we continue to assess our operations in the country," Edward Skyler, executive vice president for global affairs wrote in the post. Citigroup has said it has almost $10 billion of total exposure in Russia. Its chief financial officer said last week that in a "severe stress scenario" its loss might be half that. (RTRS)
RUSSIA: Stock Trading in Moscow to be closed on March 10. FX, money and repo markets to open 10:00am Moscow time on Thursday, the regulator says in website statement. (BBG)
RUSSIA: Index provider Morningstar on Wednesday decided to remove Russia securities from its fixed income indexes beginning March 31 and immediately move the country from emerging markets to unclassified. The country's financial markets have been thrown into turmoil by sanctions imposed over its invasion of Ukraine, the biggest attack on a European state since World War Two. (RTRS)
RUSSIA: Russia and Belarus are edging close to default given the massive sanctions imposed against their economies by the United States and its allies over the war in Ukraine, the World Bank's chief economist, Carmen Reinhart, told Reuters. The specter of Russia defaulting on $40 billion of external bonds - its first major such default since the years following the 1917 Bolshevik revolution - has loomed large over markets since a raft of sanctions and countermeasures by Moscow have largely cut the country out of global financial markets. "Both Russia and Belarus are in square default territory," Reinhart said in an interview. "They're not rated by the agencies as a selective default yet, but mighty close." (RTRS)
RUSSIA: Pimco has billions of dollars riding on the economic fallout from Vladimir Putin’s invasion of Ukraine, after amassing a wager worth at least $1bn in derivatives markets that the country will not default while also holding $1.5bn of its sovereign debt. The California-based asset manager started off the year exposed to $1.1bn of credit default swaps on Russian debt. The derivative contracts are intended to compensate the holders in the event that the underlying bond issuer, in this case Russia, fails to make its payments. At least five Pimco funds sold the CDS to investors, according to a Financial Times analysis of the asset manager’s holdings at the end of 2021. Pimco also holds more than $1.5bn of government bonds tied to the Russian Federation, according to aggregated holdings data from Bloomberg. (FT)
IRAN: Washington's desire for a quick nuclear agreement is an indication of its lack of will for a strong deal, Iran's top security official, Ali Shamkhani, said on Thursday. "Iran's nuclear talks become more complicated every hour without U.S. making a political decision," he said on Twitter. (RTRS)
LIBOR: The U.S. House approved legislation that would provide for an orderly transition of debt contracts off of the London interbank offered rates, promising to head off uncertainty and legal fights over trillions of dollars of securities and loans pegged to the discredited benchmarks. The measure was included in wide-reaching legislation needed to keep the government running after Friday. It passed by a vote of 260-to-171. The tight time frame and significance of the bill make it unlikely the Senate will seek to dramatically amend the measure. (BBG)
METALS: The London Metal Exchange (LME) said on Wednesday it would not charge transaction fees on all nickel trades executed during a trading halt necessitated by an unusual spike in prices. Prices of the metal doubled to more than $100,000 per tonne on Tuesday, forcing a trading halt, with the spike blamed on short covering by one of the world’s top producers. The LME said it would not charge fees on trades executed on or after midnight UK time on March 8 given the “unprecedented situation” in nickel. This would also include reversals of trades and position transfers, it added. (RTRS)
ENERGY: Ukraine’s pipeline operator said military action is taking place in a gas transit area and called for Russian troops to leave compressor stations. Russian deputy energy minister Pavel Sorokin said that Ukraine would be responsible for any disruptions at pumping stations that send Russian gas via the nation onwards to Europe. (BBG)
ENERGY: The fraught security situation in Ukraine’s eastern regions is preventing the state gas pipeline operator from assessing damage to networks and carrying out repairs, the head of the operator Sergiy Makogon said on Wednesday. Speaking on television, Makogon described the situation in the east, including the partly-occupied Donetsk region, as “difficult.” (RTRS)
