Safe haven flows dominate after Russia attacks Ukraine

Notes/Observations

- Safe haven flows dominate in the aftermath of the Russian special military offensive against Ukraine.

- Brent moved above $100/barrel as Ukraine situation sparked fears of a disruption to the region’s critical energy exports.

- Russian energy giant Gazprom stated that gas transit to EU via Ukraine was normal.

Asia

- Bank of Korea (BoK) left the 7-Day Repo Rate unchanged at 1.25% (as expected). Reiterated stance to assess prior rate hike effects and major nations' policy changes. Reiterated stance to appropriately adjust degree of policy accommodation with any adjustment to depend on covid, growth and inflation situation.

- Reserve Bank of New Zealand (RBNZ) Gov Orr: OCR to be north of neutral rate of 2.00% by this time next year. more monetary tightening will be needed to combat rising inflation.

Russia/Ukraine

- Russia President Putin announced special military offensive against Ukraine.

- President Biden noted Putin has chosen a premeditated war that will bring a catastrophic loss of life and human suffering; to announce further consequences/sanctions on Russia.

- Ukraine President Zelenskiy announces martial law being imposed countrywide as Russia had conducted missile strike on our infrastructure and on our borders.

- White House confirmed call with Ukraine President Zelenskiy and briefed him on steps the US is taking.

- NATO Sec Gen Stoltenberg stated that Russia operation was a grave breach of international law, NATO allies to meet to address Russia operation.

- China said to be prepared to soften economic blow on Russia from sanctions.

Europe

- ECB’s de Cos (Spain) stated that inflation spike was largely unexpected and lasting longer than expected. Could not rule out that conditions for rate liftoff would be met earlier than expected.

- ECB’s Lane (Ireland, chief economist) stated that data suggested inflation might near its medium-term goal.

Americas

- Fed's Daly (non-voter, dove) reiterated it is time for Fed to move away from extraordinary support; Backed Fed hike in March absent a negative surprise.

Energy

- Weekly API Crude Oil Inventories:+6.0M v -1.1M prior.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 -3.23% at 439.18, FTSE -2.76% at 7,291.29, DAX -3.85% at 14,068.50, CAC-40 -3.69% at 6,530.21, IBEX-35 -3.37% at 8,155.50, FTSE MIB -3.84% at 24,959.00, SMI -2.55% at 11,637.70, S&P 500 Futures -2.01%].

Market Focal Points/Key Themes: All European indices open broadly lower but came off the lows a little as the session progressed; early trading in Russia suspended, short selling suspended; geopolitics causing cratering of risk appetite; many major company shares fail to open; reportedly Knorr-Bremse receiving takeover interest; focus on expected announcements of sanctions on Russia, US Q4 GDP figures; earnings expected during upcoming US session include Coinbase, Vallourec, Alibaba and Moderna.

Equities

- Consumer staples: AB InBev [ABI.BE] -0.5% (earnings).

- Energy: Royal Dutch Shell [RDA.NL] -0.5% (Brent oil breaks above $100/bbl).

- Financials: Sberbank [SBER.RU] -39% (Russia invaded Ukraine), Lloyd's [LLOY.UK] -10% (earnings).

- Industrials: BAE Systems [BA.UK] +3% (earnings), Rolls-Royce [RR.UK] -15% (earnings; CEO steps down).

- Telecom: Deutsche Telekom [DTE.DE] -4.5% (earnings).

Speakers

- ECB stated that it was closely monitoring implications of the situation in the Ukraine and would assess the economic outlook at the upcoming March meeting. To implement any sanctions decided by govt.

- ECB's Makhlouf (Ireland) stated that Council might decide QE end date at March meeting despite Ukraine situation. Prospects for rate path remained unclear. Reiterated need to retain optionality amid uncertainty. Wage outlook would not be clear until later in the year. No need for back-up facility to address bond spreads.

- ECB's Stournaras (Greece) stated that Council should continue APP bond buying program (conventional QE) at least until the end of the year and keep it open-ended. Backed removing "lower" from ECB forward guidance on rates. He saw the Ukraine crisis as deflationary over the medium-long term period.

