• APAC stocks eventually traded mostly higher but with price action cautious amid geopolitical tensions.
• US-China tensions lingered after China warned against the US escalating the situation regarding the balloon incident.
• North Korea test-fired an ICBM and conducted a multiple-rocket launcher drill.
• European equity futures are indicative of a higher open with the Euro Stoxx 50 +0.4% after the cash market closed down 0.5% on Friday.
• DXY traded on both sides of 104, EUR/USD was capped by resistance at 1.07, AUD marginally outperforms.
• Looking ahead, highlights include Swedish CPIF, EZ Consumer Confidence & Riksbank Minutes, Holidays in US & Canada.

US TRADE

EQUITIES

• US stocks finished mixed after much of the earlier losses were gradually pared throughout the US session in a quiet session as far as data is concerned and with short covering touted into the long weekend with Presidents' Day on Monday, while there were USD 1.8tln in option expiries with a chunky buy-side imbalance into the close.
• SPX -0.28% at 4,079, NDX -0.68% at 12,358, DJI +0.39% at 33,827, RUT +0.21% at 1,946
• Click here for a detailed summary.

NOTABLE HEADLINES

• US President Biden's administration is to call on Congress to raise the cap on fines for rail safety violations and Transportation Secretary Buttigieg is to outline proposals to boost rail safety in the coming days, according to a letter to the US DoT cited by Reuters.

APAC TRADE

EQUITIES

• APAC stocks eventually traded mostly higher but with price action cautious amid geopolitical tensions following North Korea’s missile launches and after talks between the US and China's top envoys failed to smoothen bilateral ties.
• ASX 200 was rangebound amid a slew of earnings and with outperformance in the top-weighted financial industry offset by weakness in tech and commodity-related sectors.
• Nikkei 225 was indecisive around the 27,500 level following North Korea’s missile tests.
• Hang Seng and Shanghai Comp. shrugged off earlier weakness to trade in the green after the continued liquidity injection by the PBoC which also maintained its benchmark lending rates. However, Chinese markets were initially slow to get going as US-China tensions lingered after the meeting between their top foreign affairs officials which included warnings from China against the US escalating the situation regarding the balloon incident, while the US warned of consequences if China provides material support to Russia over the Ukraine war.
• US equity futures (ES unch.) were little changed with US participants absent on Monday for Presidents' Day.
• European equity futures are indicative of a higher open with the Euro Stoxx 50 +0.4% after the cash market closed down 0.5% on Friday.

FX

• DXY traded rangebound on both sides of 104.00 with North American cash markets closed for a long weekend and ahead of this week’s key events stateside including FOMC Minutes and US PCE data.
• EUR/USD was contained amid light newsflow and after pulling back from resistance at the 1.0700 level.
• GBP/USD lacked direction as it took a breather after a recent rebound to the 1.2000 handle and with UK PM Sunak seeking to close a deal on the Northern Ireland protocol as soon as this week.
• USD/JPY remained choppy and briefly tested Friday's lows near 134.00 where support held.
• Antipodeans were mixed amid a quiet data calendar and the somewhat indecisive risk appetite, while participants also await the RBNZ rate decision scheduled for mid-week.
• PBoC set USD/CNY mid-point at 6.8643 vs exp. 6.8655 (prev. 6.8659)

FIXED INCOME

• 10yr UST futures pulled back from 112.00 after Friday’s rebound and with demand hampered by the US holiday.
• Bund futures held on to recent gains above the 135.00 level but with upside capped by quiet newsflow.
• 10yr JGB futures were choppy despite the BoJ’s presence in the market for nearly JPY 1.8tln of JGBs on top of its fixed rate operation, while it was also reported that foreign investors sold a record JPY 4.119tln of JGBs and insurers sold a record JGBs 446.2bln of super-long JGBs last month.

