Sentiment hit after Zelensky comments, Bunds hit by hawkish ECB speak - Newsquawk US Market Open

• Sentiment hit across markets after Ukrainian President Zelensky pushes back against US-Russian talks, with equities at fresh lows.
• USD a little firmer, NZD leads post-RBNZ, GBP contained after mixed inflation metrics.
• Crude firmer while aluminium spikes on EU's 16th sanctions package on Russia.
• Gilts lag after UK CPI, USTs await 20yr supply & FOMC Minutes, Bunds hit by hawkish ECB Schnabel comments.
• Looking ahead, highlights include FOMC Minutes (Jan), Comments from Fed's Jefferson, Supply from the US, Earnings from Etsy, Garmin, Wix.com, Analog, Carvana.

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TARIFFS

• US President Trump said he will be announcing large companies that are coming back to the US related to chips and cars, while he added car plants are going to be built in the US and the auto tariff rate will be around 25%. Trump said pharmaceutical tariffs will probably be 25% or higher and will see announcements over the next couple of weeks. Trump also stated he was contacted by companies because of tariffs and that the EU has been very unfair to the US.
• China’s ambassador to WTO said US tariffs create tariff shocks that heighten economic uncertainty, disrupt global trade and risk global recession, while the ambassador added that US unilateralism.

EUROPEAN TRADE

EQUITIES

• European bourses (STOXX 600 -0.4%) began the session on either side of the unchanged mark, continuing the indecisive mood seen in APAC trade overnight. As the morning progressed, stocks dipped lower, with a more pronounced sell-off seen in recent trade; indices generally at lows. The dip in sentiment does come amid commentary via Ukrainian President Zelensky who noted that the US demanding return of USD 500bln in minerals is "not a serious conversation". Seemingly pushing down optimism regarding a near-term Ukraine-Russia peace deal.
• European sectors are mixed vs initially opening with a slight negative bias; the breadth of the market is fairly narrow. Energy is towards the top of the pile, with upside facilitated by gains in BP, alongside broadly firmer oil prices; BP benefits on reports that it is mulling selling its lubricants unit, worth around USD 10bln. Basic Resources is the slight underperformer today, with the sectors hampered by losses in Glencore after its FY results disappointed (details in the FTSE 100 section below).
• US equity futures were initially mixed, but have succumbed to some selling pressure, in tandem with a more pronounced sell-off in European equities.
• Italian prosecutors ask to drop the case against Google (GOOGL) Ireland after the co. agreed to pay EUR 326mln.
• Apple (AAPL) has told UK regulators that its remedy options to address concerns in the mobile browser market would have a 'chilling impact' on Apple's incentives to innovate
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FX

• DXY is steady with the USD showing a mixed performance vs. peers after yesterday's session of gains which some have attributed to a recent pick-up in US yields. Overnight, President Trump stated he will impose 25% tariffs on autos, pharmaceuticals and chips. However, this is a reiteration of recent threats and markets are broadly anticipating a period of "relative calm" ahead of the April 1st deadline. DXY sits towards the top end of yesterday's 106.80-107.22 range, ahead of the FOMC Minutes. Sentiment has been hit in recent trade amid commentary via Ukrainian President Zelensky who noted that the US demanding return of USD 500bln in minerals is "not a serious conversation".
• EUR is softer vs. the USD with macro newsflow for the Eurozone on the light side. As such, geopolitics remains in focus with attention on the fallout from US-Russia discussions on the Ukraine war and what that could mean for the region, mainly via the lens of likely increased issuance for Defence spending. ECB dove Panetta stated that signs of weakness in the EZ economy "are more present than we were anticipating". EUR/USD recently breached the lower end of Tuesday's 1.0435-86 range.
• USD/JPY has traded on both sides of the 152.00 level (151.56-152.31 range) after disappointing Japanese Machinery Orders and Exports, as well as mixed comments from BoJ's Takata who stated the BoJ must gradually shift policy even after January's rate hike to avoid upside price risks from materialising but added that they need to take a cautious approach in shifting policy due to uncertainty.
• GBP is steady vs. the USD following a mixed UK inflation report; CPI Y/Y 3.0% vs. Exp. 2.8% (Prev. 2.5%), Core Y/Y 3.7% vs. Exp. 3.7% (Prev. 3.2%), Services Y/Y 5.0% vs. Market & BoE Exp. 5.20% (Prev. 4.40%). Markets don't fully price the next 25bps rate cut until June with a total of 52bps of cuts seen by year-end. Cable hit a fresh YTD peak at 1.2640 late yesterday but has since faded gains.
• Antipodeans are both firmer vs. the USD with outperformance in the NZD post-RBNZ. NZD was initially pressured after the RBNZ delivered a third consecutive 50bps rate cut and signalled further cuts ahead, although the currency later rebounded off lows after the dust settled and RBNZ Orr suggested at the press conference for a shift to 25bps cuts in April and May.
• PBoC set USD/CNY mid-point at 7.1705 vs exp. 7.2807 (prev. 7.1697).
• Westpac week ahead orders: Buy AUD/CAD at 0.8990, targeting 0.9180, with a trailing stop initially set at 0.8955; Sell CAD/JPY at 107.80, targeting 105.00, with a trailing stop initially set at 108.50.
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FIXED INCOME

