US index futures jumped after suffering their worst weekly drop of 2023, as traders looked for fresh opportunities to buy stocks while assessing the outlook for growth. S&P 500 futures rose 0.5%, rising just shy of 4,000 by 7:45 a.m. ET after the underlying benchmark fell 1.1% in the last trading session. Nasdaq 100 futures rose by about 0.6% after the tech-heavy gauge tumbled 1.7% at the end of last week. European and Asian stocks also rose; the Bloomberg Dollar Spot Index turned red after retreating from the day’s highs, lifting most Group-of-10 currencies. Treasuries edged lower, mirroring moves in global bond markets. Gold was little changed, oil fell and bitcoin resumed losses after gains overnight

In premarket trading, cancer drugmaker Seagen soared after the Wall Street Journal reported that Pfizer is in early-stage talks to acquire the cancer therapy developer worth around $30BN. Pfizer shares slipped. Here are some other notable premarket movers:

• Best Buy (BBY) shares drop 1.8% after Telsey downgraded the electronics retailer, saying the company’s business is likely to experience a further decline in the near term.
• Fisker (FSR) climbs 7.8% after the carmaker  posted 4Q results and forecast 8% to 12% annual gross margin and potentially positive Ebitda for 2023.
• FuboTV (FUBO) rises 8.2% after posting 4Q revenue that beat the average analyst estimate.
• Focus Financial Partners (FOCS) shares are halted after the company agreed to be acquired by affiliates of CD&R for $53 per share.
• Enphase Energy Inc. (ENPH) shares are up 1.9% after Janney Montgomery upgraded the company to buy, citing attractive valuation.
• Li-Cycle shares (LICY) rise 8% after the firm announced that one of its US subsidiaries had been granted a $375 million loan offer from the Biden administration.
• Lucira Health (LHDX) shares surge 240% after the FDA issued an emergency use authorization for the company’s Covid-19 and flu test.
• Payoneer Global (PAYO) gains 5% after Jefferies initiated coverage with a buy recommendation, saying the payments firm suffered from a “complexity discount.”
• Pulmonx Corp. (LUNG) rises 3.8% as Wells Fargo upgrades to overweight, saying the company’s fourth-quarter results “represent a turning point for the company.”
• Range Resources (RRC) shares slump 7.5% after Pioneer Natural Resources said it was not “contemplating a significant business combination or other acquisition transaction” in a statement Friday evening.
• Seagen (SGEN) shares soar 14% after the Wall Street Journal reported that Pfizer is in early-stage talks to acquire the cancer therapy developer.
• Tegna (TGNA) shares slump 22% after the Federal Communications Commission shelved Standard General’s proposed $5.4 billion buyout of the broadcaster.
• Union Pacific (UNP) shares climb 10% after the rail freight company said it was looking for a new CEO following pressure from a hedge fund.
• Universal Insurance Holdings (UVE) rises 1.8% after Piper Sandler upgraded the insurer to overweight, anticipating strong earnings in 2023 on higher prices and potential tort reform via a bill that seeks to reduce unnecessary litigation
• XPeng (XPEV) shares gain 5% after the Chinese electric-vehicle maker is included in the Hang Seng China Enterprises Index

The S&P 500 has fallen over the past three weeks amid concerns that renewed price pressures will prompt more (and bigger) rate hikes from the US central bank. An unexpected acceleration in the personal consumption expenditures price index boosted expectations for policy tightening, while solid income and spending growth data further allayed fears of an imminent recession. Traders await durable goods data due later on Monday.

Monday’s advance may signal traders are looking “towards the end of the potential bearish correction brought by last week’s decreased appetite for riskier assets, after investors digested the prospect of longer hawkish monetary stances from central banks,” said Pierre Veyret, a technical analyst at ActivTrades.

Others – such as MS permabear Mike Wilson – remained bearish: Wilson said March will see stronger bear-market headwinds for stocks in a note on Monday. Fresh earnings downgrades will weigh on markets, with the S&P 500 potentially sliding as much as 24% to 3,000 points. Wilson also said that those treading into this market risk falling into a “bull trap”, a view echoed by Torsten Slok, chief economist at Apollo Global Management.

