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Euro Market Open: Cautious APAC trade with Geopolitics in focus

  • Asian stocks traded mostly lower with the region cautious following the sell-off on Wall Street (S&P 500 -2%)
  • US equity futures were mixed overnight, whilst European equity futures are indicative of a softer open
  • DXY edged higher and topped 96.00. Antipodeans lag in the G10 FX space
  • Biden and Putin spoke on Saturday. Separate reports suggest US officials believe Russian action could start as soon as Tuesday
  • Looking ahead, highlights include Fed Closed Board Meeting, Fed’s Bullard, ECB’s Lagarde, German-Ukrainian meeting; earnings from Michelin

Click here for the Week Ahead preview

US TRADE

  • US stocks saw a sharp move lower in afternoon Wall Street trade on Friday amid increased geopolitical tensions coupled with jitters over the Fed response to multi-decade high inflation.
  • CLOSES: S&P 500 -2.0% at 4,416, Nasdaq 100 -3.1% at 14,253, Dow Jones -1.4% at 34,737, Russell 2000 -1.3% at 2,025.

NOTABLE US HEADLINES

  • The busiest US-Canada border crossing has reopened after protests against COVID-19 restrictions closed it for almost a week, according to AP.
  • Goldman has cut its S&P 500 year-end 2022 price target to 4900 from 5100, three months after hiking it from 4700.
  • Apple (AAPL) has boosted retail worker pay, according to Bloomberg.
  • Cisco (CSCO) has made an offer for Splunk (SPLK) in excess of USD 20bln, according to WSJ.

APAC TRADE

EQUITIES

  • Asian stocks traded mostly lower with the region cautious following the sell-off on Wall Street.
    • Nikkei 225 slumped at the open as it played catch-up following its long weekend.
  • ASX 200 bucked the trend as the index was supported by its commodity names.
  • Hang Seng was pressured as daily COVID cases in Hong Kong continue picking up in pace.
  • Shanghai Comp. saw its losses somewhat cushioned amid continued speculation that the PBoC could further ease its monetary policy soon.
  • US equity futures were mixed whereby the RTY maintained modest gains but the ES and NQ moved between gains and losses, markets are looking forward to a CNBC appearance from Fed’s Bullard (13:30GMT/08:30EST on Monday) whose prior remarks stoked speculation about a potential inter-meeting rate hike.
  • European equity futures are indicative of a softer open with the Eurostoxx 50 future down 1.4% after the cash market closed lower by 1.0% on Friday.

FX

  • DXY edged higher and topped 96.000 and set its sight on Friday's high at 96.118.
  • EUR/USD gave up its earlier mild upside and eyed its 21 DMA (1.1331) and 50 DMA (1.1326) to the downside.
  • GBP/USD dipped lower amid the Dollar strength; downside levels include the 21 DMA (1.3531), Friday's low (1.3512), and the 100 DMA.
  • JPY was initially resilient but later succumbed to the Dollar; USD/JPY traded on either side of 115.50.
  • AUD and NZD underperformed amid the risk appetite and with losses in iron ore providing further headwinds.
  • RUB came under pressure in late APAC trade as the threat of sanctions on Russia further materialised, although no headlines coincided with the sudden price action.
  • Turkish Finance Minister announced new economic policies which covers new loans, inflation and gold savings. Turkey reduced VAT on staple foods to 1% from 8%, according to President Erdogan.
  • Fitch cuts Turkey's rating to B+ from BB-; outlook negative.

FIXED INCOME

  • 10yr USTs were contained overnight with a deluge of Fed speak expected in the coming sessions, Wednesday's FOMC Minutes of the January meeting, 20yr bond auction, and Retail Sales.
  • Bund futures caught up to Friday's late US bond bid and the March contract briefly rose back above 166.00.
  • 10yr JGB yields saw early weakness following the BoJ operation flagged on Friday. BoJ offered to buy 5-10yr JGBs at fixed-rate with unlimited amount but there were no takers for the offer.

