• Asia-Pac stocks traded mixed with early optimism in the region soured by a resumption of the surge in US yields
• The US 10yr cash yield briefly topped 1.85%; US equity futures were softer across the board
• European futures are indicative of a softer open with the Eurostoxx 50 future lower by 0.4% after the cash market closed higher by 0.7% yesterday
• BoJ maintained policy settings as expected and reaffirmed its dovish stance
• DXY heads into the European open on a firmer footing, nudging EUR/USD back below 1.14
• Looking ahead, highlights include UK Labour Market Report, German ZEW, supply from the UK & Germany, earnings from Goldman Sachs

CORONAVIRUS UPDATE

Japan is to suspend vaccine and test program due to Omicron and is reportedly eyeing three-week quasi-state of emergencies for Tokyo and other areas. It was also reported that Tokyo is considering COVID restrictions on alcohol and opening hours, while Japanese Chief Cabinet Secretary Matsuno later confirmed that Tokyo and nine other areas requested COVID-19 measures. (Newswires/NHK)

China announced it will not sell Beijing Winter Olympics tickets to the general public and instead will only have selected spectators amid the COVID-19 outbreak, while other reports also noted that Beijing reported another locally-transmitted Omicron case. (Newswires)

ASIA

Asia-Pac stocks traded mixed with early optimism in the region soured by a resumption of the surge in US yields as trade got underway from the US holiday. US equity futures resumed trade flat but thereafter experienced pressure with the NQ (-1.1%) the laggard as US yields surged, with the 10yr cash yield briefly topping 1.85%. European equity futures were also softer overnight but to a lesser extent (Euro Stoxx 50 Mar'22 -0.4%). In APAC, the ASX 200 (-0.1%) was initially kept afloat by strength in tech and the mining sectors with the latter unfazed by Rio Tinto’s weaker quarterly iron production and shipment numbers as the mining heavyweight’s FY22 guidance was relatively in line with forecasts, although the gains were later faded amid losses in the top-weighted financials sector and a rise in US yields to their highest in two years. The Nikkei 225 (-0.3%) benefitted early on from the recent JPY weakness and after the BoJ policy announcement in which it maintained policy settings as expected and reaffirmed its dovish stance. The central bank reiterated that it will take more action without hesitation if needed and that it expects rates to remain at current or lower levels, which was at a contrast to a prior source report that suggested debate among policymakers on how soon a rate increase can be signalled, although the Japanese benchmark later slipped into the red as the spotlight turned to the higher US yields. The Hang Seng (-0.4%) and Shanghai Comp. (+0.7%) were mixed with outperformance in the mainland following the PBoC’s liquidity efforts and with many anticipating further policy action from China. This helped the mainland shrug off the early indecision brought on by ongoing developer headwinds and virus concerns that have prompted China’s decision to refrain from selling Beijing Winter Olympics tickets to the general public amid the COVID-19 outbreak. Finally, 10yr JGBs were initially kept afloat with mild support heading into the BoJ policy announcement where the central bank maintained it policy settings and reiterated its intentions to sustain powerful monetary easing, although JGBs then retreated in tandem with the pressure in T-note futures as US yields resumed their advances to the highest levels since January 2020 which saw yields in the belly up by around 10bps and the 10yr yield briefly rose above 1.85%.

• PBoC injected CNY 100bln via 7-day reverse repos with the rate at 2.10% for a CNY 90bln net injection. (Newswires)
• PBoC set USD/CNY mid-point at 6.3521 vs exp. 6.3522 (prev. 6.3599)

China NDRC official said the challenges facing China's economy are not small and trade also faces large uncertainties, while sporadic COVID-19 outbreaks directly weigh on consumption and investment growth is constrained. Furthermore, the official stated that small firms face increasing difficulties and market confidence fluctuates but noted China still has relatively large room for macro policies and more policy tools in reserve. (Newswires)

BoJ kept monetary policy settings unchanged, as expected, in which it held rates at -0.10% and the 10yr JGB yield target at 0% with the YCC decision made by 8-1 vote as Kataoka dissented. BoJ stated that it expects rates to remain at current or lower levels and that it will take more action without hesitation if needed, while it noted that risks to the price outlook are roughly balanced and risks to economic activity are skewed to the downside but stated that Japan's economic pick-up is becoming clearer and the economy is likely to recover. Furthermore, it decided to extend loan disbursements under its fund-provision scheme by one year to stimulate bank lending, while it lowered its FY21 Real GDP forecast to 2.8% from 3.4% but raised FY22 estimates for Real GDP to 3.8% from 2.9% and for Core CPI to 1.1% from 0.9%. (Newswires)