“A generation of investors has since 2008 been taught that they should buy on dips, but today is different because of high inflation, and credit markets and equity markets are underestimating the Fed’s commitment to getting inflation down to 2%,” Slok wrote in a note.

Stock markets that had mostly shrugged off forecasts for higher interest rates are finally giving way to a swift repricing of yields. Traders are now pricing US rates to peak at 5.4% this year, compared with about 5% just a month ago, as an acceleration in the Federal Reserve’s preferred inflation gauge dashes hopes for an imminent pause in policy tightening.

Meanwhile, JPMorgan strategists led by Mislav Matejka said last year’s strong outperformance in cheaper, so-called value stocks over growth peers is likely to reverse soon as the economic recovery slows. The next move for investors in the following month or two might be to go “outright underweight value versus growth,” they wrote in a note. Ironically, that comes as JPM initiated coverage of two big US online real estate firms, Zillow Group at overweight and Redfin at neutral, as it forecasts a recovery in the property market.

European stocks also rose as investors are tempted by lower prices following the largest weekly selloff since December. The Stoxx 600 is up 1.2% with tech, retail and consumer products the best-performing sectors. The bounce ignores the surge in German benchmark yields which hit 2.58%, the highest since 2011, on bets the European Central Bank will extend its tightening cycle beyond this year. Here are some of the biggest movers on Monday:

• Shell rises as much as 2.4% after Goldman Sachs upgrades the oil and gas company to buy from neutral, following a strong earnings season for oil majors
• Associated British Foods shares rise as much as 2.7% after the food processing and retailing company said it sees total sales for the first half more than 20% ahead of last year
• Michelin gains as much as 3.1% after Goldman Sachs upgraded the French tiremaker to buy from neutral, noting “underappreciated tailwinds” including lower raw material and logistics costs
• Hennes & Mauritz shares jump as much as 4.2% after Bank of America upgraded the clothing retailer to buy from underperform, citing prospects for a profit recovery this year
• Bunzl shares gain as much as 4.2%, hitting the highest intraday since August, after the distribution group’s results were marginally better than expected across the board, showing business model resilience
• Haleon shares rise as much as 1% after Bloomberg News reported the consumer health business, spun out of GSK last year, is exploring a divestiture of its ChapStick lip balm brand
• PostNL shares tumble as much as 12%, the most since October, after the Dutch delivery firm’s new FY23 Ebit guidance came in 43% below consensus
• Dechra Pharmaceuticals tumbles as much as 18% after the British animal health-care company posted a profit decline in the first half and forecast FY guidance that disappointed

Earlier in the session, Asian stocks declined as traders worry about the prospect of further interest rate increases by the Federal Reserve after an unexpected acceleration of US inflation. Investors were also cautious ahead of a key political meeting in China.  The MSCI Asia Pacific Index dropped as much as 0.8%, led by technology and materials shares. Australia and South Korea were among the worst-performing markets, while Japan bucked the region’s trend following a pledge from the Bank of Japan governor nominee to maintain ultra-loose monetary policy. Chinese and Hong Kong benchmarks edged lower as investors eyed the National People’s Congress meeting starting this weekend. They are showing a preference for onshore stocks over Hong Kong peers amid expectations that more pro-growth policies will be announced.

A strong rally in Asian stocks has hit a wall this month amid renewed worries of US policy tightening and a lack of positive catalysts for Chinese shares. A hotter-than-expected set of data in the Fed’s preferred inflation gauge Friday spurred a hawkish recalibration of expectations for rate hikes, pressuring risk assets. Asian emerging markets will “certainly not be immune” from “spillover risks” of the rebound in US inflation, said Vishnu Varathan, Asia head of economics and strategy at Mizuho Bank. Prospects of tighter policy for a longer period “will hold feet to fire for valuations.”

