Original insights into market moving news

[PODCAST] European Open Rundown 22nd February 2021

  • Asian equity markets began the week indecisively with weekend newsflow not providing much to spur sentiment in either direction
  • In FX, the DXY remains supported with the US 10yr yield reaching 1.3940% overnight. GBP/USD maintains 1.40 status
  • UK PM Johnson is to announce his roadmap for exiting lockdown to Parliament at 1530GMT. Press conference at 1900GMT
  • UK Chancellor Sunak is reportedly set to hike UK corporation tax in the Budget announcement on March 3rd
  • Goldman Sachs forecasts Brent crude to reach USD 70/bbl in Q2 and USD 75/bbl in Q3
  • Fed's Williams said the rise in 10-year yields is not a concern and is a response to fiscal support and vaccines
  • Looking ahead, highlights include German IFO, ECB's Lagarde, Fed's Bowman


US CDC reported total COVID-19 cases rose to 27.88mln from 27.81mln and total deaths rose to 496.1k from 494.0k the day before. (Newswires)

White House COVID adviser said there is a backlog of 6mln doses due to weather and that all backlogged doses will be delivered in the week ahead with some being delivered in the next few days. (Newswires)

NIH's Fauci said that single dose numbers "look interesting" but we don't know how durable the response is and that the government will stick with recommending two doses. (Newswires)

Pfizer (PFE) has so far supplied 40mln doses of its COVID vaccine to the US and has reduced the timeline to produce vaccine to 60 days, while it expects to release 200mln doses by end-May which is two months early. It was also reported that the Pfizer/BioNTech COVID-19 vaccine is said to be 98.9% effective at preventing COVID-19 deaths and was 89.4% effective at preventing laboratory-confirmed infections according to reports citing a draft publication of the study conducted by the companies and Israel’s Health Ministry. (Newswires)

UK COVID-19 cases +9,834 (prev. +10,406) and deaths +215 (prev. +445), France cases +22,046 (prev. +16,546) and deaths +160 (prev. +183), while Italy cases +13,452 (prev. +14,931) and deaths +232 (prev. +251). (Newswires)

UK PM Johnson’s plans to ease COVID-19 restrictions, which will be unveiled on Monday, will see families reunited and all schools to reopen within weeks. Schools are set to reopen on March 8th, the rule of six for two households to meet up will return on March 29th. Non-essential retail will likely reopen in April, whilst May could see the reopening of pubs, restaurants and hairdressers. (Newswires/Guardian/Telegraph) Johnson will address parliament at 1530GMT and hold a press conference at 1900GMT

UK Health Secretary Hancock said early data shows vaccines lead to a reduction in transmissions and there are signs hospitalizations are declining much more sharply than during the first wave. Hancock also stated that we do not have confidence yet whether the vaccine is as effective against Brazil and South African variants although they think cases of the South African variants in Britain are shrinking, while Hancock earlier noted that clinical trials are underway to determine if children should get COVID-19 vaccinations (Newswires)

UK is to significantly increase the pace of its COVID-19 vaccination program in which it targets offering shots to everyone aged 50+ by mid-April and to all adults by the end-July. (Newswires)

Italy's regional governors are to request the national government increase efforts to find more COVID-19 vaccine doses and they also seek new parameters for the tightening of restrictions in parts of the country. (Newswires/Ansa)

New Zealand PM Ardern announced that Auckland alert level will be lowered to level 1 from midnight today. (Newswires)


Asian equity markets began the week indecisively heading closer to month-end as participants digested a continued increase in yields and with weekend newsflow not providing much to spur sentiment in either direction. ASX 200 (-0.2%) traded lacklustre with strength in mining stocks offset by a subdued picture across the broader market and as attention remained dominated by a slew of earnings results. Nikkei 225 (+0.8%) outperformed after bouncing off the 30k level with Tokyo exporters cheering the recent currency weakness and KOSPI (-0.7%) initially benefitted from strong trade data which showed exports and imports during the first 20-days of February surged by 16.7% and 24.1% Y/Y, respectively, before gradually giving up its gains. Hang Seng (-0.3%) and Shanghai Comp. (-0.1%) were choppy with a bout of early pressure seen in the mainland after the PBoC opted to drain liquidity once again and maintained its Loan Prime Rates as expected. There were also reports last week which underscored the ongoing friction between US and China and potential for this to spillover to the rare earths trade, although mainland markets briefly pared their losses as participants reflected on comments from Chinese Foreign Minister Wang Yi who stated that China always advocates win-win cooperation and seeks dialogue not confrontation with the US. Furthermore, Wang added that both sides must respect each other and hopes the US will adjust policies, remove unreasonable tariffs on Chinese goods and abandon suppression of Chinese tech progress, while he also called on the US to stop smearing China's Communist Party and stop conniving with separatist forces. Finally, 10yr JGBs were lower and briefly broke beneath the 151.00 level as they tracked the declines in T-notes and with yields resuming their recent ascent, while the BoJ were in the market today although this was only for a total of JPY 250bln of bonds spread across 10yr+ maturities, floating rate and inflation-indexed bonds.

