• Risk sentiment remains at the whim of geopolitics, US futures lower across the board (ES -0.5%) while European bourses are somewhat cushioned on corporate updates (Euro Stoxx 50 Unch.)
• Crude benchmarks are pressured as we await clarity on reported shelling in Donbas; currently, WTI and Brent remain around USD 1.00/bbl from the overnight trough.
• The current peaks of USD 93.31/bbl and USD 94.48/bbl in WTI and Brent were set overnight on the initial report via Sputnik of Ukraine firing shells on LPR localities.
• However, Ukraine denied this saying Russian forces were responsible; EU leaders to meet later on the subject.
• Safe-haven FX is bid as such, core debt also firmer but rangebound; while the DXY struggles to reclaim 96.00.
• Looking ahead highlights include, US IJC, Japanese CPI, ECB’s Lane, Fed’s Bullard & Mester, supply from the US.

As of 11:10GMT/06:10EST

LOOKING AHEAD

• US IJC, Japanese CPI, ECB’s Lane, Fed’s Bullard & Mester, supply from the US.
• Click here for the Week Ahead preview

EUROPEAN TRADE

EQUITIES

• European bourses remain at the whim of geopolitical developments, performance waned after a firmer cash open (Euro Stoxx 50 Unch.) in-spite of a brief respite on generally constructive corporate updates.
• As such, US futures are softer across the board (ES -0.5%), moving with the broader risk tone as we await clarity on the shelling in Donbas.
• Given broader sentiment, sectors are a mixed bag as Luxury/Personal Goods leads post-earnings from Kering and Carrefour while Oil & Gas are pressured on benchmark performance given geopols; a dynamic that explains the FTSE 100 -0.6% relative underperformance alongside FX dynamics.

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FX

• Kiwi evades risk-off headwinds amidst constructive Antipodean cross flows in the run up to next week’s RBNZ meeting, as some speculate on an above consensus 50 bp hike.
• Yen in favour as mortar fire in Eastern Ukraine rekindles fear of military conflict - USD/JPY tests psychological support near 115.00 where options begin and end at 114.90 in line with a key Fib.
• Rouble rattled by rising tensions and potential further sanctions.
• Dollar betwixt and between after less hawkish than anticipated FOMC minutes as DXY struggles to keep taps on the 96.00 level
• Lira was on edge ahead of the CBRT, but ultimately unfazed by unchanged Repo Rate, as Turkish President repeats pledge to lower rates and inflation.

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Notable FX Option Expiries, NY Cut:

• EUR/USD: 1.1260 (215M), 1.1390-00 (520M), 1.1430-35 (1.01BN), 1.1450 (783M), 1.1500 (407M), 1.1520 (654M), 1.1600 (425M)
• USD/JPY: 114.90-00 (1.45BN), 115.30 (260M), 115.70-75 (940M), 116.00 (1.29BN), 117.00 (250M)
• GBP/USD: 1.3325 (482M), 1.3400 (1.02BN), 1.3450 (422M), 1.3500 (1.05BN)
• Full list available here

FIXED INCOME

• Bonds remain bid, but rangy after overnight surge on safe-haven grounds.
• Debt still in the grip of geopolitical dynamics as Russia and Ukraine exchange accusations over the shelling in Eastern Ukraine.
• OATs and Bonos absorb French and Spanish supply reasonably well.

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COMMODITIES

• Crude benchmarks are pressured as we await clarity on reported shelling in Donbas; currently, WTI and Brent remain around USD 1.00/bbl from the overnight trough.
• The current peaks of USD 93.31/bbl and USD 94.48/bbl in WTI and Brent were set overnight on the initial report via Sputnik of Ukraine firing shells on LPR localities.
• However, Ukraine has denied this saying Russian forces were responsible; EU leaders to meet later on the subject.
• Russia's Italian ambassador says that Russian PM Putin has told Italian PM Draghi that they are ready to increase gas supplies to Italy, if required, via Reuters.
• Spot gold/silver are bid amid the tentative risk-sentiment. Action that spurred spot gold to just shy of USD 1900/oz, though we are yet to mount a convincing test of the mark.
• China state planner asks some iron ore traders to help verify if there is hoarding or other irregularities; asks some iron ore traders to release high inventories to decent level; will set up market supervision.