Japanese equities closed mixed, as investors mulled the unexpected acceleration of US inflation data that suggested potential further interest rate hikes by the Federal Reserve. The Topix rose 0.2% to close at 1,992.78, while the Nikkei declined 0.1% to 27,423.96. The yen strengthened about 0.1% after tumbling 1.3% Friday to 136.48 per dollar. Fanuc contributed the most to the Topix gain, increasing 2.9% after it was upgraded at Nomura. Out of 2,160 stocks in the index, 1,478 rose and 591 fell, while 91 were unchanged. “Japanese equities were mainly influenced by the higher than expected US PCE data, and the rising US interest rates would make the environment tougher for growth stocks,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities. “However, compared to US stocks, Japanese stocks are still supported by a weaker yen and this is likely to continue for some time.”

Australian stocks declined; the S&P/ASX 200 index fell 1.1% to close at 7,224.80, dragged by losses in mining shares. The materials sub-gauge dropped the most since Oct. 28, continuing a four-day losing streak, after iron ore slumped.  In New Zealand, the S&P/NZX 50 index fell 0.9% to 11,793.33

In FX, the Bloomberg Dollar Spot Index was steady and the greenback traded mixed against its Group-of-10 peers. Sweden’s krona and the pound were the best performers while the New Zealand and Australian dollars were the worst.

• The euro was steady at $1.0550. Bund yields followed Treasury yields higher after an early drop. the 10-year yield rose to the highest since 2011 as traders are betting the ECB will extend its tightening cycle beyond this year, pushing back expectations for a peak in interest rates into 2024 for the first time. Focus is on speeches by policymakers
• The pound rose 0.2% against the dollar, snapping a three-day decline, to trade around 1.1966 amid speculation of an imminent deal on the Northern Ireland protocol. Gilts yields rose as bets on BOE rates pricing turned higher.
• The yen steadied near a two-month low as currency traders weighed remarks from BOJ governor nominee Kazuo Ueda at his second parliamentary hearing. Ueda said monetary easing should continue in support of the economy’s recovery, a comment that suggests he won’t seek an immediate change in policy if he is approved to helm the central bank
• The New Zealand dollar underperformed its G-10 peers. RBNZ chief economist Paul Conway said inflation is “far too high,” labor market is “incredibly tight”.
• The Australian dollar also tacked lower. RBA chief Philip Lowe’s expectation of further interest-rate rises prompted economists and money markets to narrow the odds of a recession

In rates, Treasury yields reversed a drop to inch up, led by the front end following a wider drop across German bonds, as traders wagered that the European Central Bank will extend its rate-hiking cycle further into 2024. US yields were cheaper by up to 1.7bp in front-end of the curve with 2s10s flatter by almost 1bp; 10-year yields around 3.95%, less than 1bp cheaper vs. Friday session close with Germany 10-year lagging by 3bp vs. Treasuries.  Bund futures are lower as traders push back bets on when ECB rates will peak until 2024 for the first time. German 10-year yields are up 4bps.

In commodities, oil fell as concerns that the Fed will keep on raising rates eclipsed the latest disruption to supplies in Europe and optimism over a demand recovery in China; WTI hovered around $76.30. Spot gold is flat at around $1,810.

Bitcoin is modestly firmer on the session, +1.0%, but off initial best levels and well below 24k. RBI Governor Das said at the G20 that there is now wide recognition of major risk with crypto.

Looking at today’s calendar, we get the February Dallas Fed manufacturing activity, January durable goods orders, and pending home sales; elsewhere we also get Japan January retail sales, industrial production, Italy February manufacturing confidence, economic sentiment and consumer confidence index, Eurozone February services, industrial and economic confidence, January M3, Canada Q4 current account balance. Fed speaker slate includes Jefferson at 10:30am; Goolsbee, Kashkari, Waller, Logan, Bostic and Bowman are scheduled later this week. On the earnings front, Occidental Petroleum, Workday, and Zoom report.

