• Asian equity markets declined across the board as the region followed suit from the losses on Wall St
• US tech stocks underperformed and sentiment was pressured by a resumption of rising yields
• The DXY held on to most of yesterday's gains around 91.00, EUR/USD oscillated around 1.2150, GBP/USD remains sub-1.40
• Fed's Evans said he does not expect the FOMC will need to change the duration of bond purchases and views the current increase in rates as healthy
• Fed Beige Book stated that economic activity expanded modestly from January to mid-February for most Federal Reserve Districts
• Looking ahead, highlights include EZ & UK construction PMI, EZ retail sales, unemployment, US IJC, OPEC+ meeting, Fed's Powell, ECB's Centeno, Knot, supply from Spain, France & the UK

CORONAVIRUS UPDATE

US CDC reported total COVID-19 cases rose to around 28.51mln from 28.46mln the day before and deaths rose to around 515.3k from 513.1k the day before. (Newswires)

German Chancellor Merkel said they are facing a new phase of the pandemic with hope and need to take action to open up without setting themselves back with vaccinations as the way to exit the pandemic. Furthermore, she wants to use all flexibility to complete vaccinations and wants to extend the interval between vaccines where possible, while she added that the first free COVID-19 tests will be available next week and agreed with state leaders on 5-stage plan to ease virus-related curbs although earlier reports noted that Merkel reached a deal to extend most virus curbs until March 28th. (Newswires)

ASIA

Asian equity markets declined across the board as the region followed suit from the losses on Wall St where tech stocks underperformed and sentiment was pressured by a resumption of selling in the bond market and rise in yields, as well as soft data releases after ISM Non-Manufacturing PMI and ADP Employment missed expectations. ASX 200 (-0.8%) was dragged lower by broad weakness across its sectors aside from real estate and financials which benefitted from strong house prices and a rising yield environment, with sentiment also clouded by mixed data in which retail sales fell short of estimates but the trade balance posted a record surplus. Nikkei 225 (-2.1%) declined from the open to give up the 29k level after the government announced an extension of the state of emergency for the Tokyo region until March 21st and were also considering not accepting overseas spectators to the delayed Olympics this summer. Hang Seng (-2.6%) and Shanghai Comp. (-1.9%) conformed to the losses in the region after another tepid liquidity operation by the PBoC which resulted in a slight net drain from the interbank market and with participants cautious ahead of the NPC where focus will be on the Government Work Report and 5-year plan amid mixed views on whether or not China will set an official growth target, while declines were led by the ChiNext which slumped by more than 4% as it mirrored the rotation out of growth and tech seen stateside. Finally, 10yr JGBs were subdued amid spillover selling from USTs and with demand also hampered after results of the 30yr JGB auction pointed to a weaker auction across all metrics, although the Japanese 10yr benchmark is off its lows as prices then converged back to the 151.00 level.

PBoC injected CNY 10bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 10bln. (Newswires) PBoC set USD/CNY mid-point at 6.4758 vs exp. 6.4738 (prev. 6.4565)

UK/EU

BoE's Tenreyro said reversal rate with negative interest rates is a theoretical risk not backed up by real world experience and it is unlikely that negative rates would lead UK banks to reduce credit supply. Furthermore, Tenreyro added that if needed in the future, negative rates should boost growth and inflation. (Newswires)

EU's Sefcovic is to raise strong concerns regarding Britain’s extension of a grace period for some checks on agricultural and food products heading to Northern Ireland, while he added that the EU commission expresses strong concerns over UK's unilateral action on Ireland. (Newswires)

UK new car sales declined around 36% Y/Y last month which was the worst February since 1959, according to preliminary industry data. (Newswires)

FX

In FX markets, the DXY held on to most of yesterday’s gains with price action choppy around the 91.00 level amid the declines in stocks and with the currency unfazed by the weaker than expected ISM Non-Manufacturing PMI and ADP Employment numbers. The latest Fed comments continued to suggest a lack of concern regarding the rise in yields as Fed’s Evans viewed the current rise in rates as healthy in which he attributed the increase to real factors and expectations for a rebound, while Evans also stated he is not thinking about YCC as a policy proposal at the moment and has not set his forecasts for the March SEPs but does expect it will be stronger than December. EUR/USD remained subdued around 1.2050 with ECB officials continuing to provide a dovish tilt. GBP/USD was uneventful after yesterday’s budget announcement given that many of the details had been leaked beforehand. USD/JPY retained its recently reclaimed 107.00 status owing to the USD strength and antipodeans were choppy amid the downbeat risk sentiment and mixed Australian data releases where Retail Sales fell short of estimates but Trade Balance printed at a record surplus; antipodeans have picked up ahead of the EU open.

