EMISSIONS: UKAs Recover, Narrow Discount to EUAs
UKAs Dec25 have seen are recovery around midday GMT to rise to the highest since 20 January. The UKAs Dec25 discount to the EUAs equivalent is currently trading at €21.68/ton CO2e, the lowest level so far this year.
- EUA DEC 25 up 0.2% at 71.9 EUR/MT
- ICE UKA Dec25 up 2.5% at 41.69 GBP/MT
- The UKAs Dec25-EUAs discount reached a high of €41.92/ton CO2e on 17 January, before narrowing steadily until mid-February.
- A downward revision in UK wind forecasts for next week is adding some support. Wind output in the UK is forecast between 4.33GW and 12.72GW during base load between 27 February and 7 March according to SpotRenewables.
- Mean temperatures in London are seen to remain below normal until 4 March, likely supporting some fossil-fuel generation for heating, before rising above the seasonal average.
- The Climate Change Committee (CCC) today issued its advice to the UK government to reduce emissions by 87% versus 1990 levels by 2040, compared with 81% in the last official target from November.
- Both UKAs and EUAs are shrugging off losses in EU gas prices today.
- TTF front-month has extended losses today with warm weather forecasts in March pointing to easing withdrawal pressure towards the end of the season. Signs of progress in Ukraine peace negotiations have reduced supply risk sentiment, although Ukraine gas import requirements are supportive.
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BONDS: Off Highs As E-minis Stabilise
Broader risk-sentiment continues to dominate. Core global FI markets have ticked away from session highs as e-minis find a bit of a pre-market base over the last couple of hours.
- Speculation linked to Chinese firm DeepSeek’s AI advancements continues to dominate discussions (details on feedthrough for chip capex, efficacy of sanctions on China and risks to U.S. tech dominance all getting some airtime).
- The 7- to 10-Year zone leads the rally on the U.S., German & UK curves, with Tsys outperforming given perceived risks to U.S. tech.
- Yields on the Tsy curve are 8-11bp lower. 1.5-3.0bp off lows. Benchmarks out to 20s registered fresh ’25 lows during the London morning rally.
STIR: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.34% (-0.01), volume: $2.289T
- Broad General Collateral Rate (BGCR): 4.33% (-0.01), volume: $912B
- Tri-Party General Collateral Rate (TGCR): 4.33% (-0.01), volume: $875B
- (rate, volume levels reflect prior session)
EQUITIES: DeepSeek Sell-Off Cemented, Linked Stocks Sit Sharply Lower Pre-Market
Pre-market weakness in both direct and indirectly linked AI names sticks into the cash open - as DeepSeek's success undermines the AI-driven US equity rally.
Pre-market, e-mini S&P off by 2.3%, NASDAQ futs off 3.9%:
- Nvidia shares lower by 11.3%(earnings Feb 26th)
- Meta Platforms lower by 3.8% (earnings on Wednesday)
- Microsoft lower by 6.0% (earnings on Wednesday)
- Tesla lower by 4.3% (earnings on Wednesday)
That primes markets to shed over $700bln in market cap at the open across those four stocks alone. Why is Deepseek different? Deepseek's open-source, free-to-play approach twinned with highly regarded efficiency and accuracy undermines not only the revenue-generating capacity of models produced by OpenAI, Alphabet, Meta and others - but also the significant levels of investment in AI from US firms over the past five years. It also shows the ability of Chinese firms to skirt chip sanctions targeted at limiting their AI capacity.
More here: https://www.mnimarkets.com/articles/deepseek-why-is-this-app-undermining-markets-1737968390827