Market Snapshot

• S&P 500 futures up 0.5% to 3,994.25
• STOXX Europe 600 up 1.0% to 462.49
• MXAP down 0.5% to 157.92
• MXAPJ down 0.8% to 511.47
• Nikkei down 0.1% to 27,423.96
• Topix up 0.2% to 1,992.78
• Hang Seng Index down 0.3% to 19,943.51
• Shanghai Composite down 0.3% to 3,258.03
• Sensex down 0.4% to 59,220.58
• Australia S&P/ASX 200 down 1.1% to 7,224.81
• Kospi down 0.9% to 2,402.64
• German 10Y yield little changed at 2.56%
• Euro little changed at $1.0555
• Brent Futures up 0.4% to $83.48/bbl
• Gold spot down 0.1% to $1,809.86
• U.S. Dollar Index little changed at 105.15

Top Overnight News from Bloomberg

• Three quarters of the 1,500 UK business leaders polled by BCG’s Centre for Growth believe the economy will shrink in 2023 but only 20% plan to shed staff, fewer than the 29% who plan to increase headcount: BBG
• Rishi Sunak and Ursula von der Leyen will meet in the UK in the early afternoon on Monday for final talks ahead of an expected announcement of a post-Brexit settlement for Northern Ireland: BBG
• The ECB is very likely to go ahead with its intention to raise interest rates by a half-point when it meets next month, President Christine Lagarde told India’s Economic Times: BBG
• Bloomberg’s aggregate index of eight early indicators suggests China’s economy rebounded in February after the long holiday, although it points to an uneven recovery with strong consumption following the scrapping of Covid rules but lagging industrial activity: BBG
• Macron announced he will visit China in April and hopes to encourage Beijing to pressure Moscow into reaching a settlement of the Ukraine war. SCMP
• New home sales by floor area in 16 selected Chinese cities rose 31.9% month-on-month in February, compared with a fall of 34.3% in January, according to China Index Academy, one of the country’s largest independent real estate research firms. RTRS   
• American companies, including McDonald’s, Starbucks, Ralph Lauren, Tapestry, and others, are expanding in China in anticipation of a consumer-led rebound in the economy as the post-reopening recovery continues. WSJ
• China Renaissance confirmed Chairman Bao Fan has been assisting in a Chinese probe since he disappeared abruptly earlier this month. The investigation is being run by authorities, and Renaissance will “cooperate and assist with any lawful request.” It was reported last week that Cong Lin, the firm’s former president, has been involved in a probe since September. BBG
• BOJ policy – incoming governor Kazuo Ueda says it’s premature to discuss normalization as “big improvements” must be achieved in the country’s inflation trajectory before changes can happen (Ueda says the benefits of monetary easing exceed the costs). RTRS
• Russia has halted supplies of oil to Poland via the Druzhba pipeline, a move that comes one day after Poland sent its first Leopard tanks to Ukraine. RTRS
• US insurance regulators on Monday will meet to consider boosting capital charges on complex corporate loan instruments that some in the industry warn are creating excessive risk. The issue pits insurers backed by large private equity firms such as Blackstone, Apollo Global and KKR — who are increasingly investing in the loans — against traditional life insurers such as MetLife and Prudential Financial, who warn of growing risks. FT
• Pfizer is in early-stage talks to acquire biotech Seagen, valued at about $30 billion, and its pioneering targeted cancer therapies. WSJ
• Hedge fund Soroban Capital Partners is pushing Union Pacific Corp.  to replace Chief Executive Lance Fritz, arguing the railroad has underperformed on his watch, according to people familiar with the matter. WSJ

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded cautiously heading into month-end and a slew of upcoming releases including Chinese PMI data, with headwinds also from the US where firmer-than-expected Core PCE data spurred hawkish terminal rate bets. ASX 200 was negative as participants digested a deluge of earnings and with the mining industry leading the retreat seen across nearly all sectors aside from energy which benefitted from a jump in Woodside Energy’s profits. Nikkei 225 price action was contained by a lack of pertinent macro drivers and with BoJ Governor nominee Ueda’s largely reiterated prior comments at the upper house confirmation hearing. Hang Seng and Shanghai Comp. were choppy with initial pressure amid geopolitical frictions after the G20 finance ministers meeting failed to agree on a communique due to opposition from Russia and China, while National Security Adviser Sullivan also warned there will be a real cost if China provides military assistance to Russia for the Ukraine war. However, Chinese stocks gradually recovered from the early weakness and briefly turned positive with sentiment helped by a continued liquidity injection and after China drafted guidelines to regulate financial support in the housing rental market, although the gains proved to be short-lived.

