MNI EUROPEAN OPEN: Middle East Tensions Rise

Mar-18 05:40By: Jonathan Cavenagh

Europe

EXECUTIVE SUMMARY

TRUMP NAMES BOWMAN TO FED VC FOR SUPERVISION - MNI BRIEF
TRUMP AND PUTIN TO DISCUSS POWER PLANTS, LAND IN TALKS TO END UKRAINE WAR - RTRS
ISRAEL SAYS IT’S LAUNCHING STRIKES ON HAMAS TARGETS IN GAZA - BBG
RBA CAUTION AS WAGES GROWTH HIGHER THAN IT SEEMS - MNI POLICY
CHINA CRUDE STEEL OUTPUT DOWN OVER JAN FEB - MNI BRIEF

Fig 1: USD BBDXY Index & US 10yr Tsy Yield

Source: MNI - Market News/Bloomberg/Refinitiv.

RUSSIA (BBG): “The UK and European Union will advance talks on how to seize frozen Russian assets to jointly boost defense spending, as they seek ways to increase economic pressure on Vladimir Putin ahead of any peace talks to end his war on Ukraine.”

TRADE (RTRS): “Britain's business and trade secretary Jonathan Reynolds travels to Washington on Tuesday to meet his U.S. counterparts in the hope of strengthening economic ties, as President Donald Trump continues to target long-standing allies with tariffs.”

ECONOMY (BBC): “The chancellor has told regulators there is "too much bureaucracy" as she aims to slash red tape to boost economic growth. Rachel Reeves met industry watchdogs on Monday, revealing plans to cut the cost of regulation, including on environmental measures, and axe some bodies entirely.”

WAGES (BBC): “Tesco will lift pay for its store staff by 5.2% but will scrap the extra pay for working on Sunday.”

CANADA (BBC): “King Charles gave a warm welcome to the new Canadian Prime Minister Mark Carney when he visited Buckingham Palace. It was another symbolic gesture of support for Canada from a King, wearing a red tie, who has to send coded signals rather than spell things out in words, as Canada faces threats from US President Donald Trump.”

DEFENCE (MNI): EU Defence Bond Approval To Pave Way For Summer Issuance

GERMANY (BBG): “Germany’s top court rejected additional attempts to prevent the nation’s outgoing parliament from making changes to the constitution to remove limits on defense borrowing and set up a €500 billion ($546 billion) infrastructure fund.”

GERMANY (ECONOMIST): “On Tuesday Germany’s Bundestag votes on a huge spending package proposed by Friedrich Merz of the centre-right Christian Democrats. He will probably soon become Germany’s chancellor. Should the package pass (and then be approved by the upper house of parliament), it will be the biggest fiscal expansion in Germany’s post-war history.”

RUSSIA/UKRAINE (BBC): “The UK and France have urged Russia's President Vladimir Putin to prove he wants a peace deal with Ukraine, ahead of talks between Putin and Donald Trump on Tuesday. French President Emmanuel Macron hailed the "courage" of Ukraine's President Volodymyr Zelenksy in agreeing to a ceasefire proposal, and challenged Russia to do the same.”

FED (MNI BRIEF): U.S. President Donald Trump has nominated Federal Reserve Governor Michelle Bowman to the key role of vice chair for banking supervision at the central bank, Bowman said in a statement Monday.

FED (MNI INTERVIEW): Fed Must Dampen Stagflation ‘Vibes’ - Roberts

US/RUSSIA (RTRS): “U.S. President Donald Trump said he would speak to Russia's Vladimir Putin on Tuesday morning about ending the Ukraine war, with territorial concessions by Kyiv and control of the Zaporizhzhia nuclear power plant likely to feature prominently in the talks.”

ENERGY (BBG): “US President Donald Trump said he would look to counter China’s economic advantage from coal-based electricity by authorizing his administration to ramp up production of energy from the fossil fuel.”

US/CHINA (BBG): “President Donald Trump said Chinese leader Xi Jinping would visit Washington soon, as trade tensions build between the world’s two largest economies.”

OTHER

MIDDLE EAST (BBG): “ Israel said it launched military strikes on Hamas targets in Gaza, a move that threatens to undermine a shaky truce. Israel Defense Forces and Israel Security Agency said in a joint statement on Tuesday that they were conducting extensive strikes on targets belonging to Hamas in the Gaza Strip.”