ENERGY: The top U.S. energy official openly called on oil and natural gas producers to boost supply amid an energy crisis sparked by Russia’s invasion of Ukraine. “We are on a war footing,” Energy Secretary Jennifer Granholm told a packed ballroom at the CERAWeek by S&P Global energy conference in Houston on Wednesday. “We are in an emergency, and we have to responsibly increase short-term supply where we can right now to stabilize the market and to minimize harm to American families,” Granholm said. Granholm appeared to offer an olive branch to the industry that President Joe Biden once shunned, saying the country is “eternally grateful” to oil and gas companies for powering the nation for the past century -- and hopes they will continue doing so for the next 100 years with zero-carbon technology. She also
OIL: The United Arab Emirates is committed to the OPEC+ agreement and its existing monthly production adjustment mechanism, the UAE energy minister, Suhail al-Mazrouei, said on Twitter late on Wednesday. "The UAE believes in the value OPEC+ brings to the oil market" he added. His comments came hours after UAE's ambassador to Washington said his country favours an oil production increase and will be encouraging OPEC to consider higher output. (RTRS)
OIL: Iraq’s oil minister agrees with OPEC Secretary Mohammad Barkindo: global oil demand and supply are in balance, despite the upheaval caused by Russia’s invasion of Ukraine. “There’s no real shortage,” Iraq Oil Minister Ihsan Abdul Jabba said Wednesday in a Bloomberg TV interview. “We think the fluctuation in the price is due to geopolitical issues.” (BBG)
OIL: Boris Johnson is facing calls to intervene to urge Saudi Arabia to release more oil after the country’s crown prince refused to take a call from Joe Biden, US president. (Telegraph)
OIL: Liz Truss, the Foreign Secretary, is supporting a push within Cabinet to convince the Prime Minister to approve the return of fracking in the UK, The Telegraph understands. (Telegraph)
CHINA
INFLATION: China’s PPI, measuring factory-gate inflation, may reverse its current deceleration and begin to rise faster in March, as international crude oil and metal prices surge amid geopolitical tensions, Yicai.com reported citing Wang Qing, an analyst with Golden Credit Rating. February PPI reversed the previous slides to rise 0.5% m/m, a sign of imported inflation picking up, the newspaper said. China should fully release domestic production capacity of energy and heavy chemical industries to help stabilize prices, as well as cracking down on excessive financial speculation, the newspaper said citing Zhang Liqun, researcher, Development Research Center of the State Council.
PBOC: The People’s Bank of China, which revealed more than CNY1 trillion of its profits from FX reserves to the central fiscal coffer last night, is likely to create a CNY7.23 trillion increase in M2 this year, or boosting annual M2 growth by 3 pp by year end, the Securities Times reported citing economist Guan Tao of Bank of China International. The over CNY1 trillion extra liquidity will lower borrowing rates in the real economy, and the liquidity boost through this remittance, to be carried out monthly, differs from an RRR cut, which impacts funding for the medium to long terms, Guan said. (MNI)
PROPERTY: China may further ease controls over the real estate sector to help achieve the 5.5% GDP target, set at the high end of the expected range, and requiring a more stable real estate development, Yicai.com said citing industry insiders. While the authorities insist on "houses are not for speculation", there will be more support for buying by new urban residents, who move to new cities for jobs or child education, Yicai said. 2022 may also see explosive growth in guaranteed rental housing to accommodate lower-income people, it said. The housing market may recover in the later period of Q2, Yicai said citing analysts. (MNI)
OVERNIGHT DATA
JAPAN FEB PPI +9.3% Y/Y; MEDIAN +8.6%; JAN +8.9%
JAPAN FEB PPI +0.8% M/M; MEDIAN +0.6%; JAN +0.8%
JAPAN FEB TOKYO AVG OFFICE VACANCIES 6.41; JAN 6.26
AUSTRALIA MAR CONSUMER INFLATION EXPECTATIONS +4.9%; FEB +4.6%
NEW ZEALAND FEB RETAIL CARD SPENDING -7.8% Y/Y; JAN +2.9%
NEW ZEALAND FEB TOTAL CARD SPENDING -7.6% M/M; JAN +1.9%
SOUTH KOREA FEB BANK LENDING TO HOUSEHOLDS KRW1,060.1TN; JAN KRW1,060.2TN
UK FEB RICS HOUSE PRICE BALANCE 79%; MEDIAN 72%; JAN 74%
CHINA MARKETS
PBOC INJECTS CNY10 BILLION VIA OMOS, LIQUIDITY UNCHANGED
The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.2% on Thursday. This keeps the liquidity unchanged after offsetting the maturity of CNY10 billion repos today, according to Wind Information.
- The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.