Top Asian News

• China drafted guidelines to regulate financial support in the housing rental market and began to solicit public opinion, according to China.org.cn.
• Macau dropped COVID-19 mask mandates for most locations aside from public transportation, hospitals and some other areas, according to Reuters.
• BoJ Governor Kuroda commented that he is resolved to keep ultra-loose policy and that the BoJ expects core consumer inflation to slow beyond 2% in both fiscal 2023 and 2024, according to Reuters.
• BoJ Governor nominee Ueda says CPI growth will slow below 2% in fiscal 2023 and that it takes time for CPI to meet the 2% target stably and sustainably, while he added that the BoJ’s current monetary easing is appropriate and that it is appropriate to continue monetary easing from now on as well. Adds, changing the 2% inflation target into a 1% target would strengthen the JPY in the short-term, weaken it long-term. Overshooting commitment is aimed at exerting powerful announcement effects on policy, need to be mindful of risk of inflation overshooting too much. Targeting shorter-dated JGBs than current 10yr yield is one idea if BoJ were to tweak YCC in the future, but there are many other options. Does not think Japan has reached the reversal rate, in which financial transmission channels are hurt so much that the demerits of easing exceed benefits.

European bourses are firmer across the board, Euro Stoxx 50 +1.8%, after a cautious APAC handover following Friday’s selling pressure. Sectors are all in the green with Energy names at the top of the pile, given benchmark pricing and Shell’s upgrade at GS. Stateside, futures are currently posting more modest upside of around 0.5% with Fed’s Jefferson (voter) the session’s main event. Tesla’s (TSLA) German plant has hit a production level of 4,000 per week, three weeks ahead of schedule, according to Reuters.

Top European News

• UK PM Sunak and European Commission President von der Leyen will meet at 12:00GMT/07:00EST in Windsor, according to BBC; if there is a deal, a press conference could be around 15:30GMT. Earlier, UK PM Sunak’s office said UK PM Sunak will meet with EU’s von der Leyen for talks on Northern Ireland Brexit deal late lunchtime on Monday and will hold a Cabinet meeting later on Monday. Furthermore, PM Sunak and von der Leyen will hold a news conference if a deal is reached, while Sunak will also address parliament if there is a deal.
• UK ministers are unlikely to quit re. the Brexit deal, with the likes of Steve Baker and others liking what they are hearing but waiting to see the full text, according to Times’ Swinford; ERG say they would love to back the deal but if the DUP does not back the deal it cannot and won’t support it.
• UK PM Sunak said they are giving it everything they’ve got regarding talks for a post-Brexit deal for Northern Ireland and he will try to resolve the concerns the DUP Party have regarding a new Brexit deal for Northern Ireland. It was later reported that PM Sunak said he won big concessions from the EU, according to The Sunday Times and The Times.
• UK Deputy PM Raab said there is real progress on a trade deal and he is hopeful for good news on the Brexit deal within days, not weeks, and also noted that Northern Ireland’s DUP does not have a de-facto veto over the Brexit deal. In other news, Raab said he will resign if an allegation of bullying against him is upheld, according to Reuters.
• ECB’s Lagarde said headline inflation is still unacceptably high and core CPI is at a record level, while she added that they want to bring inflation back to the 2% target and noted that rate decisions are to be data dependent.
• Magnitude 5.7 earthquake that struck the Eastern Turkey region has been revised to 5.2, according to the EMSC.

FX

• DXY retained a bid between Fib and psychological level within 105.360-070 range; though has erred towards the lower-end of these parameters going into the US session.
• Sterling ‘outperforms’ after a dip through 200 DMA vs Buck on UK-EU NI trade deal optimism, with EUR/GBP within 10 pips of 0.8800 at worst.
• Kiwi flags as NZ Q4 retail sales fall and Aussie feels more contagion from Yuan weakness; antipodeans near 0.6150 and 0.6710 respectively.
• Euro pivots 1.0550 vs the Dollar and Yen pares back from sub-136.50 amidst Fib support nearby.
• PBoC set USD/CNY mid-point at 6.9572 vs exp. 6.9586 (prev. 6.8942)