- BOE Pill (chief economist) stated that inflation remained uncomfortably high and would seek to bring it down in a measured way.

- EU Leaders said to discuss massive and severe sanctions on Russia.

- EU Commission President Von Der Leyen stated that it would freeze Russian assets in EU and stop the access of Russian banks to the European financial market. To hit the strategic sectors of Russian economy by blocking access to technology and key markets.

- European Union said to be unlikely to cut Russia off SWIFT global interbank payments system at this time. EU member states said to be reluctant to make such a move citing it would hit Russian banks hard, it would make it tough for European creditors to get their money back. Also noted that Russia had in any case been building up an alternative payment system.

- Finland President Niinisto called for the country to immediately apply for NATO membership.

- Sweden Debt Agency (NDO) on issuance stated it would reduce supply of govt securities. Strong growth would lead to better government finances and lower the borrowing requirement meaning it would cut the supply of government debt..

- Ukraine President Zelenskiy announced it had formally broken off diplomatic relations with Russia.

- Ukraine Central Bank Gov Shevchenko announced emergency measures to ensure stability in the banking sector. Measures taken included suspension of FX market, limits on daily cash withdrawals and ban on international money transfers.

- Russian forces in Moldova region said to begin schedules military exercises.

- Russia’s Gazprom [GAZP.RU] stated that gas transit to EU via Ukraine was normal.

Currencies/Fixed income

- Safe haven flows dominated the session as war gripped Europe with the announcement of Russia’s special military offensive against Ukraine. Brent moved above $100/barrel as Ukraine situation sparked fears of a disruption to the EU region’s critical energy supply.The worst of the session’s risk aversion appeared to ease after Russian energy giant Gazprom stated that gas transit to EU via Ukraine was normal.

- EUR/USD at 3-week lows with the ECB meeting in Paris today for an informal meeting. Dealers believed central banks were likely to tread more cautiously at their upcoming March meeting with the uncertainty on the geopolitical front. The Ukraine situation likely to cause a sharp rise in energy prices. EUR/USD at 1.1200 area by mid-session.

- RUB currency approached the 90 level for record low following Putin's announcement of a special military offensive against Ukraine.

Economic data

- (NO) Norway Dec AKU Unemployment Rate: 3.3% v 3.5%e.

- (SE) Sweden Unemployment Rate: 8.3% v 7.3% prior; Unemployment Rate (seasonally adj): 8.1% v 7.9%e; Unemployment Rate Trend: 8.0%v 8.1% prior.

- (FR) France Feb Consumer Confidence: 98 v 100e.

- (ES) Spain Dec Total Mortgage Lending Y/Y: 32.3% v 29.0% prior; House Mortgage Approvals Y/Y: 23.3% v 24.1% prior.

- (CZ) Czech Feb Business Confidence: 13.1 v 11.0 prior; Consumer Confidence Index: -16.5 v -16.8.

- (TW) Taiwan Jan Unemployment Rate: 3.6% v 3.7%e.

- (TW) Taiwan Jan M1 Money Supply Y/Y: 11.5% v 12.8% prior; M2 Money Supply Y/Y: 7.9% v 8.0% prior; Composite Index (Consumer & Business Confidence): 7.2 v 5.5 prior.

- (TW) Taiwan Q4 Preliminary GDP (2nd reading) Y/Y: 4.9% v 4.9%e.

- (HK) Hong Kong Jan Trade Balance (HKD): +6.6B v -7.4Be; Exports Y/Y: 18.4% v 18.2%e; Imports Y/Y: 9.6% v 11.0%e.

- (HU) Hungary Central Bank raises One Week Deposit Rate by 30bps to 4.60% (as expected).

- (AT) Austria Feb Manufacturing PMI: 58.4 v 61.5 prior (20th straight expansion) - 04:00 (IT) Italy Dec Industrial Sales M/M: -2.1% v 2.4% prior; Y/Y: 14.3% v 22.2% prior.

- (ZA) South Africa Jan PPI M/M: 0.2% v 0.4%e; Y/Y: 10.1% v 10.4%e.

