24th February 2022

SNAPSHOT

LOOKING AHEAD

• Looking ahead, highlights include US GDP (2nd Estimate), PCE Prices Prelim, Initial Jobless Claims, Banxico Minutes, Speeches from Fed's Bostic, Daly, Mester, ECB's Schnabel, BoE's Bailey & Broadbent
• Earnings from Alibaba, Moderna, Norwegian Cruise Line, Occidental Petroleum
• Click here for the Week Ahead preview

GEOPOLITICS

MAIN DEVELOPMENTS

• Russian President Putin authorised a special military operation to demilitarise Ukraine. Putin said Russia does not plan to occupy Ukrainian territory and called on Ukrainian soldiers to immediately lay down weapons and go home, while he warned that Russia will react immediately in the case of foreign interference.
• Russian strategic bombers loaded with weapons took flight and Russian special forces entered Ukraine, while multiple explosions were heard across several Ukrainian cities including the capital of Kiev and there were also a series of explosions heard in the Belgorod province of Russia which is near the border with Ukraine. Furthermore, Ukrainian military command centres in Kiev and Kharkiv were attacked by missile strikes.
• Ukraine's Foreign Minister said Russian President Putin started a full-scale war against Ukraine, while he added that this is an aggressive war and Ukraine will defend itself and win.
• Ukrainian military commands claims it is being hit by a second wave of missile strikes.
• German Foreign Minister said Russia rejected offers of more talks.

WESTERN RESPONSE

• US President Biden said Russian President Putin has chosen a premeditated war, while Biden will address the American people on Thursday and will announce further consequences on Russia. Furthermore, the US will coordinate with NATO allies to ensure a strong and united response to Russian actions.
• Russia is confident it can withstand Germany’s decision to halt the Nord Stream 2 pipeline certification, according to sources close to Kremlin and Gazprom cited by the FT.
• European Commission President von der Leyen said EU will target strategic sectors of Russian economy, blocking access to key tech and markets; will freeze assets in EU and stop access of Russian banks to EU financial markets.
• EU could discuss personal sanctions on Russia President Putin, Russia's Sputnik News reported.
• EU is unlikely to cut Russia off SWIFT payment system for now, Reuters sources said. Sources added that would make it difficult for creditors to get money back from Russia, while Russia has been building up an alternative payment system.
• UK PM Johnson called for an urgent meeting of all leaders as soon as possible, according to Reuters.
• EU Finance Ministers to discuss Ukraine on Friday/Saturday, according to a German government source cited by Reuters.
• European leaders to discuss offering Ukraine EU Candidate Status at Thursday's European Summit, according to Lithuania's President.
• EU Ambassadors will prepare the extraordinary European Council meeting tonight, according to the EU spokesperson.

IRANIAN NUCLEAR DEAL

• Iran's top security official said it is possible to achieve a good agreement with regards to a nuclear deal amid significant progress in negotiations, according to Reuters.
• US State Department spokesperson Price said several 'detailed issues' remain unresolved with Iran and a nuclear deal could be days away if issues addressed, according to Reuters.

EUROPEAN TRADE

EQUITIES

• European bourses trade with losses across the board as sentiment took a hit on President Putin's announcement on Ukraine.
• Countries with high exposure to the Russian economy feel the pressure; Austria, France, and Italy are the worst hit.
• The overall picture tilts defensive with Healthcare, Utilities and Food & Beverages among those with the shallowest losses; banks lag whilst energy is supported.
• US equity futures are also in the red, with the NQ narrowly lagging its peers.

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FX

• DXY extended its rebound from recent lows to levels above 97.000.
• USD/JPY retreated through 115.00 to a sub-114.50 low before bouncing.
• RUB saw considerable weakness and almost touched 90.0000 vs the USD before paring back after CBR intervention.
• CHF is faring better than other majors due to its safety credentials.
• Euro is struggling to retain 1.1200+ status
• Aussie is back under 0.7200 and Kiwi teetering over 0.6700 having topped 0.6800 only yesterday in wake of the recent hawkish RBNZ hike.

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FIXED INCOME

• UK bonds, Bunds and US Treasuries remains off early peaks.
• However, the rebound from pull-back lows is robust as risk sentiment sours significantly again.

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COMMODITIES

• WTI and Brent futures have soared in a market dictated by geopolitics.
• Brent Apr surpassed USD 105/bbl whilst WTI Mar eyes USD 100/bbl to the upside.
• Brent six-month backwardation hit a new record high.
• UK and European Nat gas prices rose over 30% apiece.
• FT sources close to Kremlin and Gazprom have suggested that Russia is confident that it can withstand Germany’s decision to halt the gas pipeline certification.
• Ukraine's Naftogas says energy infrastructure in the country has not been damaged.
• India to discuss ways to mitigate high global crude oil prices, and other commodities, according to a source cited by Reuters.
• Haven demand has bolstered spot gold and silver prices, with the yellow metal extending gains above USD 1,950/oz.
• LME aluminium surpassed its 2008 peak to reach fresh record highs.

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CRYPTO

• Crypto markets have held onto the downside seen since last night; Bitcoin hovers around USD 35k.

APAC TRADE

EQUITIES

• APAC stocks slumped as geopolitical fears of an imminent strike on Ukraine came to fruition.
• ASX 200 fell beneath the 7k level with losses led by tech and miners despite Rio Tinto's record profit.
• Nikkei 225 slumped below 26k for the first time since late 2020, mired by geopolitics and haven flows.
• Hang Seng and Shanghai Comp. weakened as bourses were hit by the Russian offensive with Hong Kong dragged lower by tech as Alibaba shares slumped ahead of earnings.

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 6.3280 vs exp. 6.3291 (prev. 6.3313)

CENTRAL BANKS

• BoE Chief Economist Pill said recovery from the pandemic is continuing and the cost of living pressure means it is not an easy time. He added the BoE will seek to bring inflation down in a "measured" way that does not disturb the economy, via the Daily Echo.
• ECB is closely monitoring the implications of the situation in Ukraine, according to Reuters.
• ECB's Stournaras says APP should remain open-ended, APP should continue until at least year-end; Ukrainian crisis is deflationary over the medium-to-long term, according to Reuters. He backs removing from guidance "lower" on level of rates and backs removing from guidance "shortly", stipulating that APP should end "shortly before" a rate hike.
• Hungarian Central Bank raises 1-week deposit rate by 30bps as expected to 4.6%, according to Reuters.
• BoK maintained its base rate at 1.25%, as expected, with the decision unanimous. BoK forecasts GDP growth at 3.0% in 2022 and 2.5% in 2023, while it sees 2022 inflation at 3.1% (prev. 2.0%) and 2023 inflation at 2.0%.