From Marc to Market, February 14:
Overview: Fear of a Russian invasion of Ukraine, spurred by comments from US officials triggered a dramatic market reaction ahead of the weekend, and it has continued today. Risk has come off in many markets. Equities have tumbled. Most of the major bourses in the Asia Pacific region were off 1-2%. Australia was a notable exception as its gold and energy stocks lifted ASX 200. The Stoxx 600 is off around 2.5% near midday in Europe, its third consecutive fall. US futures are off about 1% lower. Bond markets are bid. The US 10-year Treasury yield is near 1.92% after poking above 2% last week. European yields are 4-7 bp lower, and the peripheral premium is edging wider. The yen and Swiss franc are firm, while the other majors, led by the Scandis and Antipodeans are around 0.50%-1.0% lower.
Emerging market currencies are mostly lower, with central European currencies particularly vulnerable. Gold is consolidating after surging to three-month highs near $1865 before the weekend. Oil edged higher initially, with the March WTI contract rising to almost $95 before steadying. US natural gas prices are snapping a three-day decline to surge 5% today, while Europe's benchmark is almost 10% higher. Iron ore was off around 1% for its first back-to-back loss in a month. Copper is softer after falling 3.3% before the weekend.
Asia Pacific
The Bank of Japan pre-announced its willingness to buy an unlimited about of 10-year bonds at 0.25% today. However, there were no offers for the first such operation in three years. The fall in global yields saw the JGB yield ease slightly. The BOJ's challenge of defending its Yield Curve Control policy is not over. There are also other actions the central bank can take to reinforce its 0.25% cap such as offering to buy at a fixed rate lower than the prevailing market rate. Some upward pressure was seen on the longer-dated bonds, with the 20- and 30-year yields edging higher. Even if the exit from YCC is not imminent, many see it as an ongoing BOJ challenge. Note that the Q4 GDP deflator and the January CPI figures due this week are expected to show deflationary pressures still evident.The People's Bank of China sets the one-year medium-term lending facility tomorrow. The rate was cut by 10 bp last month to 2.85%. The market is split on whether another cut will be delivered now. A Bloomberg poll found 16 of 27 expect no change, while the others expected a 5-10 bp reduction. The PBOC is encouraging lending, and officials have made it easier for property developers to tap cash from home pre-sales. The cap on loans to develop public housing has also been lifted....
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