Commodities

• WTI and Brent are a touch softer though have lifted off overnight USD 75.58/bbl and USD 82.38/bbl lows given the improvement in risk sentiment throughout the European morning.
• Though, the benchmarks are shy of USD 76.82/bbl and USD 83.60/bbl peaks with numerous geopolitical updates factoring into the overall indecisive price action.
• Russia halted supplies of oil to Poland via the Druzhba pipeline, according to PKN Orlen’s CEO. Subsequently, Russia’s Transneft says payment orders for oil shipments to Poland were not issued in the second half of February, no oil flows to Poland currently, via Tass; paperwork for oil supplies to Poland has not been completed.
• Crude oil deliveries via the Druzhba pipeline to the Czech Republic are running as planned, according to Mero.
• Spot gold is little changed with the yellow metal in a tight sub-10/oz range above the USD 1800/oz handle, taking its cue from the similarly cagey USD.
• Base metals are, broadly speaking, firmer following overnight weakness but remain in proximity to the troughs from Friday’s session.

Fixed Income

• Bonds remain in bear clutches after another failed recovery rally.
• Bunds probe new cycle low at 133.61 (session high 134.36) have fallen just shy of key resistance area, associated 10yr at a YTD peak of 2.57%.
• Gilts wane just two ticks below 101.00 and test bids/support into 100.00 and T-note hugs base of 111-07/16 range ahead of US data, Central Bank speakers and crunch UK-EU Brexit talks.

Geopolitics

• Russia’s Kremlin, on China’s peace plan, says no conditions for peace ‘at the moment’ in Ukraine, according to AFP.
• G20 Finance Ministers meeting concluded without a joint communique as China and Russia opposed the draft with the two countries said to be upset by the use of a G20 platform to discuss political matters, according to sources cited by Reuters. India’s chair statement noted that there was a discussion about the war in Ukraine and it reiterated the G20 position on deploring in the strongest terms aggression by Russia, as well as reiterated the G20 position demanding Russia’s complete and unconditional withdrawal from Ukrainian territory.
• Russian President Putin said Russia has taken into account NATO’s nuclear potential and claimed that the west wants to liquidate Russia, according to TASS.
• Russian Wagner Group boss Prigozhin said his fighters captured the village of Yahinde which is north of Bakhmut, according to Reuters.
• US President Biden said on Friday that he is ruling out Ukraine’s request for F-16 aircraft for now but added they have to put Ukrainians in a position where they can make advances this spring and summer. Biden also said he doesn’t anticipate a major initiative on the part of China to provide weapons to Russia and that he hasn’t seen anything in the Chinese peace plan that would be beneficial for anyone but Russia, while he also suggested it is possible that Chinese President Xi did not know about the Chinese spy balloon, according to an ABC News interview.
• US National Security Adviser Sullivan said China has made the final decision regarding providing aid to Russia and has not taken the possibility of providing lethal aid to Russia off the table, while he noted the consequences have been made clear to China and warned there will be a real cost if China provides military assistance to Russia for the Ukraine war, according to an interview with ABC News. There were also comments from Republican lawmaker McCaul that China is thinking of sending drones and other lethal weapons.
• Belarus President Lukashenko will pay a state visit to China from February 28 to March 2. “The visit will serve as an opportunity for the two sides to further promote comprehensive cooperation”, according to Global Times.
• Germany, France, and the UK are considering making concrete security guarantees to Ukraine as an incentive for Ukrainian President Zelensky to engage in peace talks with Russia, according to the WSJ.
• German Defence Minister Pistorius commented regarding the Chinese peace plan and stated that they will judge China by its actions, not its words, according to Reuters.