COMMODITIES

  • WTI and Brent futures marched higher overnight amid the heightening geopolitical tensions with Russia, whilst the Iranian nuclear deal negotiations saw setbacks.
  • Brent Apr' briefly printed above USD 96/bbl; Natgas futures gapped higher.
  • Saudi crown prince Mohammed Bin Salman said around 4% of Aramco (valued at around USD 80bln) will be transferred to the Public Investment Fund, according to an official statement.
  • Spot gold came under mild pressure from the firm Dollar but remained north of 1,850/oz
  • Dalian iron ore futures slumped over 8% following China's jawboning on Friday.
  • Chinese Vice Premier said China is to effectively expand the production of soybean, via state media.
  • US government has suspended all imports of Mexican avocados after a US plant safety inspector in Mexico received a threat, according to Yahoo.

CRYPTO

  • Crypto markets were subdued overnight with Bitcoin down 0.5%.
  • Treasury signaled that crypto miners will not face IRS reporting rules, according to CoinDesk.

NOTABLE APAC HEADLINES

  • PBoC set USD/CNY mid-point at 6.3664 vs exp. 6.3665 (prev. 6. 3681)
  • PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.10% for a CNY 210bln net drain

DATA RECAP

CENTRAL BANKS

  • Fed's Daly (2024 voter) said a "balanced approach" to rate hikes is key, as sees March as an appropriate time to increase. She said inflation is too high and the Fed is actively focused on inflation. She said we need to pull some of the accommodation now but being too aggressive could be destabilising. She noted that markets have priced in both rate hikes and bond tapering, according to Reuters.
  • BoE is reportedly starting talks with the DMO and Treasury about active QE sales but will not consider active QE sales until rates hit 1%, according to Bloomberg sources
  • ECB's Rehn said the central bank needs to look beyond the current spike in inflation to avoid dampening economic growth. Rehn added that wage development in the euro area remains subdued, according to YLE TV1.
  • ECB's Visco sees short term risk of stronger price pressure, but the underlying assumptions for ECB policy are still valid, according to Reuters.
  • ECB's Makhlouf has cautioned that it is "unrealistic" that the ECB will hike rates in June, adding that there is "a bit of a difference" between the ECB's schedule and market pricing. Makhlouf noted that the ECB could halt purchases in June or a few months after, according to Bloomberg

EUROPE-SPECIFIC HEADLINES

  • European is working on a EUR 20bln to counter China's reach over Africa, according to Business Standard.

GEOPOLITICS

Click here for detailed Newsquawk analysis on the Russian situation and its implications.

  • US President Biden and Russian President Putin spoke on the phone on Saturday and agreed to stay engaged in the days ahead, according to Bloomberg.
  • Putin told Biden that US responses to his demands for security guarantees do not address the Kremlin’s key concern, according to Bloomberg.
  • Biden reiterated his warning to Putin that Russia will face severe consequences in the event of an invasion of Ukraine, according to Bloomberg
  • US officials believe Russian action could start as soon as Tuesday, and could include a provocation in Ukraine's Donbas region, or an attack on the capital, Kyiv, sources said, according to Bloomberg's Jacobs.
  • Ukraine has requested a meeting with Russia and other members of a key European security group in the next 48 hours regarding Russia's plans, according to Bloomberg. Ukraine's President has invited US President Biden to visit Ukraine, according to Reuters.
  • US Secretary of State Blinken said the threat of a Russian invasion of Ukraine is high and imminent enough to justify the departure of US embassy staff in Kyiv.
  • US National Security Adviser Sullivan said the US will continue to support Ukraine if Russia invades, and said US will defend NATO territory. Sullivan added that he has seen an acceleration of Russian military activity closer to the Ukraine border, according to Reuters.
  • Russia said it chased away a US submarine in Russian waters in the pacific. The US military said "There is no truth to the Russian claims of our operations in their territorial waters.", according to Reuters' Ali
  • Russia said by spreading disinformation about a planned Russian invasion of Ukraine, Western Countries want to distract attention from their own aggressive actions, according to Reuters.
  • German Vice Chancellor Habeck said we may be on the verge of a war in Europe, according to Reuters citing RTL/NTV.
  • Several nations have been downsizing their embassy personnel in Ukraine in anticipation of an escalation.
  • A senior Iranian security official noted that progress in the Iranian nuclear talks to salvage was becoming "more difficult", according to Reuters.
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