• Asia-Pac stocks slumped after reacting to the sell-off on Wall St amid a global bond rout and surge in yields
• Fed speakers once again provided very little pushback to the rising yield environment; US 10yr breached 1.6% yesterday
• In FX markets, the DXY remains firmer but retreated marginally alongside the pullback in the US 10yr yield back below 1.5%
• US Pentagon confirmed reports that the US conducted a strike on Iranian-backed militia in eastern Syria
• US President Biden's USD 15/hr minimum wage proposal was ruled out of order for the Senate relief bill
• Looking ahead, highlights include US personal income, PCE & core PCE, Chicago PMI, Uni. of Michigan (final), ECB's Schnabel, BoE's Ramsden, Haldane

CORONAVIRUS UPDATE

US CDC reports COVID-19 cases increased to 28.24mln (prev. 28.07mln), deaths increased to 503.6k (prev. 501.2k); first vaccinations doses at 46.07mln (prev. 45.24mln). (Newswires)

FDA said it is authorizing the emergency use of Eli Lilly's (LLY) BAMLANIVIMAB for COVID-19 treatment, while it also allowed more flexible storage and transportation conditions for the Pfizer (PFE)/BioNTech (BNTX) vaccine which permits frozen vials of the vaccine to be transported and stored at conventional temperatures in freezers for as long as 2 weeks. (Newswires)

Merck (MRK) said it received FDA feedback that additional data would be required to support potential EUA application for COVID-19 therapeutic MK-7110 and based on the feedback, is no longer expects to supply the US government with the treatment in H1. (Newswires)

Johnson & Johnson (JNJ) said it is very confident it will meet 2021 commitment to the EU of 200mln doses and sees end-to-end European vaccine manufacturing by July, while there were separate comments from AstraZeneca (AZN LN) that it is working to improve vaccine deliveries to the EU and will hopefully catch up to expectations in Q2. (Newswires)

ASIA

Asia-Pac stocks slumped after reacting to the sell-off on Wall St amid a global bond rout and surge in yields whereby the US 10yr yield surpassed 1.6% and with Fed speakers providing very little pushback on the rising yield environment. ASX 200 (-2.4%) and Nikkei 225 (-3.4%) suffered heavy losses from the open as yields in the region also advanced and with tech the worst-hit sector in Australia following similar underperformance stateside where the Nasdaq 100 fell 3.6% for its steepest decline since October, while the Japanese benchmark saw intraday losses of more than 1,000 points with selling exacerbated by detrimental currency flows and after mixed data releases which showed Y/Y declines in Industrial Production and Retail Sales. Hang Seng (-2.9%) and Shanghai Comp. (-2.1%) conformed to the bloodbath in the region after the PBoC continued its reserved liquidity efforts and with further punchy rhetoric from USTR nominee Tai who stated that China needs to deliver on commitments under the Phase 1 trade agreement and that the US can work with other countries to craft new rules to cover 'grey areas' where China is not being held accountable. Furthermore, reports that US President Biden's proposed minimum wage increase to USD 15/hour was ruled out of order for the Senate relief bill and a US airstrike on Iranian-backed militia in eastern Syria which destroyed multiple facilities and killed 17 pro-Iran fighters in response to recent attacks against US personnel in Iraq, further added to the overnight concerns. Finally, 10yr JGBs weakened and briefly declined beneath the 150.50 level on spill-over selling from the global bond rout which saw the Japanese 10yr yield breach 0.18% to print its highest since early 2016, while the results of the latest 2yr JGB auction was mostly weaker than previous.

PBoC injected CNY 20bln via 7-day reverse repos with rate kept at 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.4713 vs exp. 6.4714 (prev. 6.4522)

• Japanese Industrial Production (Jan P) M/M 4.2% vs. Exp. 4.0% (Prev. -1.0%)
• Japanese Industrial Production (Jan P) Y/Y -5.3% vs. Exp. -2.0% (Prev. -2.6%)
• Japanese Retail Sales (Jan) M/M -0.5% vs. Exp. -1.2% (Prev. -0.8%)
• Japanese Retail Sales (Jan) Y/Y -2.4% vs. Exp. -2.6% (Prev. -0.3%, Rev. -0.2%)
• Tokyo CPI (Feb) Y/Y -0.3% vs. Exp. -0.4% (Prev. -0.5%)
• Tokyo CPI Ex. Fresh Food (Feb) Y/Y -0.3% vs. Exp. -0.4% (Prev. -0.4%)
• Tokyo CPI Ex. Fresh Food & Energy (Feb) Y/Y 0.2% vs. Exp. 0.2% (Prev. 0.2%)