- The 7-day weighted average interbank repo rate for depository institutions (DR007) rose to 2.1000% at 09:29 am local time from the close of 2.0515% on Wednesday.
- The CFETS-NEX money-market sentiment index closed at 45 on Wednesday, flat from the close of Tuesday.
PBOC SETS YUAN CENTRAL PARITY AT 6.3105 THURS VS 6.3178
The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 6.3105 on Thursday, compared with 6.3178 set on Wednesday.
MARKETS
SNAPSHOT: Plenty Of Major Risk Events Due Thursday
Below gives key levels of markets in the second half of the Asia-Pac session:
- Nikkei 225 up 936.68 points at 25653.57
- ASX 200 up 77.767 points at 7130.8
- Shanghai Comp. up 37.043 points at 3293.431
- JGB 10-Yr future down 30 ticks at 150.53, yield up 1.9bp at 0.185%
- Aussie 10-Yr future down 4.8 ticks at 97.63, yield up 5bp at 2.366%
- U.S. 10-Yr future up 0-02 ticks at 126-19+, yield down 1.39bp at 1.9392%
- WTI crude up $1.18 at $109.89, Gold down $9.30 at $1982.55
- USD/JPY up 29 pips at Y116.12
- U.S. FLAGS POTENTIAL FOR RUSSIA TO USE BIOLOGICAL/CHEMICAL WEAPONS IN UKRAINE
- WHITE HOUSE BRACING FOR THURSDAY INFLATION REPORT
- EX-OFFICIALS: WAR MAKES FED MORE CAUTIOUS ON TIGHTENING (MNI)
- RBA DEPUTY GOVERNOR DEBELLE TO STEP DOWN UNEXPECTEDLY (BBG)
- UAE ENERGY MINISTER: UAE COMMITTED TO OPEC+ AGREEMENT AND EXISTING MECHANISM (RTRS)
- MARKETS AWAIT LAVROV-KULEBA MEETING IN TURKEY, ECB DECISION & U.S. CPI
BONDS: Core FI Mixed Overnight, Risk Aplenty On Thursday
TYM2 +0-03 at 126-20+ into European hours, sticking to a 0-06+ range in Asia, while cash Tsys print 1.5-2.5bp richer. Tsys stuck to a narrow band overnight, with a downtick in e-minis eyed, even as Asia-Pac equity indices surged on the back of Wednesday’s developments. Tsys and e-minis were more cautious given U.S. warnings re: the potential for Russian deployment of chemical and/or biological weapons in Ukraine, while the proximity to today’s U.S. CPI print kept most on the sidelines. Flow was headlined by a 10K block roll from a long in the FVJ2 118.00 puts into the FVK2 117.00 puts. The latest ECB monetary policy decision will provide some interest ahead of NY hours. On top of the aforementioned CPI print, the NY session will bring weekly jobless claims data, average hourly earnings and 30-Year Tsy supply. Participants also eye headlines surrounding the face-to-face meeting between the Russian & Ukrainian Foreign Ministers.
- JGB futures were heavy, building on overnight losses as domestic equities surged and the rise in local PPI data topped expectations. The cover ratio crumbled at the latest round of 20-Year JGB supply, printing below 3.00x to hit the lowest level observed at a 20-Year JGB auction since the multi-year low observed back in October. Things were smooth enough on the pricing side, the price tail saw a modest widening, while the low price topped broader dealer expectations (BBG dealer median looked for a low price of 97.35). Market volatility continues to limit demand when it comes to JGB auctions. Not much was observed in the way of a meaningful immediate reaction in JGB futures or cash 20s post-auction, but the soft cover played into the weakness witnessed later in the afternoon, as 20s led the way lower on the curve. Futures were -33 at the close, while cash trade saw yields rise by 1.0-2.5bp across the curve. There wasn’t much in the way of meaningful domestic headline flow, outside of PM Kishida flagging the need for coordinated government strategy when it comes to combatting the well-documented inflationary pressures.
- Aussie bonds futures pulled back from their early peak as we moved through the session, with firmer Melbourne Institute inflation expectations data and Australian PM Morrison calling for an uptick in defence spending helping the direction of travel. That left YM -3.4 & XM -4.8 come settlement, with volume supported by roll activity. There was nothing in the way of notable market reaction when it came to the resignation of RBA Deputy Governor Debelle, with speculation already apparent re: his successor. The Bill strip twist steepened, with the front end helped by lower BBSW fixings (3- & 6-Month tenors).