COMMODITIES

• Crude futures partially nursed some of Friday's declines although the rebound was limited by the lack of pertinent news flow and with holiday-thinned conditions.
• Goldman Sachs expects crude prices to rise sequentially to USD 100/bbl by year-end, while it expects gasoline to average USD 3.90 and 4.00 per gallon in 2023 and 2024, according to Reuters.
• Spot gold was kept afloat albeit with price action restricted by an uneventful dollar.
• Copper futures eked slight gains as risk appetite slightly improved during the session.

CRYPTO

• Bitcoin marginally extended on recent gains and retested resistance at the 24,500 level.

NOTABLE ASIA-PAC HEADLINES

• PBoC 1-Year Loan Prime Rate (Feb) 3.65% vs. Exp. 3.65% (Prev. 3.65%)
• PBoC 5-Year Loan Prime Rate (Feb) 4.30% vs. Exp. 4.30% (Prev. 4.30%)
• PBoC reportedly asks banks to slow down loan issuance in February, according to sources cited by Reuters
• US Secretary of State Blinken underscored that the violation of US sovereignty by the Chinese balloon must never occur again and warned of consequences if China provides material support to Russia over the Ukraine war, according to a State Department spokesperson cited by Reuters. Blinken also said that China’s Wang Yi did not apologise for the Chinese balloon and Blinken did not reschedule his trip to China during their meeting, according to an NBC interview.
• China’s Foreign Ministry said top diplomat Wang Yi expressed a ‘solemn’ position on the balloon incident when he met with US Secretary of State Blinken, while Wang called for the US to change course and resolve the damage caused by the indiscriminate use of force to Sino-US ties.
• China’s Foreign Ministry warned the US against escalating the situation regarding the balloon incident and stated that China will follow through and the US will bear consequences if it insists on taking advantage of the issue, according to Reuters.
• White House is to hold talks with Taiwanese officials in Washington during the week ahead with talks meant to be conducted in private to avoid an angry response from China, according to sources cited by FT.
• Chinese medical expert said China is unlikely to see a new wave of COVID-19 outbreaks despite the confirmation of the Omicron XBB.1.5 subvariant in the country, according to SCMP.

GEOPOLITICS

RUSSIA/UKRAINE

• Ukrainian President Zelensky said the Ukrainian military is inflicting extraordinarily significant losses on the Russian army near Vuhledar in the east of Ukraine, according to Reuters.
• Russia’s Kremlin said the West is not willing to engage in Ukraine peace efforts and Russia also accused Ukraine of planning to stage a false flag nuclear incident to pin the blame on Moscow but didn’t give any evidence for the accusation, according to Reuters.
• G7 foreign ministers’ statement noted they remain committed to maintaining and intensifying sanctions on Russia to constrain its war effort and they expect third states not to evade and undermine sanctions on Russia, according to Reuters. It was also separately reported that the US is planning new Russian export controls and sanctions on key industries, according to Bloomberg.
• US Vice President Harris stated that the US formally determines that Russia committed crimes against humanity in Ukraine and said that Russian war criminals will be held to account, while she noted that Russia is ’weakened’ nearly a year after the invasion of Ukraine and that time is not on Russian President Putin’s side regarding the Ukraine war. Harris also said she is troubled that Beijing has deepened its relationship with Moscow since the war began and stated that they have seen both Iran and North Korea provide support to Russia, according to Reuters.
• UK PM Sunak said they should consider how to ensure Russia pays towards Ukraine’s reconstruction and that the international community’s response to Russian aggression has not been strong enough, while Sunak thinks that they are at an inflection point in the conflict and will help other countries that are able to provide aircraft to Ukraine immediately, according to Reuters. Sunak has been urged to put Britain on a war footing and increase defence spending, according to a senior Whitehall source cited by The Telegraph.
• EU’s von der Leyen said the EU aims to use the European Peace Facility and liaise with the defence industry to ramp up the production of ammunition and stated it is time to step up because Ukraine really needs the material. EU’s Borrel also stated that the west has to increase and accelerate military support to Ukraine, while French President Macron said France wants Ukraine to defeat Russia but does not aim for a total defeat of Russia or an attack on its soil, according to Reuters and Le Journal du Dimanche.
• Russian President Putin’s ally and leader of the Chechnya region Kadyrov said that he plans to set up his own private military company one day which will be similar to the Wagner Group.