AUSTRALIA (MNI POLICY): Different measures say different things about the pace of Australian wage growth. On MNI Policy MainWire now, for more details please contact sales@marketnews.com.

CANADA (MNI BRIEF): New Canadian Prime Minister Mark Carney said Monday his country will face limits on matching any further U.S. tariffs dollar-for-dollar, one of the first indications of how he will manage the conflict between two of the world's largest trade partners.

CHINA

CONSUMPTION (21st CENTURY BUSINESS HERALD): “Beijing’s CNY300 billion special treasury funds for consumer goods trade-ins are expected to drive a net increase of CNY700-800 billion in consumption and quicken spending on goods by 1.5-1.6 percentage points, said Wang Qing, chief macro analyst at Golden Credit Rating.”

INDUSTRY (YICAI): “China’s added value of industrial enterprises increased by 5.9% year-on-year during January and February, slower than December’s 6.2%, due to factors including reduced working days and the imposition of tariffs, according to experts interviewed by Yicai.”

OFFSHORE FLOWS( CSJ): “China saw net inflows of cross-border funds in February, with a surplus of enterprises and individual payments totalling USD29 billion, said Li Bin, deputy director at the State Administration of Foreign Exchange.”

STEEL (MNI BRIEF): China produced 166 million tonnes of crude steel during January to February, down 1.5% y/y, data from the China Iron and Steel Association showed on Tuesday.

CHINA MARKETS

MNI: PBOC Net Injects CNY235.6 Bln via OMO Tuesday

MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY273.3 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net injection of CNY235.6 billion after offsetting the maturity of CNY37.7 billion today. There is another CNY120 billion treasury cash deposit matures today, according to Wind Information.

The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.8404% at 09:36 am local time from the close of 1.8978% on Monday.
The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 50 on Monday, compared with the close of 47 on Friday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.

MNI: PBOC Sets Yuan Parity Higher At 7.1733 Tues; -0.54% Y/Y

MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1733 on Tuesday, compared with 7.1688 set on Monday. The fixing was estimated at 7.2290 by Bloomberg survey today.

MARKET DATA

NEW ZEALAND FEB. NON-RESIDENT BOND HOLDINGS 61.8%; JAN. 61.9%

MARKETS

US TSYS: Cash Bonds Slightly Richer, Focus On Tomorrow's FOMC

In today's Asia-Pac session, TYM5 is 110-23+, +0-04 from closing levels.

Cash US tsys are 1-2bps richer, with a steepening bias, after yesterday’s twist-flattening. Yields finished 3bps higher to 3bps lower, pivoting at the 7-year.
US tsy yields rose to their daily highs after Retail Sales data was released, with the market focusing more on the stronger control group sales, but the move wasn’t sustained and yields subsequently tracked lower.
The focus remains on Wednesday's FOMC policy announcement. The majority of analysts expects the FOMC to leave its Dot Plot funds rate medians unchanged in March compared with the December meeting. That would imply the Fed is still pencilling in 50bp of cuts in 2025 (to 3.9%) and 2026 (to 3.4%), with a further 25bp cut in 2027 (to 3.1%).
The BoJ Policy is also due tomorrow Japan time. The BoJ is expected to keep its policy rate at 0.50% in March, with no urgency for another hike after its January increase.

JGBS: Steady Ahead Of Tomorrow’s Policy Decision Double Header: BoJ & FOMC

JGB futures are weaker, -8 compared to settlement levels, after giving up early strength.

Today, the local calendar has been empty, with the Tertiary Industry Index and Tokyo Condominiums for Sale data due later.
Nevertheless, the focus remains on tomorrow’s BoJ Policy Decision. The BoJ is expected to keep its policy rate at 0.50% in March, with no urgency for another hike after its January increase.
Analysts expect a gradual rate hike to 0.75% by July or September and 1.0% by early 2026, depending on SME wage trends. Market pricing reflects uncertainty, with only half of a 25bps hike factored in for June and a full hike not priced until October. (see MNI BoJ Preview here)
Cash US tsys are 1-2bps richer in today’s Asia-Pac session. The focus is on Wednesday’s FOMC decision. The majority of analysts expect the FOMC to leave its Dot Plot funds rate medians unchanged in March compared with the December meeting.
Cash JGBs are little changed across benchmarks out to the 30-year and 1.5bps cheaper beyond. The benchmark 10-year yield is 0.4bps higher at 1.517% versus the cycle high of 1.58%.
Swap rates are 1-4bps higher out to the 30-year and flat beyond. Swap spreads are wider out to the 30-year.