PBoC injected CNY 10bln through 7-day reverse repos at rate of 2.20% for a net daily drain of CNY 40bln. (Newswires) PBoC set USD/CNY reference rate at 6.4563 vs exp. 6.4600 (prev. 6.4624)

  • PBoC 1-Year Loan Prime Rate 3.85% vs exp. 3.85% (prev. 3.85%)
  • PBoC 5-Year Loan Prime Rate 4.65% vs exp. 4.65% (prev. 4.65%)

China Foreign Minister Wang Yi said US and China should handle their own affairs while working together for humanity and stated that the root cause of bilateral difficulties was the prior US administration taking measures to suppress and contain China, while he suggested China and the US must respect each other and not interfere in each other's internal affairs. Wang also stated China is always committed to protecting human rights with Xinjiang and Tibet shining examples of China's progress on human rights given the regions' socio-economic development and noted that China always advocates win-win cooperation, as well as seeks dialogue not confrontation. Furthermore, he urged the US to stop smearing China's Communist Party and stop conniving with separatist forces, while he hopes the US will adjust policies and remove unreasonable tariffs on Chinese goods, as well as abandon the suppression of Chinese tech progress. (Newswires)

China is to enhance its capability to secure supplies of grains and agricultural products, in which it will diversify imports of agricultural products and support companies’ integration into the global supply chain of agricultural products. (Xinhua)

Banking sources stated they believe Microsoft (MSFT) could make another run at TikTok if the Oracle (ORCL) deal falls through, according to FBN. (Fox Business News)


UK Chancellor Sunak is reportedly set to hike UK corporation tax in the Budget announcement on March 3rd in an effort to raise an additional GBP 12bln of government revenue, while other reports noted that Sunak is preparing to even out the North-South divide by providing tax relief for heavy industry which would favour towns and cities in Midlands and the North of England where more heavy industries are located. Furthermore, experts also warned that Sunak could target pensions tax relief as early as the next Budget to shore up the nation's finances. (CITY A.M./Telegraph/Express)

UK is to widen its support for the fishing industry in which financial assistance will be made available to more businesses in the industry after being impacted by post-Brexit issues and weaker demand from the pandemic. In other news, UK and France agreed to ease COVID-19 requirements for truck drivers in which they will no longer be required to take a COVID-19 test if they spent less than 48 hours in the country. (Newswires)

UK could reportedly declare 'water wars' with the EU by restricting imports of mineral water and several food products from the bloc in retaliation to Brussels' blockade on shellfish from Britain. (Telegraph)

German Finance Minister Scholz warned the federal budget for next year will be a “challenge” and vowed not to reduce investment or welfare spending. (Newswires)

ECB is reportedly to adopt a less aggressive approach to climate change, opting to lean on improved financial modelling and other measures instead of green asset purchases. (FT)


In FX markets, the DXY traded choppy but was ultimately kept afloat by the flimsy risk sentiment in stock markets and amid higher US yields whereby the 10yr and 30yr yield reached their highest levels in around a year, which has got participants looking towards Fed Chair Powell’s semi-annual testimony to Congress this week for clues on his thoughts regarding the recent increase in yields. The greenback’s major counterparts were also indecisive with the price moves in EUR/USD largely at the whim of the greenback and GBP/USD briefly tested 1.4050 to the upside to reach its highest since early 2018 where it then met resistance and reversed course, while focus for the currency turns to UK PM Johnson who will unveil his blueprint to exit the lockdown later today. USD/JPY held on to recent gains supported by widening yield differentials and antipodeans were also kept afloat by strength in Chinese metal prices which hit limit up shortly after the open and after S&P raised New Zealand’s sovereign rating by one notch to AA+; Outlook Stable from AA; Outlook Positive, while the NZIER shadow board also suggested there is little need for the RBNZ to adjust policy settings at this week’s meeting.

S&P raised New Zealand sovereign rating to AA+; Outlook Stable from AA; Outlook Positive, while Fitch affirmed Australia at AAA; Outlook Negative and affirmed Turkey at 'BB-'; Outlook Revised to Stable from Negative. (Newswires)


WTI crude futures gained at the open and eventually reclaimed USD 60/bbl despite the flimsy risk tone. Nonetheless, price action in WTI remained within the ranges of Friday's choppy trade amid a lack of significant news catalysts over the weekend although there were reports of some refineries restarting operations as others may face weeks of delays due to damages, while there were also bullish forecasts from Goldman Sachs which brought forward its estimate and now sees global oil demand to reach 100mln bpd by late-July. Gold prices were marginally positive but with gains capped as the USD was supported amid the continued increase in yields and copper outperformed in which COMEX futures reached their highest since 2011 with gains exacerbated in tandem with momentum across commodity prices in Shanghai where several metal contracts reached limit up in early trade.