NORTH KOREA

• North Korea test-fired an ICBM which drew condemnation from the G7, while North Korea confirmed it tested an ICBM that flew 989km at an altitude of 5,768km and said the surprise launch was aimed at confirming the weapon’s reliability, while it also conducted a multiple-rocket launcher drill on Monday morning in which it fired two projectiles and claimed that the weapons used were tactical nuclear attack weapons, according to KCNA.
• North Korean leader Kim’s sister urged the US to stop all acts threatening the security of North Korea and said that Pyongyang has no willingness to deal with South Korea, while she warned of a very strong and overwhelming counteraction to any hostile act. North Korean leader Kim’s sister also stated that it depends on the US whether North Korea will use the Pacific as its shooting range and that North Korea is carefully examining the increased presence of US strategic assets in the region, as well as vowed countermeasures if concerns arise, according to KCNA.
• Japan’s Self-Defence Forces conducted a joint drill with the US military, while South Korea and the US also staged a combined air drill involving a US bomber following North Korea’s missile launch, according to Reuters.
• US Secretary of State Blinken said North Korea’s launch was a provocative act and called on countries to take action including the enforcement of sanctions. There were also comments from South Korean Foreign Minister Park who warned that “if North Korea conducts a seventh nuclear test, which could happen at any time, it will be a game changer, in the sense that North Korea could develop and deploy tactical nuclear missiles”, according to Reuters.
• Japanese PM Kishida said North Korea’s missile launch is a threat to the international community, while Defence Minister Hamada said the missile seemed to have the capability to fly in the 14,000km range and could reach mainland US, according to Reuters.
• UN Security Council will hold a meeting on the North Korean missile launches at 20:00GMT/15:00 EST on Monday, according to Jiji.

OTHER

• IAEA inspectors reportedly found uranium enriched to 84% purity in Iranian nuclear sites last week which is just below the 90% needed for a nuclear weapon, according to Bloomberg.
• US Ambassador to Israel Tom Nides said the Iranian nuclear deal is currently on ice and stated that the US will not stand by and watch Iran get a nuclear weapon, while he added that all options are on the table and Israel should do whatever needed regarding Iran and that the US has got their back, according to The Times of Israel.
• Israel conducted a strike which hit the vicinity of the Syrian capital of Damascus, according to Syrian state media. There were also comments from Russia’s Foreign Ministry that Russia strongly condemns Israeli strikes on Damascus and that the strikes violate international law, according to Reuters.
• Israeli PM Netanyahu said Iran was responsible for a reported attack that occurred last week on an oil tanker in the Persian Gulf, according to Reuters.
• UAE told the UN Security Council that it will not call for a vote on Monday regarding the draft resolution demanding Israel immediately cease all settlement activities in occupied Palestinian territory, according to a note cited by Reuters.

EU/UK

• UK PM Sunak is reportedly hoping to reach a deal with the EU regarding Northern Ireland trade rules early this week, according to FT. Elsewhere, it was reported that Sunak's plans to unveil his Northern Ireland protocol deal on Monday before presenting it to The Commons on Tuesday has been delayed, according to The Telegraph.
• UK government said PM Sunak and EU’s von der Leyen had a positive discussion about the Northern Ireland protocol, while they both agreed that there has been very good progress on finding solutions to the issue and intensive work in the approaching days is still needed in the official and ministerial levels, according to Reuters.
• UK PM Sunak is reportedly facing a rebellion over his corporation tax hike which would see the rate raised from 19% to 25%, according to The Telegraph.
• Senior EU official said Hungary must bolster the independence of the judiciary very soon to be able to get billions worth of EU recovery funds, according to Reuters.

NOTABLE HEADLINES

• UK Rightmove House Prices MM (Feb) 0.0% (Prev. 0.9%)
• UK Rightmove House Prices YY (Feb) 3.9% (Prev. 6.3%)