AUSSIE BONDS: Slightly Mixed, FOMC Decision (Wed) & Feb Jobs (Thu)

ACGBs (YM -1.0 & XM +1.5) are slightly mixed.

Assistant Governor (Economic) Hunter spoke at the AFR banking summit about how monetary policy can be both forward-looking and data dependent given decisions are always made under uncertainty. The bank looks at the signal from data excluding the noise and uses that in determining its outlook which is then analysed under various scenarios and judgments.
Cash US tsys are 1-2bps richer, with a steepening bias, after yesterday’s twist-flattening. The focus is on Wednesday’s FOMC decision. The majority of analysts expects the FOMC to leave its Dot Plot funds rate medians unchanged in March compared with the December meeting.
Cash ACGBs are flat to 2bps richer with a flattening curve. The AU-US 10-year yield differential is at 10bps.
Swap rates are flat to 1bp lower, with the 3s10s curve flatter.
The bills strip is flat to -2.
RBA-dated OIS pricing is flat to 2bps firmer across meetings today.
Tomorrow, the local calendar will see Westpac Leading Index ahead of Thursday’s jobs data for February.
The AOFM plans to sell A$800mn of the 4.25% 21 December 2035 bond tomorrow and A$700mn of the 2.75% 21 November 2029 bond on Friday.

BONDS: NZGBS: Subdued Session, FOMC Decision (Wed) & Q4 GDP (Thu)

NZGBs closed little changed after dealing in relatively narrow ranges in today’s data-light local session.

NZ-US and NZ-AU 10-year yield differentials closed 1-2bps wider.
Cash US tsys are 1-2bps richer in today’s Asia-Pac session. The focus is on Wednesday’s FOMC decision.
Swap rates closed unchanged after dealing 1-2bps higher earlier.
RBNZ dated OIS pricing closed flat to 2bps firmer across meetings, with late 2025 leading. 24bps of easing is priced for April, with a cumulative 63bps by November 2025.
Tomorrow, the local calendar will see Q1 Westpac Consumer Confidence and Q4 Current Account Balance data ahead of Q4 GDP on Thursday.
On Thursday, the NZ Treasury plans to sell NZ$250mn of the 4.50% May-30 bond, NZ$200mn of the 4.25% May-36 bond and NZ$50mn of the 5.0% May-54 bond.
The RBNZ will start the repurchase program of the Sep-25 inflation-indexed bond on March 21. The operation has no implications for monetary policy stance.

FOREX: USD Index Ticks Up With Middle East Tensions, Yen Underperforms Though

The USD has recovered some ground in the first part of Tuesday trade, the BBDXY index last near 1264.05, up close to 0.15% versus end NY levels from Monday's session.

In the cross asset space, risk aversion has crept back into US equity futures, led by the tech side (down 0.55%). Eminis are off around 0.40%. There may be concerns around Middle East tensions, after Israel attacked Hamas in Gaza, while the US administration has stated it will continue to attack the Houthis in Yemen until the group stocks attacking sea traffic.
Oil has nudged higher, while gold is up over 0.50%, last near $3016.
Still, traditional FX safe havens like yen, aren't rallying versus the USD. USD/JPY was last 149.55/60, off around 0.25% in yen terms and through the 20-day EMA resistance point for the pair. Session highs were at 149.73. Helping cap gains may have been the softer US yield tone, although losses aren't much beyond 1bps at this stage.
AUD/USD is a little lower, last near 0.6370, down close to 0.20%. NZD/USD is back to 0.5815/20, with the Kiwi continuing to outperform the AUD. The AUD/NZD cross is back to 1.0955 fresh YTD lows. Lower AU-NZ yield differentials are a factor, while relative commodity price trends have also been moving in NZD's favor.
EUR/USD was last back near 1.0910/15.
Later US February housing data, IP/capacity and trade prices print. Euro area January trade, March ZEW survey and Canadian February CPI are also released.

ASIA STOCKS: A Strong Day for Regional Stocks Whilst Indonesia Plunges.

