• European bourses & US futures remain negative but have lifted from the trough that occurred amid the morning's Flash PMIs; further pressure seen post-HD earnings.
• DXY has derived support from upside in US yields, risk aversion and a loss of momentum in some peers, with the index holding around 104.00 despite being pressured to a 103.86 trough post UK PMI data.
• A release which sent GBP/USD to a 1.2113 peak from circa. 1.2000 before hand in a marked hawkish move which also allowed peers, ex-EUR, to trim some downside vs the USD, though this dynamic has since eased.
• Core benchmarks are ultimately pressured despite initial gyrations around geopolitics and PMIs; Bunds at 134.60 within 134,32-134.97 boundaries.
• Gilts are the stand-out laggard following UK Flash PMIs which saw a hawkish re-pricing of market expectations for a 25bp BoE hike in March increase to over 95% from the low-80s before hand
• WTI and Brent April futures have experienced a choppy Tuesday session thus far and are currently modestly firmer with focus on geopols as Putin's speech concludes
• Looking ahead, highlights include Canadian CPI, New Zealand Trade Balance, Speeches from US President Biden & ECB's Lagarde, Supply from US, Earnings from Walmart & Medtronic.

PRESIDENT'S DAY NEWSFLOW RECAP

• US President Biden visited Kyiv, Ukraine before travelling on to Poland; Ukrainian President Zelensky said he and US President Biden discussed long-range weapons during Biden's visit to Kyiv and Ukraine will get a new military aid package worth GBP 500mln to be announced on Tuesday.
• EU's Borrell says had a long conversation with China's top diplomat Wang Yi and asked him not to provide arms to Russia, adding it would be a red line for their relationship; China said they are not going to do it.
• Bundesbank economic outlook: somewhat brighter but high inflationary pressures persist; 2nd round impact of quick wage growth will keep EZ inflation above target for an extended period; Short-term outlook for Germany more favourable than seen just a few months ago; Headline inflation has peaked in Germany but core "to decline only tentatively" in the coming months.
• ECB'S Rehn says it is appropriate to raise rates beyond March and terminal rate could be reached this summer; rates need to say at a restrictive level for some time and should not rush to discuss cuts, hikes should not stop while core inflation is rising and is so high.
• Goldman Sachs lifts forecast for ECB's terminal deposit rate to 3.50%; sees another 25bps hike in June in addition to its prior forecast for 50bps in March and 25bps in May

EUROPEAN TRADE

EQUITIES

• European bourses, Euro Stoxx 50 -0.7%, & US futures, ES -0.7%, remain negative but have lifted from the sessions' trough that printed in wake of the morning's EZ PMI metrics which potentially given the ECB cover to tighten more aggressively.
• The FTSE 100 was dragged lower in tandem though remained somewhat resilient to the strong UK PMIs, which sparked a hawkish re-pricing for 25bp in March from the BoE, with a yield-induced turnaround in HSBC (+2.0%) now proving supportive after initial post-guidance pressure.
• Stateside, futures are lower with the above drivers factoring after Monday's holiday and ahead of the week's key events via FOMC Minutes and PCE; modest further pressure seen post-HD earnings, though futures remain off earlier lows.
• Home Depot Inc (HD) Q4 2022 (USD): EPS 3.21 (exp. 3.28), Revenue 35.719bln (exp. 35.97bln); boosts dividend 10%. -2.8% in pre-market trade
• Click here for more detail.

FX

• DXY has derived support from upside in US yields, risk aversion and a loss of momentum in some FX peers, with the index holding around 104.00 despite being pressured to a 103.86 trough post UK PMI data.
• A release which sent GBP/USD to a 1.2113 peak from circa. 1.2000 before hand in a marked hawkish move which also allowed peers, ex-EUR, to trim some downside vs the USD, though this dynamic has since eased.
• For the EUR, despite hitting a 1.0688 peak following the French PMIs the single currency has failed to hold onto this upside with EUR/GBP action weighing.
• JPY is the incremental laggard given unfavourable yield dynamics for JGBs vs USTs/EGBS while antipodeans have faded amid domestic data for the NZD and despite hawkish RBA minutes for the AUD; currently, around 134.65, 0.623 & 0.688 respectively.
• SEK continues to lift amid further hawkish rhetoric and continuing emphasis on the currency from officials, with EUR/SEK briefly moving below 11.00.
• PBoC set USD/CNY mid-point at 6.8557 vs exp. 6.8550 (prev. 6.8643)
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FIXED INCOME

• Core benchmarks are ultimately pressured despite initial gyrations around geopolitics and PMIs; Bunds at 134.60 within 134,32-134.97 boundaries.
• Gilts are the stand-out laggard following UK Flash PMIs which saw a hawkish re-pricing of market expectations for a 25bp BoE hike in March increase to over 95% from the low-80s before hand; UK supply due.
• Stateside, USTs are softer in tandem with the above narrative with yields elevated and the move fairly broad-based across the curve ahead of Biden and supply.
• Click here for more detail.

