• Asia-Pac bourses traded mostly lower following the losses seen stateside where cyclicals and value underperformed
• In FX, the DXY held on to its gains above 92.00, EUR/USD languished beneath 1.1850, GBP/USD extended on declines
• WTI crude futures languished around USD 58/bbl after the prior day's heavy selling pressure
• South Korean Military confirmed reports that North Korea fired two cruise missiles off its west coast on Sunday
• US President Biden's first proposals on discretionary spending for fiscal 2022 will be released next week and a full budget is expected later in the Spring
• Looking ahead, highlights include UK CPI, EZ, UK & US flash PMIs, CNB rate decision, DoEs, EZ consumer confidence, Fed's Barkin, Powell, Williams, Daly, Evans, Treasury Secretary Yellen, ECB's Lagarde, supply from Germany & the US

CORONAVIRUS UPDATE

US COVID-19 cases +55,902 (prev. +39,466), deaths +986 (prev. +479), vaccines administered (prev. 128mln), those fully vaccinated 45.534mln (prev. 44.91mln). US President Biden said the US will have 600mln doses of COVID-19 vaccines by end-May and that his administration would have distributed 100mln relief checks by Wednesday. (Newswires)

UK PM Johnson said we will continue to work with European partners to deliver the vaccine rollout and are encouraged by some of the things heard from the continent on avoiding trade barriers, while other reports noted that children in the UK will be inline to receive COVID-19 vaccines from August. (Newswires/Telegraph)

Dutch PM Rutte said lockdown measures must continue and announced a decision to extend the lockdown by three weeks, while he recommended against travel abroad until May 15th. Elsewhere, Norway also decided to tighten COVID-19 restrictions due to higher infections. (Newswires)

Hong Kong halted its COVID-19 vaccinations for a single batch of BioNTech (BNTX) shots due to defective packaging and the Macau government also suspended the use of Fosun/BioNTech vaccine due to defects in some vial caps. However, Shanghai Fosun (600196 CH) later stated it does not expect the suspension of BioNTech vaccines in Hong Kong and Macau to impact operations or production. (Newswires)

Australia's New South Wales is to ease restrictions further from Monday in which masks will no longer be mandatory on public transport and restrictions on events such as weddings and dancing will be lifted, while sports venues can operate at 100% capacity. (Newswires)

ASIA

Asia-Pac bourses traded mostly lower following the losses seen stateside where cyclicals and value underperformed amid a stronger USD and rise in treasuries, while soft US new home sales data, talk of future tax hikes and a continued slump in oil prices also contributed to the glum mood. The weak handover pressured most regional markets although antipodes bucked the trend helped by softer currencies, with the ASX 200 (+0.5%) also underpinned as strength across most its sectors atoned for the energy-related woes and following the substantive easing of COVID-19 restrictions in New South Wales. Nikkei 225 (-1.9%) was weighed on by currency inflows and as automakers suffered from the ongoing chip shortages, while KOSPI (-0.4%) reflected on geopolitical events after it was confirmed that North Korea resumed its missile tests last weekend and with chipmakers initially dampened by Intel’s plan to invest USD 20bln on new chip plants to challenge Asian dominance of the sector, although Taiwan’s Economy Minister has since suggested that Intel’s investment plan is not a threat to Taiwan’s chipmakers. Hang Seng (-2.4%) and Shanghai Comp. (-1.4%) were subdued in which the former entered correction territory amid ongoing US-China tensions and the BioNTech vaccination suspension in Hong Kong and Macau due to defective vial caps. Furthermore, participants digested a slew of earnings releases and reports noted expectations of tighter scrutiny on Tencent after its founder met with antitrust officials earlier this month, while the Co. along with Xiaomi are scheduled to announce their results today. Finally, 10yr JGBs gained as they tracked the upside in T-notes and with demand spurred by the broad risk aversion, while the Australian 10yr yield saw the steepest decline overnight and fell by 7bps in the aftermath of the 2032 bond auction.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.5228 vs exp. 6.5232 (prev. 6.5036)

Pentagon Press Secretary Kirby said the significant changes to China's forces concern US Defense Secretary Austin, while other reports noted that a US Admiral warned the threat of Chinese aggression towards Taiwan may be nearer than anticipated. (Newswires/Kyodo)