• Australian Retail Sales (Jan F) M/M 0.5% vs. Exp. 0.6% (Prev. 0.6%)
• Australian Trade Balance (AUD)(Jan) 10.1B vs. Exp. 6.5B (Prev. 6.8B)
• Australian Exports (Jan) M/M 6% (Prev. 3%)
• Australian Imports (Jan) M/M -2% (Prev. -2%)

COMMODITIES

WTI crude futures were back near yesterday's best levels above the USD 61.00/bbl level as focus remained on OPEC+ in which the JMMC meeting ended with no policy recommendation, although there were mixed views as some member states appeared to be pushing for a higher level of easing of the cuts, while others were more cautious with several members supporting the idea of no curb easing and to roll over the current cuts. Elsewhere, gold was indecisive in tandem with the consolidation in the greenback and only marginally benefitted from its haven status, while copper lacked direction amid the broad negative risk tone and weakness in Chinese commodity prices which saw Shanghai stainless steel decline by 6% to hit limit down in early trade.

Russian Deputy PM Novak said oil market uncertainties remain but are better than a year ago. (Newswires)

Exxon stated its facilities are progressing through a restart at its Baytown, Texas refinery complex (584k bpd). (Newswires)

GEOPOLITICAL

White House said it will take action again if the US assessed a response is needed after the Iraq rocket attack but added that they are still to make a decision. (Newswires)

Yemeni drone reportedly attacked Saudi Arabia's King Khalid Airport in Khamis Mushait and Yemen Houthis later stated that they launched a missile at a Saudi Aramco facility in Jeddah, although there reports added there was no immediate confirmation from Saudi. (Newswires)

US

The belly of the Treasury curve led the sell-off again amid UK Gilt spillover, mixed data, corporate supply and choppiness ahead of Fed Chair Powell. By settlement, 2s +1.8bps at 0.141%, 5s +5bps at 0.727%, 10s +5.4bps at 1.469%, 30s +3.5bps at 2.250%; depth and B/A spreads again seemed better, while TYM1 volumes were decent. In TIPS, the belly lead all yields firmer by a bp or two, with the 5yr BEI flirting above 2.5% today. The selling in sovereigns had commenced out of Europe, with USTs feeling the knock on effects from EGBs after reports that the ECB is said to see no need for drastic action in order to curb advances in yields. Twisting the knife across the channel was the UK DMO unveiling the larger than expected UK borrowing forecasts, which saw Gilt yields add broader pressure to USTs and EGBs. While across the pond participants geared up for another busy supply slate, particularly in the belly. At the same time, the ADP private jobs report missed expectations and cast somewhat of a cloud over Friday's NFP report; although yields were little phased by the release. There was also lots of speculation today among participants on the potential for Fed Chair Powell to allude to an "operation twist" or potential Treasury purchase WAM extension in his WSJ interview on Thursday, although there were no credible reports to back the claims, but nonetheless, it is on traders' minds, and perhaps a factor in the long-end's relative outperformance today. Most of the noteworthy tape action was done as Europe left and yields then essentially travelled sideways into the US close. T-note (M1) settled 16 ticks lower at 133-01+.

Fed Beige Book stated that economic activity expanded modestly from January to mid-February for most Federal Reserve Districts and that most businesses remain optimistic regarding the next 6-12 months as COVID-19 vaccines become more widely distributed. Beige Book stated that reports on consumer spending and auto sales were mixed and although a few Districts reported slight improvements in travel and tourism activity, overall conditions in the leisure and hospitality sector continued to be restrained by ongoing COVID-19 restrictions. Furthermore, it stated that despite challenges from supply chain disruptions, overall manufacturing activity for most Districts increased moderately from the previous report and most Districts reported that employment levels rose over the reporting period, albeit slowly. (Newswires)

Fed's Evans (voter) said he does not expect they will need to change the duration of bond purchases and views the current increase in rates as healthy. Evans also said he is not thinking about YCC as a policy proposal at the moment and has not set his forecasts for the March SEPs but does expect it will be stronger than December and noted that bond yields are rising because of real factors and expectations for a rebound. (Newswires)

Fed's Harker (non-voter) said he does not see signs of inflation running over 2% quickly but instead sees it at 1.7% by year-end and he is not looking at a rate increase in 2022, while he added that if a rate hike happens, it may be towards the end of 2023 and suggested that things like yield curve control are among possible tools. (Newswires)

US Senate Democrat Leader Schumer said the Senate will move to take up the COVID-19 aid bill as early as Wednesday night, although the Senate later adjourned without having conducted a procedural voted. (Newswires)

US House voted 220-210 to pass HR 1 which overhauls campaign finance regulations, voting rules and ethics laws which now goes to the Senate. In other news, the US House scrapped Thursday's session amid warning of a potential plot to breach the building. (Newswires/Washington Post)