UK/EU

UK PM Johnson's former top aide Cummings claims the PM lied to Parliament as he was warned about holding a drinks party in the No 10 garden during lockdown. (Twitter/BBC)

Eurogroup President Donohoe said higher inflation levels will persist longer than previously anticipated but believes inflation will ease this year and stated that efforts to support the economy during the pandemic were adequate. (Newswires)

FX

In FX, the DXY was choppy with price action kept rangebound at the 95.00 status owing to yesterday’s holiday closure in the US, but was later underpinned as US yields advanced to two-year highs. EUR/USD faded early marginal gains and retreated beneath 1.1400 where it has found some support and with price action contained as catalysts from the bloc remained light although there were comments from German Finance Minister Lindner that Berlin wants to respect fiscal rules as it helps to control price developments and he expects a real debate around the EU's fiscal rules to start in June, while he suggested it is time to build up fiscal buffers again and EU's Dombrovskis suggested some areas of agreement could be emerging on a more gradual debt reduction path in the EU fiscal rules review. GBP/USD attempted to nurse losses after it briefly declined beneath the 1.3650 level but with the recovery hampered by rising US yields and as political turbulence continues to resonate. USD/JPY and JPY-crosses were lifted after the BoJ policy announcement where the central bank maintained its policy settings and upgraded its FY22 core inflation view as expected, while it also maintained a dovish tone which was at a contrast to a recent source report that suggested debate regarding how soon a rate increase can be signalled. Antipodeans initially benefitted from the early humdrum mood in USD and higher oil prices, albeit just marginally as NZD/USD struggled with resistance at the 0.6800 handle and following weaker quarterly NZIER Business Confidence/Capacity Utilisation data, while the gains in activity currencies were later wiped out as market sentiment soured and the greenback coat-tailed on rising yields.

COMMODITIES

Commodities were mixed with outperformance in oil prices amid geopolitical tensions following a deadly drone attack on facilities in the UAE by Yemeni Houthis who also warned of further attacks on more important sites and after the Saudi-led coalition conducted its own strike against Houthis in Sanaa. This underpinned Brent crude to its highest level since 2014 and WTI crude reclaimed the USD 85/bbl level for the first time since October, while UAE’s ADNOC activated necessary business continuity plans to ensure supply of products to its customers and there were also some bullish comments from Goldman Sachs which sees Brent crude to reach USD 96/bbl this year and USD 105/bbl next year. Gold traded choppy and faded early gains as the USD and yields climbed, while copper prices were constrained by the mixed risk tone although tin rose to a record high on LME attributed to a supply squeeze and demand surge.

UAE’s ADNOC stated that it activated necessary business continuity plans to ensure reliable and uninterrupted supply of products to local and international customers following the incident at Mussafah Fuel Depot in Abu Dhabi. (Newswires)

GEOPOLITICAL

Yemen's Houthis said five ballistic missiles and numerous drones were used in the attack on Abu Dhabi and Dubai airports, as well as an oil refinery and other sensitive targets in UAE. Furthermore, the Houthi military warned of further attacks on more important sites in the UAE and said that a Saudi-led coalition strike on Yemen's Sanaa killed 12 people including women and children, while there were also comments from the UAE Foreign Ministry that they reserve the right to respond to the Houthi "terrorist" attack in Abu Dhabi. (Newswires)

UK Minister of Defence Wallace invited his Russian counterpart to visit London in the next few weeks and said the UK is supplying Ukraine with light, anti-armour defensive weapon systems for self-defence given Russia's latest behaviour. (Newswires)

North Korea said that it tested tactical guided missiles on Monday and it was separately reported that North Korea was said to be using Russian satellite navigation, system for its missile tests. (KCNA/SCMP)

US

US airline CEOs expressed alarm in a letter to the White House regarding the impending 5G service that will begin on Wednesday in which they suggested that it will result in major flight disruptions and said that immediate intervention is needed, while it was also reported that key congressional Democrats support airlines' request to delay some 5G service set for Wednesday amid concern that the new technology near airports could interfere with critical airplane equipment such as radio altimeters. (Newswires)