• USTs are marginally in the red but essentially flat when compared to EGBs and in particular Gilts. Docket ahead features 20yr supply, FOMC Minutes and remarks from Jefferson (voter) but with the latest building permit/housing start data first. Thus far, specifics for USTs are a little light and as such the benchmark is steady in a slim five tick overnight band between 108-22+ and 108-27. However, it is worth highlighting that long-end benchmarks, particularly the 20yr, trade a little heavy pre-supply.
• A softer morning for EGBs though not to quite the same magnitude as Gilts. Specifics for the bloc light with the focus still firmly on Ukraine and potential defense-related joint issuance. A well-received Bund auction had little impact on German paper.
• Thereafter, remarks via ECB hawk Schnabel, has sparked some additional downside in Bunds, taking them down to fresh lows at 131.58; her comments held a hawkish tilt. She said that “we can no longer say with confidence that our monetary policy is still restrictive", adding that the "we are getting closer to the point where we may have to pause or halt our rate cuts”.
• Gilts are underperforming after a noisy set of inflation data from the UK. Metrics which saw the headline come in hotter than expected though much of this was due to potential one-off factors around Transport and Energy. The all-important Services figure printed cooler than both the BoE and market expected. While there are caveats and positives to the release, this does not however change the overall picture from it of increasing price pressures. The 2028 outing sparked some modest pressure in Gilts, taking UK paper to the a fresh session low of 92.08.
• Amid commentary via Ukrainian President Zelensky who noted that the US demanding return of USD 500bln in minerals is "not a serious conversation", risk-off sentiment crept in. The downside in the complex has subsided and currently traverse worse levels.
• Orders for the new 8yr "BTP Plus" reach EUR 10lbn since start of offer, according to bourse data.
• UK sells GBP 4.25bln 4.375% 2028 Gilt: b/c 3.09x (prev. 3.2x), average yield 4.294% (prev. 4.384%) & tail 0.5bps (prev. 0.2bps)
• Germany sells EUR 3.47bln vs exp. EUR 4.5bln 2.50% 2035 Bund: b/c 2.8x (prev. 2.8x), average yield 2.52% (prev. 2.54%) & retention 22.8% (prev. 23.58%)
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COMMODITIES

• Firmer trade across the crude complex amid ongoing geopolitics and with the European Commission this morning targeting Russian aluminium, shadow fleet and tech. Brent Apr resides in a USD 75.80-76.48/bbl parameter. Some modest pressure has been seen in the complex in recent trade amid commentary via Ukrainian President Zelensky, who seemed to pour cold water on the prospects of a near-term solution to the Ukrainian conflict.
• Modest gains were seen across spot gold and silver with the Dollar steady but as spot gold prints fresh record highs, buoyed by the broader geopolitical landscape, with the US-Russia meeting not received well by Ukraine. Spot gold currently resides in a USD 2,942.21-2,947.08/oz range.
• Base metals are mostly firmer following a mostly lower APAC session, with aluminium prices shooting higher after the European Commission unveiled its 16th Russian sanctions package this morning, targeting Russian aluminium, shadow fleet and tech. 3M LME copper resides in a USD 9,407.85-9,494.00/t range.
• US President Trump said he is looking at Venezuela very seriously and may not let Venezuela export oil via Chevron.
• EU envoys have agreed on the 16th sanctions package against Russia, includes primary aluminium import ban and listing of 73 new shadow fleet vessels. European Commission's 16th sanctions package against Russia expected to be formally imposed on Monday, according to WSJ's Norman.
• Glencore (GLEN LN) believes initiatives to remove some regulation will be positive for commodity markets; demand for commodities looks good in China, which is seen growing 5% in 2025.
• Exxon (XOM) reports that flare gas recovery equipment froze up resulting in release of sulphur dioxide at the 275k BPD Joliet Illinois refinery.
• Turkish Energy Minister says have not received any information from Iraq on resuming oil flows from Iraq-Turkey pipeline.
• China's NDRC will cut retail gasoline and diesel prices by CNH 170/ton and CNH 160/ton respectively, starting February 19.
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NOTABLE DATA RECAP