JGBS AUCTION: 20-Year Auction Results
JGBs: The Japanese Ministry of Finance (MOF) sells Y968.1n 20-Year JGBs:
- Average Yield: 0.644% (prev. 0.736%)
- Average Price: 97.47 (prev. 95.91)
- High Yield: 0.648% (prev. 0.739%)
- Low Price: 97.40 (prev. 95.85)
- % Allotted At High Yield: 97.0087% (prev. 67.1546%)
- Bid/Cover: 2.928x (prev. 3.391x)
EQUITIES: Higher In Asia After Crude Retreat
Virtually all Asia-Pac equity indices trade higher on a positive lead from U.S. and European markets, with the largest rallies observed in Japanese and Chinese benchmarks. Energy-related stocks across the region broadly lagged peers, tracking a pullback in major crude benchmarks on Wednesday.
- The Nikkei 225 has added 4.0% at writing, snapping a 4-day streak of losses, and is on track to record its largest daily gain in nearly ~21 months. Virtually all sub-indices within the index trade firmer at writing, with 221 of the 225 constituents recording gains. The largest gains were observed in materials and real estate, while energy and utilities brought up the rear.
- The CSI300 is 1.9% better off at writing, led by gains in richly valued consumer staples and healthcare equities. The index has risen off 20-month lows recorded on Wednesday, coming as several dozen Chinese large-caps were noted to have taken the unusual step of announcing corporate performance this week, ahead of expectations. The move has been broadly interpreted as being meant to “soothe” investor nerves, with state media also observed to have published articles emphasising the strength and stability of the Chinese economy on Thursday.
- U.S. e-mini equity index futures deal 0.2% to 0.3% softer at typing.
GOLD: Lower In Asia
Gold deals ~$15/oz lower to print $1,976.6/oz at writing. The precious metal trades around Wednesday’s troughs as hope for a diplomatic resolution to (or de-escalation in) the Russia-Ukraine conflict has received a boost, with Foreign Ministers from both Ukraine and Russia due to meet for talks later today.
- To recap, gold closed ~$60/oz lower on Wednesday, with the move lower facilitated by Ukrainian leaders expressing openness to discussing Ukrainian neutrality (as opposed to insisting on NATO membership), a major sticking point in talks with Russia. However, other Russian demands, particularly on the recognition of Russia’s annexation of Crimea and the sovereignty of Ukrainian separatists in the East, continue to be non-starters, while Ukrainian FM Kuleba has stated that his expectations of the talks “are low”.
- Participants removed some of the inflation-linked price premium for gold on Wednesday as major crude benchmarks took a tumble, with WTI and Brent closing ~$15 lower apiece on the day, while broad U.S. real yields moved away from their recent trough.
- Elsewhere, the U.S. has emphatically rejected Poland’s proposal to transfer Polish jet fighters to Ukraine, easing some worry re: increased western involvement in the war in Ukraine.
- From a technical perspective, bullion has broken below support at $1,981.2/oz (Mar 8 low), exposing the next support level at $1,929.9 (Mar 4 low). Conversely, resistance is situated at $2,070.4/oz (Mar 8 high).
OIL: Higher In Asia
WTI is +$1.10 and Brent is +$2.70 at writing, printing ~$109.8 and ~$113.8 respectively. Both benchmarks operate far below cycle highs registered earlier in the week as hope surrounding a diplomatic resolution in the Russia-Ukraine conflict has risen, helping to unwind some of the geopolitical risk premium re: the situation. On that matter, focus has turned to “high-level” talks between the Foreign Ministers of Ukraine and Russia in Turkey, due to happen later today.
- To recap Wednesday’s price action, WTI and Brent closed ~$15 lower on the day, declining to session lows after a tweet from the UAE’s ambassador to the U.S. suggested that the UAE would support crude output increases in OPEC+ to address ongoing tightness in global crude supplies. Both benchmarks have since risen off their worst levels, after the UAE’s energy minister reaffirmed the country’s commitment to the current pace of OPEC+ output increases (essentially walking back the ambassador’s earlier remarks).