BoJ Minutes from the January Meeting stated that members agreed the central bank must ease without hesitation if required with an eye on the pandemic. Furthermore, a member stated that the BoJ must scrutinize side-effects of its easy policy such as the impact on financial intermediation and market functions, while a member also suggested that allowing 10yr yields to fluctuate inline with BoJ's current directive will help stabilize the financial system. (Newswires)

UK/EU

FX

In FX, the DXY held on to its gains above 92.00 following the steady climb during US trade amid the broad risk-averse tone and despite softening yields, while there was plenty of commentary from officials including Fed Chair Powell who stated the Fed is strongly committed to price stability and reiterated that they will communicate well before tapering. In addition, Fed's Kaplan provided a more hawkish tone as he expects the Fed to begin raising rates in 2022 and Fed's Bullard suggested that discussions on tapering could begin later this year if we see all the good things happening, while Treasury Secretary Yellen flagged future tax increases in which she expects to examine changes to tax policy which would help to pay for programmes on infrastructure. EUR/USD languished below 1.1850 after breaching its nearby 200DMA owing to the USD strength and with the single currency hampered by lockdown restrictions for the bloc, while GBP/USD extended on its declines alongside ongoing vaccine supply concerns. USD/JPY and JPY-crosses were pressured by the risk-aversion and after outdated BoJ minutes from the January meeting provided very little to spur price action, while antipodean currencies underperformed due to their high-beta statuses, softness in commodities and with trade data largely ignored.

BoC announced the discontinuation of market functioning programmes introduced during COVID-19 crisis including the Commercial Paper Purchase Programme, Provincial Bond Purchase Programme and the Corporate Bond Purchase programme which will be discontinued as originally planned. BoC Deputy Governor Gravelle stated that the BoC is evaluating how the process of adjusting ongoing purchases of GoC bonds could unfold and that adjusting the pace of QE purchases won’t necessarily mean that we have changed our views about when we will need to start raising the policy interest rate. Furthermore, BoC Deputy Governor Gravelle responded BoC has the capacity, but it would be a "break the glass" type of move when asked if the BoC would consider buying equities in a crisis. (Newswires)

Exit polls suggest that Israeli PM Netanyahu is set to fall short of securing the required seats needed to form a new government. (BBC)

• Australian Trade Balance (AUD)(Feb P) 8.1B (Prev. 10.1B)
• Australian Exports (Feb P) M/M 2% (Prev. 6%)
• Australian Imports (Feb P) M/M 2% (Prev. -2%)
• New Zealand Trade Balance (NZD)(Feb) 181M (Prev. -626.0M, Rev. -647M)
• New Zealand Exports (NZD)(Feb) 4.47B (Prev. 4.19B, Rev. 4.20B)
• New Zealand Imports (NZD)(Feb) 4.29B (Prev. 4.82B, Rev. 4.85B)

COMMODITIES

WTI crude futures languished around USD 58/bbl after the prior day's heavy selling amid the negative risk tone and demand concerns due to the recent fresh lockdown announcements in Europe. In addition, slow vaccine rollouts for the bloc and vaccine nationalism which threatens to spillover to the UK's vaccination program is another headwind for demand, while the latest private sector inventories was bearish as it showed a surprise build for headline crude stockpiles. Elsewhere, gold attempted to nurse losses but with the rebound constrained as the greenback held firm, while copper prices remained subdued by the broad risk aversion.

US Private Energy Inventories (w/e March 19th): Crude +2.9mln (exp. -0.3mln), Cushing -2.3mln, Distillates +0.2mln (exp. -0.1mln), Gasoline -3.7mln (exp. +1.2mln). (Newswires)

The Suez Canal in Egypt was blocked by a large container ship which was run aground and has blocked traffic in one of the world's busiest shipping lanes, while it was later reported that Suez Canal authorities have diverted traffic to the older branch after the newer branch was blocked by the container ship. (Newswires)

GEOPOLITICAL

South Korea Military confirmed reports that North Korea fired two cruise missiles off its west coast on Sunday, while it was monitoring it in real time and had detected prior signs. It was also reported that US President Biden responded that nothing much has changed when questioned regarding the North Korean missile launch and there were also comments from a US senior official that the recent North Korean activity is within normal range and that the missile launches were at the low end of the spectrum which involved a short-range system not covered by UN resolutions. Furthermore, US officials do not see the weekend actions by North Korea as closing the door to dialogue, while other reports later noted that the US, Japan and South Korea will meet next week to discuss North Korea. (Newswires/Yonhap)