• UK CPI YY (Jan) 3.0% vs. Exp. 2.8% (Prev. 2.5%); CPI MM (Jan) -0.1% vs. Exp. -0.3% (Prev. 0.3%)
• UK Core CPI YY (Jan) 3.7% vs. Exp. 3.7% (Prev. 3.2%); Core CPI MM (Jan) -0.4% vs. Exp. -0.5% (Prev. 0.3%)
• UK CPI Services MM (Jan) -0.2% (Prev. 0.30%); CPI Services YY (Jan) 5.0% vs. Market & BoE Exp. 5.20% (Prev. 4.40%)
• UK PPI Output Prices MM NSA (Jan) 0.5% vs. Exp. 0.2% (Prev. 0.1%, Rev. -0.2%); PPI Input Prices MM NSA (Jan) 0.8% vs. Exp. 0.8% (Prev. 0.1%, Rev. 0.2%)
• EU Current Account SA, EUR (Dec) 38.4B (Prev. 26.98B); Current Account NSA,EUR (Dec) 50.5B (Prev. 34.62B)

NOTABLE EUROPEAN HEADLINES

• ECB's Schnabel says "we are getting closer to the point where we may have to pause or halt our rate cuts", according to FT. Does not think R-star can be a reliable guide for monetary policy in real-time. "Restriction has come down significantly, up to a point where we can no longer say with confidence that our monetary policy is still restrictive". "I’m not saying our monetary policy is no longer restrictive. What I'm saying is I’m no longer sure whether it is still restrictive. But we should not overstate a difference of 25 basis points". When questioned on "should the ECB drop the reference to restrictiveness in March?", replied "that is a discussion we should have in the next meeting". "I firmly believe in the meeting-by-meeting approach". "...for me, the direction of travel is not so clear anymore". "Both services inflation and wage growth are still at an uncomfortably high level". Should start to see services inflation come down in February. Should stop fine-tuning and responding to single data points.
• ECB's Panetta says signs of weakness in the EZ economy "are more present than we were anticipating". Expected a recovery driven by consumer spending which didn't materialise. A weak economy poses a downward risk for inflation, upward risk is primarily from energy prices. Divergence in regulatory approach between US and Europe poses an issue. Need to avoid starting a de-regulation race. Banking regulation could be simplified.
• UK ONS says average private rents rose by 8.7% in the 12 months to January 2025.

NOTABLE US HEADLINES

• US President Trump said the media seeks to sow division between them when asked about the media description of Elon Musk as an 'unelected president', while Trump said having someone as smart as Elon Musk to work with him in running the country's affairs is very important. Furthermore, he thinks Musk's team will discover a trillion dollars in wasted money.
• US President Trump posted on Truth that the Department of Justice has been politicised like never before over the past four years and he therefore instructed the termination of all the remaining “Biden Era” US attorneys.
• US President Trump said that Republicans would not touch Medicaid, also repeating his assertion that Medicare and Social security would not be touched, via Punchbowl.
• Pharma leaders are to meet with US President Trump in a push to tweak drug policies, according to Bloomberg.
• US Senate confirmed Howard Lutnick as US Commerce Secretary.

GEOPOLITICS

RUSSIA-UKRAINE

• Ukrainian President Zelensky says US President Trump is trapped in a disinformation bubble; US demanding return of USD 500bln in minerals is "not a serious conversation"; "I can't sell our country". Nobody in Ukraine trusts [Russian President] Putin.
• Russia's Kremlin says Russian President Putin/US President Trump meeting will take time to prepare, via Tass. Will first need reanimation of Russia-US relations, then restoration, via Tass. Talks in Riyadh is an important step towards Ukraine crisis settlement. Russian and US mainly discussed their own relations yesterday.
• Ukrainian President Zelensky says "he wants to end war with Russia this year", according to Sky News Arabia
• Kremlin says Russian President Putin and US President Trump meeting may occur before the end of February, according to Interfax. Russia will appoint Ukraine negotiator depending on who the US representative is.
• Russian Foreign Minister Lavrov says he assumes that the US intends to remove obstacles that are in the path of promising projects. Have begun to move away from the edge of the abyss where the Biden admin led the US-Russia relationship.
• European Commission President says "We are committed to keep up the pressure on the Kremlin".
• US President Trump said talks with Russia were very good and he is more confident, while he added that he does not think they would have to remove all troops from Europe and it is fine if Europeans want peacekeeping troops in Ukraine. Trump criticised Ukraine who he said wants a seat at the table but noted that Ukraine has had a seat and this could have been settled easily, as well as falsely accused Ukraine of starting the war and suggested Ukraine should hold an election. Furthermore, Trump said it was the Ukrainian leadership that allowed the war to continue so far and he is disappointed after Ukraine denounced its exclusion from US-Russia talks, while he also stated that he will probably meet with Russian President Putin before the end of the month.
• German Defence Minister said Russian threat will remain even with the possibility of peace in Ukraine and their experts estimate that in 4 to 7 years Putin will be able to launch an attack on NATO territory, according to Al Jazeera.