Fixed income issuance

- (IT) Italy Debt Agency (Tesoro) sold €5.5B vs. €5.5B indicated in 6-month bills; Avg Yield: -0.484% v -0.488% prior; Bid-to-cover: 1.46x v 1.42x prior.

Looking ahead

- Virtual G7 Leader Summit.

- (BR) Brazil Jan Central Govt Budget Balance (BRL): No est v 13.8B prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (PL) Poland to sell Bonds.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds.

- 06:00 (UK) Feb CBI Retailing Reported Sales: 25e v 28 prior; Total Distribution Reported Sales: No est v 39 prior.

- 06:00 (CA) Canada Feb CFIB Business Barometer: No est v 54.3 prior.

- 06:00 (UK) PM Johnson to address nation regarding Ukraine.

- 06:00 (CZ) Czech Republic to sell CZK10B in 1-month bills.

- 06:00 (RO) Romania to sell RON500M in 5.5% 2032 Bonds.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (MX) Mexico Dec Retail Sales M/M: 0.3%e v 0.9% prior; Y/Y: 5.9%e v 5.4% prior.

- 07:00 (BR) Brazil Dec National Unemployment Rate: 11.2%e v 11.6% prior.

- 07:00 (CL) Chile Jan PPI M/M: No est v 3.0% prior.

- 07:30 (BR) Brazil Jan Total Outstanding Loans (BRL): 4.710Te v 4.684T prior; M/M: 0.5%e v 1.9% prior; Personal Loan Default Rate: No est v 4.4% prior.

- 07:30 (SE) Sweden Central Bank (Riksbank) Dep Gov Jansson.

- 08:00 (RU) Russia Gold and Forex Reserve w/e Feb 18th: No est v $639.6B prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:15 (UK) BOE Gov Bailey.

- 08:30 (US) Q4 Preliminary GDP Annualized Q/Q: 7.0%e v 6.9% prior; Personal Consumption: 3.4%e v 3.3% prior.

- 08:30 (US) Q4 Preliminary GDP Price Index: 6.9%e v 6.9% prior; Core PCE Q/Q: 4.9%e v 4.9% prior.

- 08:30 (US) Initial Jobless Claims: 235Ke v 248K prior; Continuing Claims: 1.58Me v 1.593M prior.

- 08:30 (US) Jan Chicago Fed National Activity Index: +0.16e v -0.15 prior.

- 09:00 (US) Fed's Barkin.

- 10:00 (US) Jan New Home Sale: 803Ke v 811K prior.

- 10:00 (MX) Mexico Central Bank (Banxico) Feb Minutes.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:00(US) Weekly DOE Oil Inventories.

- 11:00 (US) Feb Kansas City Fed Manufacturing Activity Index: 25e v 24 prior.

- 11:00 (UK) BOE's Broadbent on panel.

- 11:00 (DE) ECB's Schnabel (Germany) at conference.

- 11:10 (US) Fed's Bostic.

- 12:00 (US) Fed’s Mester speaks on Economic and Policy Outlook.

- 12:00 (UK) (UK) PM Johnson in House of Commons.

- 12:00 (CA) Canada to sell 30 Year Bonds.

- 13:00 (UK) BOE Pill (chief economist) at conference.

- 13:00 (US) Treasury to sell 7-Year Notes.

- 14:00 (AR) Argentina Dec Shop Center Sales Y/Y: No est v 57.9% prior; Supermarket Sales Y/Y: No est v 4.3% prior.

- 16:45 (NZ) New Zealand Q4 Retail Sales (ex-inflation) Q/Q: +6.1%e v -8.1% prior.

- 18:30 (JP) Japan Feb Tokyo CPI Y/Y: 0.7%e v 0.6% prior (revised from 0.5%); CPI (ex-fresh food) Y/Y: 0.4%et v 0.2% prior; CPI (ex-fresh food/energy) Y/Y: -0.7%e v -0.7% prior.

- 19:01 (UK) Feb GfK Consumer Confidence: No est v -19 prior.

- 22:00 (CN) China to sell 3-month Bill.

- 22:30 (JP) Japan to sell 3-Month Bills.

- 22:35 (JP) Japan to sell 2-year JGB bonds.