UK Foreign Secretary Raab said he met with US Secretary of State Blinken, German Foreign Minister Maas and French counterpart Le Drian in person to discuss challenges and opportunities for peace in Yemen. (Newswires)

French President Macron said Turkish and Russian forces in Libya must leave as soon as possible and that France will work with partners to defend Libyan sovereignty. (Newswires)

US

By settlement, 2s unch. at 0.149%, 5s -3.3bps at 0.825%, 10s -4.7bps at 1.635%, 30s -3.9bps at 2.344%; TYM1 volumes were quite light. Inflation breakevens were narrower, mainly at the short-end. Mid-curve Eurodollars rallied, with traders noting liquidations of put spreads in the option space after months of profitable steepening. SOFR unch. at 1bps. NY Fed saw USD 19.526bln in demand at its RRP operation (vs seven-op average 12.564bln). US sold 42-day CMBs at 1bps, 1-year bills at 7bps, and 2-year notes sold on the screws at 0.152%. Sovereigns were bid out of Europe amid the continued cyclical underperformance from Monday. Desks were citing short covering across rates for successful short positions. It appears that following the dot plot resistance seen last week at the FOMC and the heavy messaging from the Fed that it will only react to realised, not forecasted, goals, is keeping a lid on further term premia building in the US rates market. There was some downside seen in the US morning in USTs, coinciding with some hawkish in tone comments from Fed's Kaplan, who talked about being in favour of a hike in 2022 and that he sees 10yr yields backing up into the 1.75-2% range from here. Although heading into the latter part of the session yields crept back towards lows again alongside the haven bid from downside in stocks, in addition to diminished inflation expectations as crude futures took another nasty tumble. T-note (M1) futures settled 12+ ticks higher at 131-29+.

Fed Chair Powell said the Fed is strongly committed to price stability and repeated that inflation is expected to pick up due to base effects, but not expected to be persistent. Powell also stated it is hard to say what the effect of SLR exemption had on Treasury market functioning, but that danger has now passed and SLR was rapidly becoming a bank binding constraint with rapid growth in Treasuries and reserves and that wasn't the Fed's intention. Furthermore, Powell said some asset prices are a bit high although funding risk is relatively modest and banks are well capitalised, while he reiterated that when the time comes, we will communicate well before tapering. (Newswires)

Fed's Brainard (voter) said the Fed will show "resolute patience" in waiting to meet its employment and inflation goals before pulling back on support and will avoid pre-emptive moves on removing support. Brainard also stated it will take some time to achieve substantial further progress on goals although by waiting for realised achievement, policy will be more effective. Furthermore, Brainard noted she would be concerned by disorderly bond market movements or those that threaten the Fed's goals, while she added that discussion of tapering not pertinent to the current period in which the focus is on restoring the job market. (Newswires)

Fed's Bullard (non-voter) said he has pencilled in 6.5% growth and 4.5% unemployment this year, while he added that the dollar will be the world's reserve currency for a "long long time" and is unchallenged in that status for the foreseeable future. Bullard also suggested that we are coming to the end of the war here and that hopefully the pandemic will be behind us. Furthermore, Bullard sees target interest rate staying near zero through to 2023 and said that they are not debating tapering yet although discussion could begin later this year if we see all the good things happening. (Newswires)

US Treasury Secretary Yellen said she expects to examine changes to tax policy as changes will help to pay for programmes on infrastructure and longer-term plan for investments would require some revenue raises. Yellen also stated that once we are beyond the pandemic, President Biden is likely to seek long-term investments that will make the economy more productive and that this will be spending over a 10-year horizon which would require additional funding. Furthermore, she stated that one additional funding measure would be corporation tax rising back to 28% and she also reiterated that she expects we could see a return to full employment next year. (Newswires)

US President Biden's first proposals on discretionary spending for fiscal 2022 will be released next week and a full budget is expected later in the Spring, while there were also separate reports that House Speaker Pelosi is expanding Medicaid in the infrastructure package and said the package should help lower prescription costs. (Newswires/Twitter)