OTHER

• China’s Foreign Minister Wang Yi met with Bolivia’s Foreign Minister at the UN and said China is willing to work with Bolivia to elevate their strategic partnership, while he added that Latin America belongs to its people and is not any country’s "backyard", as well as stated that China will always be a trustworthy friend and partner of Latin America.
• N12 reports that the Israeli gov't has begun working on an initiative to allow Gaza Strip residents to voluntarily leave to receptive third nations, article adds that such countries "have not yet been identified".

CRYPTO

• Bitcoin is a little firmer and trades just above USD 94k whilst Ethereum sees gains to a slightly higher magnitude.

APAC TRADE

• APAC stocks traded mixed following the somewhat choppy performance stateside as attention centred on US-Russia talks on Ukraine, while US President Trump reiterated threats of tariffs on autos, chips and pharmaceuticals.
• ASX 200 was dragged lower by underperformance in energy and the top-weighted financial sector after a double-digit percentage drop in Santos's underlying profit and Big 4 bank NAB also reported a decline in earnings.
• Nikkei 225 briefly tested the 39,000 level to the downside following disappointing machinery orders and export data.
• Hang Seng and Shanghai Comp were mixed with sentiment in Hong Kong subdued and the mainland kept afloat in a reversal of recent fortunes, while the US tariff threat lingered and Chinese House Prices continued to contract Y/Y albeit at a less severe pace.

NOTABLE ASIA-PAC HEADLINES

• RBNZ cut the OCR by 50bps to 3.75%, as expected, while it said rates were reduced further as inflation abates and if economic conditions continue to evolve, there is scope to lower the OCR further in 2025. RBNZ said the committee has the confidence to continue lowering rates and economic activity remains subdued although the economy is expected to recover over 2025. RBNZ lowered its official cash rate forecast to 3.45% for June 2025 (previously 3.83%) and to 3.1% in March 2026 (previously 3.43%), while it sees the OCR at 3.1% in June 2026 (previously 3.32%) and at 3.1% in March 2028.
• RBNZ Governor Orr said the OCR path projects 50bps by mid-year at around July and suggested two 25bp cuts with April and May 'about right', while he added the economy has significant spare capacity and 3.75% is the high end of the range of neutral rates. Furthermore, he said it would be a beautiful world if they could get rates to neutral and keep them there and they are seeing a turnaround in the economy.
• BoJ's Takata said it is necessary for the BoJ to shift gears as appropriate and BoJ's flexibility has increased, while he added Japan's real interest rates remain deeply negative, with no change to the accommodative monetary environment. Takata said they must adjust the degree of monetary support further if the economy moves in line with the BoJ's forecasts and must gradually shift policy, even after January's rate hike, to avoid upside price risks from materialising. However, he also stated the BoJ needs to take a cautious approach in shifting policy due to uncertainty over the US economic outlook and difficulty in gauging the neutral rate level.
• China issues plan to stabilise foreign investment: Will better utilise foreign investment to strengthen supply chain in the manufacturing sector, promote orderly opening up in the BioPharma field. To encourage financial institutions to provide financing services to foreign-funded enterprises. Foreign invested firms will be allowed to use domestic loans to carry out equity investment. Encourages FDI in livestock breeding, feeding equipment production, feed and veterinary drug production. Will facilitate foreign investors with M&A investment in China.

DATA RECAP

• Chinese House Prices MM (Jan) 0.0% (Prev. 0.0%); YY (Jan) -5.0% (Prev. -5.3%)
• Japanese Trade Balance (JPY)(Jan) -2758.8B vs. Exp. -2100.5B (Prev. 130.9B, Rev. 132.5B)
• Japanese Exports YY (Jan) 7.2% vs. Exp. 7.9% (Prev. 2.8%); Imports YY (Jan) 16.7% vs. Exp. 9.7% (Prev. 1.8%, Rev. 1.7%)
• Japanese Machinery Orders MM (Dec) -1.2% vs. Exp. 0.1% (Prev. 3.4%); YY (Dec) 4.3% vs. Exp. 6.9% (Prev. 10.3%)
• Australian Wage Price Index QQ (Q4) 0.7% vs. Exp. 0.8% (Prev. 0.8%); YY (Q4) 3.2% vs. Exp. 3.2% (Prev. 3.5%)
• Chinese FDI (YTD) (Jan) -13.4% (Prev. -27.1%)