• US President Biden announced the first tranche of sanctions on Russia whilst cautioning that this is the beginning of a Russian invasion of Ukraine
• US Secretary of State Blinken cancelled his meeting with Russian Foreign Minister Lavrov. Biden-Putin meeting is not on the cards
• S&P 500 closed in correction territory, whilst APAC stocks traded on a firmer footing
• European equity futures are indicative of a higher open with the Euro Stoxx 50 future +0.5% after cash markets closed flat yesterday
• DXY continues to straddle the 96.00 mark. NZD leads within the G10 FX space following a hawkish RBNZ rate hike
• Looking ahead, highlights include German GfK, EZ CPI (Final), U.N. General Assembly regarding Ukraine, Speeches from BoE's Bailey, Broadbent, Haskel & Tenreyro, ECB's de Guindos & Elderson, Supply from US, Italy & Germany, Earnings from Danone, Barclays & Rio Tinto

US TRADE

• US stocks finished lower and S&P 500 closed in correction territory for the first time in two years amid geopolitical concerns following Russia's recognition of Donbass separatist regions and the sanctions response from the west.
• S&P 500 -1.02% at 4,304, Nasdaq 100 -0.99% at 13,871, Dow Jones -1.42% at 33,597, Russell 2000 -1.45% at 1,980.

NOTABLE US HEADLINES

• USTR said it opposes Canada's Digital Services Tax Act proposal and the USTR would examine all options including those under their trade agreements and domestic statutes should Canada adopt a DST.

GEOPOLITICS

• US President Biden said this is the beginning of a Russian invasion of Ukraine and that Russia President Putin is setting up rationale to go much further. President Biden said the first tranche of sanctions starts now in which he issued full blocking sanctions on two Russian banks (Promsvyazbank and VEB Bank), sanctions on Russian elites and family members, and will cut off Russia's government from international financing in which it will not be able to trade on US or European debt markets. Furthermore, the US is working with Germany on halting Nord Stream 2 and additional US troops are heading to Estonia, Latvia and Lithuania, although Biden added that these are defensive moves and they have no intention of fighting Russia.
• US senior administration official said Sberbank and VTB would face US sanctions if Russian invasion proceeds and stated no Russian banks are safe, while they are not taking SWIFT financial system sanctions off the table.
• US President Biden's administration prepared export controls to hit Russian companies with alleged military ties and denied Russians access to global technology, including electronics and computers if Russia further invades, according to Reuters sources.
• US Secretary of State Blinken said it doesn't make sense to meet with Russian Foreign Minister Lavrov anymore now that Russia's invasion is beginning and he has sent a letter to Lavrov informing him of that.
• White House stated that a Biden-Putin summit is certainly not in the plans at this point and a Russian de-escalation would be needed for a Biden-Putin summit.
• Canadian PM Trudeau announced sanctions on Russia in coordination with allies in which Canadians were banned from all dealing with the so-called independent states of Luhansk and Donetsk, while Canadians are also banned from engaging in purchases of Russian sovereign debt. Furthermore, they will apply additional sanctions on two state-backed Russian banks and will sanction Russian parliament members who voted to recognise the so-called republics.
• EU Commission President von der Leyen said if Russia continues with escalation, they are ready to take further action. EU Commission President von der Leyen says the crisis shows the EU is too dependent on Russian gas and they must diversify suppliers and massively invest in renewables
• French Foreign Minister Le Drian announced an EU sanctions deal against Russia over Ukraine actions after EU's 27 members all agreed. EU's Borell said sanctions are only part of their response and they agreed to target 27 individuals and entities who undermine Ukrainian integrity, although Russian President Putin was not on the sanctions list.
• German Chancellor Scholz said they are in a position to decide on further sanctions if there will actually be a complete military invasion of Ukraine by Russia, according to RTL Broadcaster.
• Ukraine President said the main thing is to preserve the sovereignty and territorial integrity of Ukraine, while he added there is no need for general mobilization today and they are ready to end war through bilateral talks and with participation of other leaders.
• Ukraine Foreign Minister Kuleba said sanctions from the US are specific and painful, while he added that pressure on Russia should be stepped up. Kuleba also stated that President Biden's sanctions announcement looks strong as a first move and they received a promise of more assistance from the US, while they are not seeking US troops on the ground, according to a Fox interview.
• Russia's Foreign Minister said new western sanctions against Russia are illegitimate, according to Tass.
• Australian PM Morrison announced he is to impose sanctions on some Russian individuals, travel bans and targeted financial sanctions, while PM Morrison said expect subsequent tranches of sanctions and that this is only the start of the process.
• Japanese PM Kishida announced a ban of Russian issue of bonds in Japan and said he doesn't see a big impact on energy supply in the short-term from current situation, while he announced a freeze of assets of certain Russian individuals.
• A military convoy of over 100 trucks with soldiers was seen on its way towards the Ukrainian border in Russia's Belgorod region, according to a Reuters witness.
• US satellite image company Maxar said new images show new deployments in Belarus of over 100 vehicles and dozens of troop tents, while images show heavy equipment transporters and a new field hospital was added to a military garrison in western Russia
• US said discussions on Americans being held hostage by Iran are separate from nuclear deal talks.