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GEOPOLITICS

• Ukrainian armed forces fired mortar shells, grenades on four Luhansk People's Republic (LPR) localities, Sputnik Reported. Russian-backed rebels in Eastern Ukraine confirmed Ukraine govt forces have shelled their territories with mortars; no casualties reported so far.
• Subsequently, Ukraine denies shelling separatists' position in East Ukraine A denial that was followed by the OSCE recording multiple shelling incidents along the line of contact in east-Ukraine in the early hours of Thursday, via Reuters citing a diplomatic source; based on reports from both sides. Ukraine military declines to comment.
• Additionally, Ukraine military says Russian occupying forces fired on a village in the Luhansk region, via Reuters. Followed by, reports that shelling has been heard in the vicinity of Donetsk airport and the Elenovka village in East Ukraine, according to a Reuters witness.
• EU official says the bloc is carefully looking at reports of shelling in the Donbas region, adding that "it might be used as a test or excuse" by Russia; yet to enter discussions on whether this constitutes a reason for additional sanctions on Russia.
• Senior US Administration Official on Russian claims it’s withdrawing troops from the border with Ukraine: “We now know it was false. In fact in the last several days, Russia has increased its troop presence.. by as many as 7,000 troops" according to NBC.
• Kremlin spokesperson Peskov says that Russia is currently giving its response on security issues and will provide a response to the US today, according to Interfax, adding that the response will be made public. Furthermore, Foreign Minister Lavrov confirmed Belarus drills will conclude on February 20th.
• Smoke reportedly rising from Russian embassy in Kiev, according to Amichai Stein.
• US paratroopers arrive in western Poland on Ukraine border as part of reinforcements of The East Wing of Antonio via AJA Breaking.
• Russia has reportedly pulled back some equipment from Ukraine, but a lot of equipment is still deployed close to Ukraine, and some new equipment has also recently arrived, via Reuters citing Maxar imagery.
• Russia Defence Ministry says 20 of its warships have begun drills in the Caspian Sea, via Reuters; additionally, denies claims that 7k additional troops are at the Ukraine border.
• European Commission President von der Leyen is set to brief EU leaders on a potential sanctions package against Russia. (Politico)

CRYPTO

• Bitcoin is under modest pressure, but remains within a USD 43-44k range thus far.

US-SPECIFIC HEADLINES

• US Treasury Secretary Yellen said US inflation is "not acceptable" but the country's economic recovery is on track, via an AFP interview

Click here for the US Early Morning Note.

APAC TRADE

EQUITIES

• APAC stocks traded mixed as the region trimmed earlier gains on reports of tensions in Ukraine.
• ASX 200 was propped up by its Healthcare and Mining sectors whilst Telstra and Wesfarmers fell on earnings.
• Nikkei 225 saw upside capped by manufacturers after Japanese exports missed forecasts, with Nikkei citing slowing overseas demand for cars and global supply constraints.
• Hang Seng and Shanghai Comp. were non-committal in early trade and the indices swung between gains and losses.

NOTABLE APAC HEADLINES

• China's Securities Times citing analysts notes the CNY is expected to weaken slightly this year; an analyst cited in the piece suggests the recent strength matches fundamentals.
• Japan PM Kishida says COVID infections are showing signs of slowing; need to start to start preparing for the next phase

DATA RECAP

• Australian Employment (Jan) 12.9k (Exp. -15k, Prev. 64.8k)
• Australian Unemployment Rate (Jan) 4.2% vs. Exp. 4.2% (Prev. 4.2%)
• Australian Participation Rate (Jan) 66.2% vs. Exp. 66.0% (Prev. 66.1%)
• Australian Full Time Employment (Jan) -17.0k (Prev. 41.5k)
• Japanese Trade Balance Total Yen (Jan) -2191.1B vs. Exp. -1607.0B (Prev. -582.4B, Rev. -583.3B)
• Japanese Imports YY (Jan) 39.6% vs. Exp. 37.1% (Prev. 41.1%)
• Japanese Exports YY (Jan) 9.6% vs. Exp. 16.5% (Prev. 17.5%)

CENTRAL BANKS

• ECB's de Cos says the policy direction is clear but the ECB should not draw any premature conclusions when it comes to timeframes, with a highly uncertain situation such as tensions in Ukraine, ECB should not provide a further source of uncertainty. PEPP reinvestments should be used flexibly and proactively.
• ECB lifts its own provisions for financial risks to maximum, according to the annual report.
• CBRT Policy Announcement: Holds rates at 14.00% (exp. 14.00%); says comprehensive review on policy framework being conducted; will continue to use all tools decisively
• Turkish President says Turkey will break the shackles of interest rates with the goal to lower inflation to single digits.