COMMODITIES

• WTI and Brent April futures have experienced a choppy Tuesday session thus far and are currently modestly firmer as broader sentiment eases and Putin concludes his speech, despite being initially pressured below USD 76.00/bbl and USD 83/bbl respectively.
• Iran set March Iranian light crude price to Asia at Oman/Dubai +USD 2.00/bbl, according to a Reuters source.
• Russian Deputy PM Novak says oil output reductions in March will be from January levels, according to Interfax; Oil output reduction decision was only made for March. Expects discount on Urals to decrease. Novak has previously said that Russian crude production for January was between 9.8-9.9mln BPD.
• Caspian pipeline consortium is reportedly to suspend crude shipments due to poor weather, via Reuters citing sources.
• Iraq's oil minister says new licensing deals will produce 250k BPD of crude, according to the State News Agency.
• NatGas benchmarks are softer on both sides of the pond, though the magnitude of downside is fairly modest, with broader sentiment dictating price action.
• Spot gold is weighed on by the USD, though the downside is minimal in nature given its traditional haven allure while base metals are mixed overall.
• Click here for more detail.

NOTABLE HEADLINES

• BoE Deputy Governor Woods said he will consult on changes to UK insurance capital rules in June and September, while he added that insurers will have a very good sense of what the changes to capital rules will be by year-end, according to Reuters.
• UK PM Sunak was warned not to undermine Northern Ireland and that an N.I. deal could trigger resignations, according to The Times.
• Germany's tax revenues rose 0.8% Y/Y, which was driven by higher sales taxes and wages taxes, according to the Finance Ministry.
• Hungary's EU funds negotiator said access to the grants and cheap loans could be delayed until the summer (vs prior April guidance) to resolve remaining issues with Brussels over democratic reforms.

DATA RECAP

• UK Flash Composite PMI (Feb) 53.0 vs. Exp. 49.0 (Prev. 48.5); "... the resilience of the economy and the stickiness of the survey's inflation gauges add to the likelihood of the Bank of England tightening policy further, and potentially more aggressively..."
• UK Flash Services PMI (Feb) 53.3 vs. Exp. 49.2 (Prev. 48.7); Manufacturing PMI (Feb) 49.2 vs. Exp. 47.5 (Prev. 47.0)
• EU S&P Global Composite Flash PMI (Feb) 52.3 vs. Exp. 50.6 (Prev. 50.3); "... although inflationary pressures have continued to moderate in February, the survey hints at persistent elevated price trends in the service sector, linked in part to higher wage growth, which will concern ECB policymakers."
• EU S&P Global Manufacturing Flash PMI (Feb) 48.5 vs. Exp. 49.3 (Prev. 48.8); Services Flash PMI (Feb) 53.0 vs. Exp. 51.0 (Prev. 50.8)
• German S&P Global Composite Flash PMI (Feb) 51.1 vs. Exp. 50.4 (Prev. 49.9); "... service sector counterparts who once again highlighted particularly strong wage demands, manufacturers continued to raise their output prices at a robust rate during February, signalling that core inflationary pressures remain elevated."
• German S&P Global Manufacturing Flash PMI (Feb) 46.5 vs. Exp. 47.8 (Prev. 47.3); Services Flash PMI (Feb) 51.3 vs. Exp. 51.0 (Prev. 50.7)
• French S&P Global Composite Flash PMI (Feb) 51.6 vs. Exp. 49.9 (Prev. 49.1)
• German ZEW Economic Sentiment (Feb) 28.1 vs. Exp. 22.0 (Prev. 16.9); Current Conditions (Feb) -45.1 vs. Exp. -50.5 (Prev. -58.6)
• UK PSNB Ex Banks GBP (Jan) -5.421B GB vs. Exp. 7.85B GB (Prev. 27.402B GB, Rev. 25.644B GB)
• UK PSNB, GBP (Jan) -6.242B GB (Prev. 26.581B GB, Rev. 24.823B GB)
• UK PSNCR, GBP (Jan) -28.962B GB (Prev. 17.21B GB, Rev. -1.517B GB)

NOTABLE US HEADLINES

• Click here for the US Early Morning note.