APAC TRADE

EQUITIES

• APAC stocks were positive but with upside capped after the S&P 500 closed in correction territory for the first time in two years and as participants digested the sanctions response to Russia's actions on Ukraine which targeted individuals and banks although the largest Russian banks Sberbank and VTB Bank avoided sanctions.
• ASX 200 was led higher by outperformance in tech and with focus also on a slew or earnings results.
• Nikkei 225 remained closed for the Emperor’s Birthday holiday.
• KOSPI gained but was restricted after daily COVID-19 cases surpassed 150k for the first time on Tuesday.
• Hang Seng and Shanghai Comp. rebounded from the prior day’s losses after the PBoC boosted its liquidity efforts heading into month-end and with tech stocks finding reprieve from yesterday’s crackdown fears, while Hong Kong's budget included counter cyclical measures of over HKD 170bln and HKD 54bln of anti-epidemic measures.
• US equity futures clawed back some of the prior day's losses with the Emini S&P back above 4300.
• European equity futures are indicative of a higher open with the Euro Stoxx 50 future +0.5% after cash markets closed flat yesterday.

FX

• DXY was uneventful and just about held on to the 96.00 status after the prior day’s choppy mood despite the mostly encouraging data releases, while comments from Fed's Bostic (2024 voter) provided little to sway the dollar.
• EUR/USD traded rangebound after paring some of yesterday’s gains
• GBP/USD lacked firm direction after failing to sustain the 1.3600 handle despite comments from BOE’s Ramsden that some further tightening seems likely to be needed in the near term.
• USD/JPY was stuck near 115.00 amid the holiday closure in Japan.
• Antipodeans were underpinned with outperformance in NZD/USD after a hawkish RBNZ rate hike.
• RUB was flat at the reopen with Russia observing Defender of the Fatherland Day.

FIXED INCOME

• 10yr USTs were rangebound after the prior day’s curve flattening and solid demand for the 2yr note offering from the Treasury, while Bund futures also rebounded from the prior day’s retreat, although resistance was seen ahead of the 166.00 level. Conversely, yields were higher across the Tasman following a 10yr auction in Australia and after the hawkish RBNZ rate hike in New Zealand.

COMMODITIES

• WTI and Brent eked mild gains amid the constructive risk tone but with upside limited after the west refrained from energy related sanctions of Russia outside of Nord Stream 2.
• US State Department official said US actions on Russia will not likely disrupt global energy markets and said officials did not discuss increasing oil output during the US trip to Saudi Arabia last week. US is coordinating with oil consuming countries to make sure all are able to respond if necessary and OPEC countries understand US concerns about importance of stability of global oil markets, while the official added that nothing currently happening on the ground in Ukraine risks oil flows.
• Spot gold traded sideways with USD 1900/oz level providing resistance overnight.
• Copper futures were flat but remained afloat due to the improved mood in Asia.

CRYPTO

• Bitcoin was choppy and heads into the European morning with mild losses.

NOTABLE APAC HEADLINES

• PBoC injected CNY 200bln via 7-day reverse repos with the rate at 2.10% for a CNY 190bln net injection.
• PBoC set USD/CNY mid-point at 6.3313 vs exp. 6.3355 (prev. 6.3487)
• Hong Kong Budget included counter cyclical measures of over HKD 170bln and the government will roll out over HKD 54bln of anti-epidemic measures, while it will reduce salaries tax payable by 8% capped at HKD 10k and issue HKD 10k electronic consumer vouchers for residents aged 18 years and older.

DATA RECAP

• Australian Construction Work Done (Q4) -0.4% vs. Exp. 2.5% (Prev. -0.3%, Rev. -1.2%)
• Australian Wage Price Index QQ (Q4) 0.7% vs. Exp. 0.7% (Prev. 0.6%)
• Australian Wage Price Index YY (Q4) 2.3% vs. Exp. 2.4% (Prev. 2.2%)

CENTRAL BANKS

• Fed Discount Rate Minutes noted 3 of 12 Fed banks voted to raise the discount rate ahead of the January meeting, while directors favouring no rate change saw policy tightening "soon" and cited outlook uncertainty. Furthermore, directors seeking an increase cited inflation and financial risks.
• Fed's Bostic (2024 voter, hawk) said the economy is still quite strong as officials try to figure out the economy in real time, while companies and output remain restrained by inability to find workers. Fed's Bostic (2024 voter) says businesses are feeling need to adjust wages but it is not clear how long it will persist, adds have not seen worrisome changes yet in long-term inflation expectations
• RBNZ hiked the OCR by 25bps to 1.00% as expected and said the OCR is expected to peak at a higher level than assumed in the November statement, while the committee affirmed it was willing to move the OCR in larger increments if required over the coming quarters. RBNZ said many members saw this as a finely balanced decision whether to move OCR up by 25bps or 50bps and it noted more tightening is needed, as well as agreed to commence a gradual reduction of holdings under the LSAP programme in which it intends to commence bond sales in July. Furthermore, it said headline CPI is well above RBNZ target range but will return towards 2% mid-point in coming years. and sees the OCR at 2.84% in June 2023 (prev. 2.40%).
• RBNZ Governor Orr said cannot rule out 50bps hikes in the future and that rates do need to rise significantly but they will take their time step by step, while he added the amount of tightening through bond sales is very small and that it is all about the OCR.
• ECB's Holzmann said the council should consider two rate hikes this year and sees neutral rate at 1.50% as realistic by 2024.