UK/EU

BoE Governor Bailey said the central bank expects negative GDP growth for Q1 and suggested that clearly there has disruption from the impact of the Brexit and pandemic. (Daily Echo)

UK Chancellor Sunak will unveil a new state-backed loan programme bringing lending criteria more in-line with normal conditions as the emergency COVID-19 loan support schemes are wound down; however, other COVID-19 support measures e.g. VAT relief and furlough will be extended until June. (FT)

• UK Lloyds Business Barometer (Feb) 2 (Prev. -7)

FX

In FX markets the DXY was choppy above the 90.00 level and had earlier strengthened to just shy of 90.50 due to the rising yields which weighed on its major counterparts and resulted to heavy outflows from EM currencies, with mostly encouraging US data including a decline in jobless claimants, upward Q4 GDP revision and better than expected Durable Goods adding to the momentum for the greenback. Fed speakers also refrained from any significant push back on the rising yield environment with Fed’s Bostic not worried about the rise in bond yields and Fed’s Bullard stating the rise in bond yields is a good sign so far, while Fed’s George suggested the recent rise in longer-term interest rates does not justify a monetary policy response and that much of the increase in yields is likely a reflection of increasing optimism in the recovery's strength. Nonetheless, US yields slightly eased which provided some brief reprieve for the USD’s transatlantic peers including EUR/USD which oscillated around 1.2150, while GBP/USD struggled to retain the 1.4000 status. USD/JPY and JPY-crosses were dragged by the sell-off across stock markets, while antipodeans were subdued due to their high-beta statuses and following softer New Zealand Trade data and Australian Private Sector Credit, as well as comments from RBNZ Governor Orr who continued the underscore that NIRP remained an option.

RBNZ Governor Orr said monetary settings will be stimulatory and the RBNZ will not be changing policy for a prolonged period of time, while he is convinced the best thing to do now is to be patient. However, he also commented that they may have to stimulate the economy even further which they can do so with a negative OCR and that they want to keep their options open. (Newswires)

Banxico said it could carry out government securities swap operations when it deems necessary for the government debt market and may carry out hedging operations in dollars with counterparties not domiciled in the country when instructed. (Newswires)

• Australian Private Sector Credit (Jan) Y/Y 1.7% vs Exp. 1.9% (Prev. 1.8%)
• New Zealand Trade Balance (Jan) -626M (Prev. 17.0M, Rev. 69M)
• New Zealand Exports (Jan) 4.19B (Prev. 5.35B, Rev. 5.38B)
• New Zealand Imports (Jan) 4.82B (Prev. 5.33B, Rev. 5.32B)

COMMODITIES

WTI crude futures retreated beneath the USD 63.00/bbl level but with the losses in oil relatively contained compared to other risk assets. Gold prices continued to trickle further below the USD 1800/oz amid the higher yield environment and firmer greenback, while copper was pressured as risk sentiment took a hit from the bond rout but with downside stemmed as support around USD 4.20/lb held.

Marathon plans to restore 85% of output at Galveston Bay, Texas refinery (585k bpd) in 2 weeks and LyondellBasell is preparing to restart its Houston refinery (268k bpd) early next week, according to sources. (Newswires)

GEOPOLITICAL

US Pentagon confirmed reports that the US conducted a strike on Iranian-backed militia in eastern Syria where it destroyed multiple facilities at a border control point in response to recent attacks against US personnel in Iraq, while the Syrian Observatory for Human Rights stated that the strikes killed 17 pro-Iran fighters. (Newswires)

US President Biden held a call with Saudi King Salman in which they discussed regional security including a diplomatic end to the Yemen war and US commitment to help Saudi defend itself against attacks from Iranian-aligned groups. (Newswires)