Baker Hughes weekly rig count: oil rigs -1 at 305; natgas rigs +1 at 91; total rigs unchanged at 397. (Newswires)

Exxon is restarting its Beaumont, Texas refinery (366k bpd) and Valero was said to restart the Corpus, Christi Texas refinery East Plant (115k bpd). (Newswires)

Iraq’s Oil Minister announce the country halted its prepayment deal for oil with a Chinese company due to oil price increases, while it was separately reported that Algeria named Mohamed Arkab as the new Oil Minister following a government reshuffle. (Newswires)

Goldman Sachs forecasts Brent crude to reach USD 70/bbl in Q2 and USD 75/bbl in Q3. Furthermore, Goldman Sachs brought forward its expectations for global oil demand to reach 100mln bpd to late-July from August, while its base case for the March OPEC+ meeting is for a 500k bpd increase in quotas in April and for Saudi Arabia to reverse its 1mln bpd voluntary cut. (Newswires)


UN nuclear watchdog found uranium particles at two Iranian sites it inspected after months of stonewalling and it is preparing to rebuke Tehran for failing to explain which possibly complicates US efforts to revive nuclear diplomacy, according to diplomats. (Newswires)

IAEA Chief Grossi said there was a good and reasonable result from talks with Iran and that it was agreed that the IAEA will continue necessary verification and monitoring activities up to 3 months, although there will be less access and there will no longer be snap inspections. (Newswires)

Iran Foreign Minister Zarif said Iran’s decision to end snap inspections by the IAEA does not violate the 2015 nuclear deal and stated that Iran has nothing to hide nor is it seeking nuclear weapons. Zarif also stated that talks with US will begin when all sides fulfil their obligations under the nuclear deal and that US is addicted to sanctions but Iran will not yield to the pressure, while he added that President Biden has not changed the previous administration’s maximum pressure policy on Iran. (Newswires)

White House said the US has no plans to withdraw snapback sanctions on Iran and that the goal is to prevent Iran acquiring nuclear weapons. There were also comments from national security adviser Sullivan that the US started communicating with Iran over detained US citizens, although an Iranian news agency noted that there has been no direct communication and that messages instead have been exchanged through the Swiss Embassy in Tehran. (Newswires)

US President Biden’s administration singled out a Russian ship for violating US prohibitions on constructing the Nord Stream 2 pipeline, which paves the way for a fresh round of sanctions, while national security adviser Sullivan stated that the US will respond to the Russian-suspected SolarWinds hack in “weeks, not months”. (Newswires)

UK Foreign Secretary Raab is today to call on UN Investigators to access Uighur camps in Xinjiang, China due to alleged human rights abuses, and to investigate violations in Myanmar, Belarus & Russia. (FT)


The Treasury complex saw yields inch up to fresh cyclical highs once again, although Friday's action has not been as sharp as the upside seen on Tuesday. The action seems to have been a function of lawmakers talking up the next part of their stimulus objectives, a 3-5trln infrastructure plan that will come in addition to the USD 1.9trln Democrat lawmakers are negotiating to get through Congress now. In addition to the generally decent tone of incoming data (data surprises have jumped this week, with Citi's index moving to 79.8 from 48.5 at the start of the week), positive vaccine related trends, as well as a Fed that has shown willingness to look through inflation in favour of growth and labour market metrics, steepeners have once again come back in vogue; the 2s10s spread has widened from around 95.8bps at the start of the week to over 123bps as we look to close out the week. Note, the 30-year TIPS yields were positive for the first time since June. A few caveats have been offered by some desks: that USD 1.9trln is likely to be revised down by the time it gets through the Senate, there could be a dovish impulse from Fed Chair Powell's testimony to lawmakers next week (the testimony released today was largely in line with recent commentary from senior Fed officials, as well as the FOMC statement), and many caution that some metrics for February (take the University of Michigan's prelim confidence data, for instance) highlight that the path ahead still faces challenges that could derail reflationary plays. But for now, the steepening base case that many had projected at the beginning of the year remains intact. T-note futures (H1) settle 13 ticks lower at 135-14+.

Fed's Williams (voter) said the rise in 10-year yields is not a concern and is a response to fiscal support and vaccines. Williams added that the economy is still in a deep hole and has quite a way to go to get back to max employment, while Williams is not concerned about fiscal stimulus being excessive. (Newswires)

Fed's Rosengren (non-voter) said the fiscal package being considered right now is appropriately big and that given disruptions in the labour market, fiscal and monetary policy response should be aggressive. Rosengren added we can worry about fiscal sustainability issues once we get closer to full employment and that there is time to pull back on policy if the economy comes back faster than we're expecting. (Newswires)

US Senate Democrat Leader Schumer said the Senate is on track to pass COVID stimulus by 14th March, when enhanced unemployment benefits expire. (Newswires)