Credit Agricole

Asia overnight

Asian bourses and S&P 500 futures initially started the session on the back foot following the slide in equities in the US in light of geopolitical concerns. The news that US Foreign Secretary Antony Blinken and Russian Foreign Minister Sergey Larov will meet in Europe next week gave sentiment a boost, however, and at the time of writing a modest majority of Asian bourses were trading in the red and S&P 500 futures were trading in the green. G10 FX traded in a modest risk-on fashion with the JPY and CHF the biggest underperformers and the NZD the biggest outperformer during the Asian session.

Citi

European Open

Markets were relatively quiet post the European close yesterday. During Asian trading, however, the edge was taken off the risk-off slant as US accepts talks with Russia’s foreign affairs Minister Lavrov for next week, according to Bloomberg. As we head into the European open, DXY remained flat, while UST yields were higher by 1-2bps across all tenors. G10 currencies were mixed against the dollar, with NZD and NOK outperforming, and JPY lagging. Overnight in the US session, the Fed’s Bullard reiterated his hawkish stance, while more headlines regarding geopolitics were seen from US Secretary of state Blinken. The net result of these 2 sets of headlines were elevated volatility with risk aversion.

Looking ahead, markets will once again watch headlines very closely. On the events front, US will see Leading Index at 15:00 GMT for January, followed by Fed’s Evans and Waller at 15:45 GMT, and we expect focus to be on the Fedspeak. EUR will see Eurozone Consumer Confidence at 15:00 GMT as well as ECB’s Panetta at 18:30 GMT. Citi Economics will watch for any dovish pullback from the latter. At 07:00 GMT, GBP and SEK will see Retail Sales and CPIF data respectively. CAD also sees retail sales, but at 13:30 GMT. While PLN will see Industrial Output at 09:00 GMT.

Lastly we remind that the US and Canada will be on holiday next Monday.

An eye on geopolitics

There continued to be a risk off tilt during the Asia trading session, following volatility in the NY session. However, the Asian session saw the edge taken off the risk-off slant as US accepts talks with Russia’s foreign affairs Minister Lavrov for next week, according to Bloomberg. Given the market reaction we suspect that ongoing talks reduced market concerns of more conflict over the long weekend in the US and therefore reduced desire for weekend hedges.

–The report notes that the meeting has been proposed for dates late next week, and will take place on the condition that there is no further conflict with Ukraine, citing a State Dept. spokesperson.

–US 10y yields moved up to 3bps higher while USDJPY has jumped 0.2%. S&P e-minis jump 0.54%.

CIBC

FX Flows

Risk turned positive after Reuters posted a headline that Sec of State Antony Blinken accepted the invitation to meet with Russia’s Foreign Minister Sergei Lavrov late next week. Statement from US State Dept that Russians have responded with proposed dates for late next week, which we accepted, provided there is no further Russian invasion of Ukraine. If they do invade in the coming days, it will make clear they were never serious about diplomacy. The meeting is late next week and precondition. Let’s wait till the weekend is over.

Japanese banks lifted $YEN higher for the Tokyo fix but ran into offers around 115.00. It was the State Dept headline that sent the pair soaring to 115.26. Market is guessing that offers atop 115.40 due to $1.1bn of 115.45 and 115.50 strikes due today. Plenty on the downside 114.60 thereafter.