US Intelligence report on the killing of Khashoggi could occur as soon as today, following conversation between the US & Saudi leaders; sources state potential responses to the event could include Treasury and/or State Department sanctions on specific individuals. (FT)

US Secretary of State Blinken calls on Russia to end its occupation of Crimea, while other reports noted that Russia's Navy will be testing Tsirkon missiles this year. (Newswires/Twitter)

US

Treasuries sold off, again, but more viciously, particularly in the belly, as a dismal 7-year note auction put the cherry on the cake in exhibiting the market's current aversion for rates. By settlement, 2s +3.7bps at 0.164%, 5s +16.3bps at 0.788%, 7s +15.1bps at 1.169%, 10s +10.7bps 1.496%, 30s +5.1bps at 2.293%; TY volumes were at record levels, alongside many other rates futures contracts; 5yr TIPS +12bps at -1.639%, 10yr TIPS +17.2bps at -0.634%, 30yr TIPS +18.2bps at 0.211%. Bid/Ask spreads also wider than usual in cash bonds, which could begin to stoke fears of non-smooth market functioning. To cut a duration story short, it was something akin to a bloodbath, with yields moving higher throughout the whole day. Rates were already being offered out of APAC, with Aussie bonds leading the leg lower amid disappointment on the RBA's bond buying operations. Data was also firmer both out of Europe, pressuring EGBs, and then again firmer data in the US (Claims/Durable Goods), supporting growth outlooks (and higher yields). USTs found additional selling pressure from the dealer community running into the 7-year auction, and to make matters worse (for bond bulls) Bullard was on the wires endorsing the move higher in yields, echoing Powell in noting that they reflect an improving growth outlook. One desk also noted that mortgage desks were particularly active in the belly, hedging, adding extra pressure. Yields were at their peaks heading into the 7-year auction, which was ultimately not enough of a concession in what was a historically dismal offering: tailed the WI by 4.4bps, covered 2.04x (vs avg. 2.35x), and dealers took a twice than average 40% takedown amid a halvening of indirects (proxy for foreign demand). The lack of demand saw yields spike higher further, lead by the belly, seeing the popular 5s10s and 10s30s spreads dive even lower on the day. There is now growing calls for potential Fed jawboning (potentially even action), given the velocity of the move and that now we are seeing real yields begin rise strongly (30yr TIPS +20bps in a day is not so "natural"), although given the move in nominals, inflation breakevens still remain fairly elevated, so one could argue growth expectations are intact. T-note futures (H1) settled 1 point 15+ ticks lower at 133-21+; m1 settles 1-16 higher at 132-18+.

Fed's Bostic (voter) said faster recovery in GDP vs jobs may reflect business hesitation to hire for fear of having to be laid off again and stated the Fed will be very patient in considering any policy change. Bostic added he is not worried about the rise in bond yields and is not expecting a need to think about tapering "for a while" and stated that a twist of bond purchases to longer term securities is not at the forefront of policy discussion. (Newswires)

Fed's Williams (voter) said the Fed is committed to using the full range of tools to assure that the recovery will be as robust as possible and that he is more optimistic about the medium-term outlook for the economy but added new COVID-19 strains could slow the path to a post-COVID world. Furthermore, he stated that inflationary pressures are to remain subdued for some time and that GDP growth this year could be the strongest in decades with strong fiscal support and continued progress on vaccinations. (Newswires)

Fed's Bullard (non-voter) stated the rise in bond yields is a good sign so far and that it is too early to discuss changes to Fed's monthly bond buying, while he added that he can see an improvement in the participation rate as schools reopen and that unemployment should fall to 4.5% by end-2021. (Newswires)

US President Biden's USD 15/hr minimum wage proposal was ruled out of order for the Senate relief bill, while the White House Press Secretary later stated that President Biden is disappointed regarding the Senate parliamentarian ruling and will work with congressional leaders on a path forward. There were also reports that Senator Sanders is to propose a minimum wage increase in the budget bill amendment and include ending tax breaks to force higher wages, while US Senator Wyden is looking at a tax penalty for companies that are not paying a living wage which would be aimed at mega corporations. Furthermore, House Speaker Pelosi said the ruling was disappointing and that the minimum wage increase will remain part of the American Rescue Plan in the House. (Newswires)