It took only a 60 USDJPY pip overnight ramp to send US equity futures 20 points off the overnight lows in the immediate aftermath of the Crimean referendum, which from a massive risk off event has somehow metamorphosed into a “priced in”, even welcome catalyst to buy stocks. The supposed reasoning, and in a world in which Virtu algos determine the price action of the USDJPY from which all else flows based solely on momentum we use the word reasoning “loosely”, is that there was little to indicate that the escalation between Russia and Ukraine was set to accelerate further. As we said: an annexation is now seen as risk off, something even Goldman appears unable to comprehend (more on that shortly). In macroeconomic news, European inflation – at least for the Keynesians – turned from bad to worse after the final February inflation print dropped from the flash, and expected, reading of 0.8% to just 0.7% Y/Y, a sequential increase of 0.3% and below the 0.4% expected, confirming that deflationary forces continue to ravage the continent. The only question is how soon until Europe comes up with some brilliant scheme that will help it join Japan in exporting its deflation.
So in summary, unwind of risk off positions dominated the price action this morning, with stocks in Europe trading higher as market participants breathed a sigh of relief that even though the referendum in Crimea showed an overwhelming support to join Russia, there is little to indicate that the stand-off between Ukraine/Russia will escalate further. As a result, Bunds quickly reversed the initial upside and heading into the North American open are seen lower, with USD/JPY and EUR/CHF also benefiting from flows into riskier assets.
Looking elsewhere, further reduction of the so-called war-premium relating to Ukraine/Russia crisis, saw energy complex come under broad based selling pressure. Going forward, market participants will get to digest the release of the latest US Empire Manufacturing report and NAHB Housing Market Index, while the BoE will conduct its latest APF as part of already announced reinvestment program.
Bulletin news summary from Bloomberg and RanSquawk
- Exit polls show that 95.5% of voters in Ukraine’s Crimea voted to leave Ukraine to rejoin the Russian Federation, however multiple EU and US officials have deemed the vote illegitimate and will not recognise the outcome.
- USD/CNY climbed to its highest level in 10-months overnight, with 1-month implied vol advancing to its highest in over 2 years after the PBoC widened the daily trading band for USD/CNY to 2% from 1%.
- UK listed home builders are also among the best performing stocks following reports that the Help to Buy scheme is likely to be extended in this week’s UK budget.
- Treasuries decline as JPY pares overnight gains, yields 5Y and longer rise by 1bp-2.5bps before Fed meeting begins tomorrow; 96.8% of voters in Crimea backed leaving Ukraine to join Russia, paving way for annexation by Vladimir Putin.
- Putin’s approval rating in Russia reached a three-year high as he poured troops into Crimea amid the overthrow of the Kremlin- backed government in Kiev; EU foreign ministers met today to impose sanctions
- A closely held Chinese real estate developer with 3.5 billion yuan ($566.6 million) of debt has collapsed and its largest shareholder was detained, said government officials familiar with the matter
- The yuan sank to an 11-month low as the PBOC doubled the currency’s trading limits vs the dollar; yuan is allowed, from today, to trade as much as 2% on either side of a daily reference rate compared with a previous limit of 1%
- Euro-area inflation rose 0.7% in February, down from 0.8% in Jan.; the rate has held below 1% for five months, maintaining pressure on ECB to maintain loose monetary policy
- Asking prices for homes in London surged to a record this month, as the buoyant outlook spread to other parts of the country, according to Rightmove Plc
- Sovereign yields mostly higher. EU peripheral spreads narrow. Asian equities mixed, with Nikkei -0.4%, Shanghai +1%; European equity markets, U.S. stock-index futures gain. WTI crude and gold lower, copper gains
US Event Calendar
- 8:30am: Empire Manufacturing, March, est. 7.00 (prior 4.48)
- 9:00am: Net Long-term TIC Flows, Jan., est. $30.0b (prior – $45.9b); Total Net TIC Flows, Jan. (prior -$119.6b)
- 9:15am: Industrial Production m/m, Feb., est. 0.2% (prior -0.3%); Capacity Utilization, Feb., est. 78.6% (prior 78.5%); Manufacturing (SIC) Production, Feb., est. 0.3% (prior -0.8%)
- 11:00am: POMO Fed to purchase $2.25b-$2.75b in 2019-2021 sector
