Citi

European Open

Risk appetite did not receive any love in Monday’s Asian trading after getting tackled hard on Friday post the European close by negative geopolitical headlines. USD was flat in Asian trading after rallying into the NY close, while JPY and CHF were up a tad. Risk currencies AUD and NZD saw drops. Equities, which went down in the NY session, stayed down in Asian trading. The exception to the risk appetite storyline were oil prices, which continued their run upwards into Asian trading. Brent and WTI prices stand north of 95 and 94 at the time of print. UST fumbled, with front and tail end yields up by 3bps. The weekend saw several ECB speakers, whom all had dovish tilts.

Puns aside, today we will look forward to more Fedspeak from Bullard at 13:30 GMT and ECB Speak from Lagarde at 16:00 MGT. We remind for the former that we believe inter-meeting hikes are note on the table, while the latter will be watched for hawkish comments. For data, CZK and INR will see CPI prints at 08:00 GMT and 10:00 GMT respectively.

USD and the focus on FOMC

USD was flat in Asian trading following a sharp rise in DXY post the European close on Friday. This was driven by risk-off sentiment while FOMC remains top of mind for markets. Treasury yields gained modestly in Asian trading, with the front and tail gaining 3bps.

Over the NY session last Friday, expectations for a 50bp hike pared back, with the markets now pricing in about 37bps of hikes in the march FOMC. This is down from about 45bps that was priced in on Thursday post the blockbuster CPI print.

Looking ahead for USD: Fed’s Bullard will give an interview on CNBC at 13:30 GMT. Citi Economics thinks he will likely walk back on his comments from last week suggesting that an inter-meeting hike is on the table. There is some speculation about a potential intermeeting hike Monday, with the scheduled (but regularly occurring) Fed Board meeting. However, Citi Economics does not expect an intermeeting hike before March, and CitiFX Strategy agrees.

Geopolitical risk

Geopolitical risks ratcheted higher in late US trading. The headlines, still unconfirmed by officials included:

–PBS reported that the US expects Russian invasion of Ukraine to begin next week. “The US believes that Russian President Vladimir Putin has decided to invade Ukraine and already communicated those plans to the Russian military. Two Biden administration officials said they expect the invasion to begin as soon as next week.” According to the article, the North Atlantic Council was briefed on the new intel Friday.

–Bloomberg headlines suggested that the US continues to see signs of Russian escalation, which can occur at any time, even during the Olympics.

–Russia and Belarus began their joint military exercises that will continue through February 20. Dmitry Kozak, an aide to Putin, told reporters that “we deeply regret” that the so-called Normandy round of negotiations had failed to overcome differences. He called the current situation a “stalemate.”