- Elsewhere, U.S. weekly EIA inventory data on Wednesday again pointed to persistent tightness in oil supplies, with drawdowns observed in crude, gasoline, distillate, and Cushing hub inventories.
- Looking to technical levels, resistance for WTI and Brent is seen at their Mar 9 highs of $124.66 and $131.64 respectively. On the other hand, Wednesday’s price action has seen both benchmarks break below previously defined support, exposing the next support level at Mar 1 lows of $95.32 for WTI and $98.30 for Brent.
FOREX: USD Generally Firmer In Asia
The broader USD was bid in Asia-Pac dealing, finding some demand ahead of Thursday’s major risk events (see below for more on that), while some worry from the U.S. re: the potential for Russia to deploy chemical and/or biological weapons in Ukraine also played into the USD bid. A softer than expected CNY fixing pushed flows further in the USD’s favour, although the mover has moderated from extremes.
- EUR/USD lost some ground on the aforementioned USD bid, with the rate last dealing ~20 pips lower around $1.1050. Still, the recovery from fresh cycle lows registered earlier in the week has been impressive. Note that the EUR was the second worst performing currency in the G10 FX sphere in YtD terms come the close of play last week (with only the SEK providing worse YtD performance). Fortunes have changed during the current week, with the EUR finding itself second in the G10 currency sphere (only bettered by the SEK).
- The combination of buoyant Japanese equity markets, a generally firmer dollar in the G10 FX space, an uptick in oil (the level of Japan’s dependence on energy imports leaves it particularly exposed to crude price dynamics) and Tokyo fix-related demand pushed USD/JPY higher. The rate prints 25 pips firmer on the day, sitting at Y116.10. A reminder that meaningful resistance is located at the Feb 10 high/Jan 4 high & bull trigger (Y116.34/35).
- AUD fared better than most of its peers, looking through the unexpected resignation of RBA Deputy Governor Debelle, trading flat vs. the USD into European hours.
- The latest ECB monetary policy decision headlines the Eurozone economic docket on Thursday. Having appeared to be gearing up to normalise monetary policy, the ECB’s calculus has now changed following the Russian invasion of Ukraine. For the time being, the direction of travel for monetary policy remains unchanged, but any momentum building behind a near-term tightening has subsided. The ECB will reconfirm the December policy calibration, but the narrative on the medium-term inflation outlook will now reflect the new two-way risks that have resulted from the Ukrainian crisis. U.S. CPI data then provides the focal point during NY hours. Participants will also look to the headlines surrounding the face-to-face meeting of the Russian & Ukrainian Foreign Ministers.
FOREX OPTIONS: Expiries for Mar10 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0950(E744mln), $1.1000(E1.8bln), $1.1020-25(E1.0bln), $1.1075-80(E652mln), $1.1150-55(E706mln)
- GBP/USD: $1.3280-00(Gbp603mln), $1.3500(Gbp758mln)
- USD/JPY: Y114.65-75($1.2bln), Y114.90($750mln), Y115.30-40($1.5bln), Y115.80-00($580mln), Y116.40($560mln)
- USD/CAD: C$1.2550($860mln), C$1.2750($755mln), C$1.2900($1.2bln)
UP TODAY (Times GMT/Local)
Date | GMT/Local | Impact | Flag | Country | Event |
10/03/2022 | 0700/0800 | * | NO | CPI Norway | |
10/03/2022 | 1245/1345 | *** | EU | ECB Deposit Rate | |
10/03/2022 | 1245/1345 | *** | EU | ECB Main Refi Rate | |
10/03/2022 | 1245/1345 | *** | EU | ECB Marginal Lending Rate | |
10/03/2022 | 1330/0830 | ** | US | Jobless Claims | |
10/03/2022 | 1330/0830 | *** | US | CPI | |
10/03/2022 | 1330/0830 | ** | US | WASDE Weekly Import/Export | |
10/03/2022 | 1330/0830 | * | CA | Intl Investment Position | |
10/03/2022 | 1530/1030 | ** | US | Natural Gas Stocks | |
10/03/2022 | 1630/1130 | ** | US | NY Fed Weekly Economic Index | |
10/03/2022 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result | |
10/03/2022 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result | |
10/03/2022 | 1800/1300 | *** | US | US Treasury Auction Result for 30 Year Bond | |
10/03/2022 | 1900/1400 | ** | US | Treasury Budget |
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