Indonesia’s ongoing equity market malaise turned into a bloodbath today as the Jakarta composite cratered on fiscal concerns, weak FX and government intervention in the central bank.

Indonesia’s Jakarta Composite is down -6.8% as year to date losses approach 15%. The move lower was enough to trigger trading halts whilst bonds and the currency suffer.
In China however a strong day for the major indices with the Hang Seng leading the way up +1.80%, CSI 300 +0.15%, Shanghai +.10% and Shenzhen +0.30%
In Korea, the KOSPI had a slow start to the day and never recovered, despite the positivity in China, and has traded around flat all day.
Malaysia’s FTSE Malay KLCI however took guidance from China’s strength and has rallied throughout to be up +1.00%
As India’s trading day gets under way, the NIFTY 50 is opening very strong, up 1% following yesterday’s gain of +0.50%.

OIL: Crude Continues To Climb On Geopolitical Developments

Oil prices have trended gradually higher during APAC trading today as the geopolitical risk premium grows. Brent is up 0.3% to $71.26 and WTI 0.3% higher at $67.75, both below initial resistance levels. Both benchmarks are slightly off their intraday peaks. The USD is up 0.2%.

Crude has found support from rising geopolitical tensions with the US targeting Houthi rebels in Yemen and saying it will blame Iran for any attacks on Red Sea shipping. In addition, Israel is striking Gaza again as Hamas won’t release the remaining hostages. Also presidents Putin and Trump will speak later on Tuesday about Ukraine.
Supply trends remain a focus given OPEC is likely to stick to its output normalisation plans in April and the US intends to increase production. The IEA still expects excess supply in 2025. Today US industry-based oil inventory data is released, which has recently shown a crude stock build but a product drawdown.
The effectiveness of stricter enforcement of sanctions on Iran is unclear as it has found ways around restrictions on its shadow fleet. But tighter sanctions could reduce global supply by 1mbd, which is substantial. It was the 9th largest producer in 2022.
Later US February housing data, IP/capacity and trade prices print. Euro area January trade, March ZEW survey and Canadian February CPI are also released.

Gold Consolidates Above $3,000

Gold’s seemingly relentless march higher continues as the $3,000 barrier is breached and new highs achieved.
Opening at $3,000.67, gold appeared set for a quiet day before a surge after lunch to reach new highs of $3,015.13, before settling at $3,010.50
Gold’s rally appears to have been supported by news reports of fresh military strikes on Hamas by Israel which could ultimately unwind any gains made towards a ceasefire.
Up over 15% year to date, golds ongoing rally has been fuelled by expectations for interest rate cuts, inflation concerns and tariff risks.
Stockpiles of US gold exchange warehouses recorded their biggest decline in three months, following a three-month frenzy ahead of the implementation of tariffs.

UP TODAY (TIMES GMT/LOCAL)

Date	GMT/Local	Impact	Country	Event
18/03/2025	0930/0930		GB	Consumer Price inflation weight update
18/03/2025	1000/1000	**	GB	Gilt Outright Auction Result
18/03/2025	1000/1100	*	EU	Trade Balance
18/03/2025	1000/1100	***	DE	ZEW Current Expectations Index
18/03/2025	-		US	FOMC Meetings with S.E.P.
18/03/2025	1230/0830	***	CA	CPI
18/03/2025	1230/0830	***	US	Housing Starts
18/03/2025	1230/0830	**	US	Import/Export Price Index
18/03/2025	1255/0855	**	US	Redbook Retail Sales Index
18/03/2025	1315/0915	***	US	Industrial Production
18/03/2025	1530/1130	**	US	US Treasury Auction Result for 52 Week Bill
18/03/2025	1700/1300	**	US	US Treasury Auction Result for 20 Year Bond
19/03/2025	2350/0850	**	JP	Trade
19/03/2025	2350/0850	*	JP	Machinery orders
19/03/2025	0001/0001	*	GB	Brightmine pay deals for whole economy
19/03/2025	0300/1200	***	JP	BOJ Policy Rate Announcement
19/03/2025	0430/1330	**	JP	Industrial Production
19/03/2025	1000/1100	***	EU	HICP (f)
19/03/2025	1100/0700	**	US	MBA Weekly Applications Index
19/03/2025	1200/1300		EU	ECB de Guindos In Madrid
19/03/2025	1300/1400		EU	ECB Elderson At European Financials Conference