GEOPOLITICS

• Russian President Putin says we will decide on the tasks of the special military operation step-by-step, the West is seeking to change local conflict into a global one. The next steps to strengthen the army and navy should take into account the experience of the special military operation. Expects to enhance cooperation with India, Iran and Pakistan. Adds, if the US conducts nuclear tests then Russia will do the same.
• Ukrainian President Zelensky said he sees resolve from the US and President Biden to end Russian aggression this year and also stated that a world order based on rules, humanity and predictability depends on what happens now in Ukraine, according to Reuters.
• EU's Borrell said he is confident EU members will approve the next Russian sanctions package within the next hours or days and said the sanctions agreement should be reached before the end of the week.
• US Deputy Treasury Secretary Adeyemo says the US and allies are planning new sanctions this week to continue to isolate Russia over the war in Ukraine; additionally, 12 EU nations say Russia is transitioning into a full-on military economy, with a view to sustaining its war efforts, via Reuters citing a document.
• Belarus sees direct threats to its military security, according to Tass citing the Defence Ministry; adds, a significant grouping of the Ukrainian army is massed near its border. Will take adequate measures to respond to military provocations, intends to hold over 150 joint exercises with Russia in 2023.
• Ukrainian Presidential Aide says Ukrainian forces have the situation along the northern border under "special control".
• Japanese PM Kishida said they plan to pledge another USD 5.5bln in aid to Ukraine and announced that they will host a G7 summit meeting this Friday in which Ukrainian President Zelensky will be invited to join. Japanese Finance Minister Suzuki separately announced to hold the G7 financial leaders meeting on February 23rd and will reaffirm a stern stance against Russia at the G7 meeting, while he added they will continue to closely coordinate with other countries on sanctions to achieve the ultimate goal of Russia's withdrawal from Ukraine, as well as noted that measures against Russia and support for Ukraine will be the main topics on the G7 agenda.
• China seeks to broker Russia-Ukraine peace and urged the world to stop saying Taiwan is next after Ukraine, according to Bloomberg.
• Senior aides of Israeli PM Netanyahu and Palestinian President Abbas have been conducting secret talks for almost two months in an effort to de-escalate rising tensions in the occupied West Bank, according to Axios sources.

CRYPTO

• Bitcoin is holding around the USD 25k handle within fairly narrow parameters awaiting the re-entry of US participants after Monday's market holiday.

APAC TRADE

• APAC stocks were subdued with trade mostly kept rangebound in the absence of a lead from Wall Street.
• ASX 200 traded lower amid a deluge of earnings releases including a decline in BHP's profits.
• Nikkei 225 was contained after mixed PMI data in which Manufacturing PMI declined by the fastest pace in two and a half years although Services PMI showed a firmer expansion.
• Hang Seng and Shanghai Comp. were mixed with Hong Kong dragged lower by tech losses, while the mainland was just kept afloat amid strength in developers after China launched an investment pilot for the property sector.

NOTABLE ASIA-PAC HEADLINES

• UK Foreign Secretary Cleverly said he spoke with Chinese Foreign Minister Qin Gang and raised human rights abuses in Xinjiang and the need for peace in the Taiwan Strait during the call, according to Reuters.
• RBA Minutes from the February meeting noted that the board considered a hike of 25bps or 50bps and that a pause was not an option. RBA said there were arguments in favour of both options but it concluded that the case to increase the Cash Rate by 25bps was the stronger one and the Board also agreed further increases would be needed over the months ahead. Furthermore, the RBA noted that monthly meetings allowed for frequent adjustments and that rates have already risen substantially, while it stated the Board will do what is needed to return inflation to the target and that data suggested more breadth and persistence in inflation than expected.
• China's Politburo discussed reforms to party and state organisations, according to state media.

DATA RECAP

• Japanese Manufacturing PMI (Feb P) 47.4 (Prev. 48.9); Services PMI (Feb P) 53.6 (Prev. 52.3)
• Japanese Composite PMI (Feb P) 50.7 (Prev. 50.7)
• Australian Manufacturing PMI (Feb P) 50.1 (Prev. 50.0); Services PMI (Feb P) 49.2 (Prev. 48.6)
• Australian Composite PMI (Feb P) 49.2 (Prev. 48.5)