US Event Calendar

• 08:30: Jan. Durable Goods Orders, est. -4.0%, prior 5.6%
  • Jan. -Less Transportation, est. 0.1%, prior -0.2%
  • Jan. Cap Goods Ship Nondef Ex Air, est. 0%, prior -0.6%
  • Jan. Cap Goods Orders Nondef Ex Air, est. -0.1%, prior -0.1%
• 10:00: Jan. Pending Home Sales (MoM), est. 1.0%, prior 2.5%
  • Jan. Pending Home Sales YoY, prior -34.3%
• 10:30: Feb. Dallas Fed Manf. Activity, est. -9.2, prior -8.4

Central Bank Speakers

• 10:30: Fed’s Jefferson Discusses Inflation and the Dual Mandate

DB’s Jim Reid concludes the overnight wrap

As we close out a tougher second month of the year than the first tomorrow night, Henry pointed out an interesting stat to me on Friday. January was the best January for the Global Bond Ag index this century whereas February so far is on course to be the worst February over the same period. The very strong financial market performance between mid-October and end-January was in our opinion based mostly around US terminal pricing being remarkably stable between 4.75-5.1%. In the previous 9-10 months it was constantly being repriced from around 1% to 5% causing chaos in the financial world.

On Friday, US terminal closed at 5.4%, catching up to DB’s street leading 5.6% forecast. Clearly this has been bubbling up since payrolls (Feb 3), the CPI revisions (Feb 10), CPI beat (Feb 14), retail sales beat (Feb 15), and even things like Manheim used prices spiking higher again in January and February. Last Friday’s core PCE was another important piece of evidence with the 0.6% mom print above expectations of 0.4%. Even though the concern was that it would beat, this added fuel to the fire and markets still struggled to deal with the ramifications with 2yr, 10yr and terminal up +11.6bps, +6.8bps and +5.3bps to 4.814%, 3.943% and 5.40% respectively. 2yr yields are the highest since July 2007 and terminal the highest this cycle.

For core US PCE, the 3m, 6m and 12m annualised numbers are now 4.8%, 5.1% and 4.7% and thus strongly hint at inflation stickiness. With this data it’s tough to rule out a return to 50bps hikes even if that’s not yet the base case. While that uncertainty is there, markets will stay on edge.

In credit we downgraded our tactical bullishness in our “Credit: Rally ends soon” (Jan 30) note (link here) and suggested reducing exposure to dollar credit immediately. The biggest challenge though is when to officially run for the preverbal hills given we’ve had a long standing YE 23 target for HY of +860bps linked into our US recession call by year end. In the near-term we’re a little more relaxed on European credit. Indeed our credit team published a €HY update this morning looking at tight spreads in the face of growing fundamental vulnerabilities and the highest share of bonds rated B or worse in the last 10 years. However with supply unlikely to pick up materially, favourable technicals should keep spreads supported for now. Still, we think concerns about deteriorating credit metrics will eventually prevail and see €HY selling off in H2’23 alongside the US market when signs of a growth slowdown become even more tangible (see here for the full text).

Linked into this view, the recent US data probably makes us more confident of a hard landing given the boom-and-bust nature of this cycle that has been increasingly clear step-by-step over the last 2-3 years. This trend first emerged with the extraordinarily excessive covid stimulus, which in turn led to an enormous spike in the money supply, which brought structural inflation, and was always going to require an immense amount of tightening to control. An immaculate disinflation and soft landing from here would defy all historical precedent. Time will tell if we’re wrong and history needs to be rewritten but this feels a fairly straight forward US cycle to predict.

For this week, with the current sensitivities over prices, all eyes will be on the flash February European CPI releases (France Tues, Germany Weds, Italy and EA Thurs) and labour market data released throughout the week. The CPI numbers follow Friday’s upward revisions for the January report in the Euro Area, where core inflation was revised up a tenth to a new record of +5.3%. We also have the global PMIs (and US ISMs) with manufacturing on the first day of the month (Wednesday) and services (Friday).

ECB speakers will have plenty of opportunity to reflect on the data with at least 8 appearances already scheduled for next week. For a more backward-looking assessment, markets will also have the ECB’s account of the February meeting due Thursday to read through. Our own European economists upgraded their ECB call last week and now see two +50bps hikes in March/May followed by a final +25bps hike in June, which would imply a terminal of 3.75%, up from 3.25% previously (see full note here). Fed speakers are also prevalent as you’ll see in the day-by-day week ahead. There are six FOMC voters and there is a lot for them to chew over at the moment, especially after Friday’s PCE data.

Outside of the ISMs, US data will revolve around consumer and manufacturing activity. That will include the Conference Board’s consumer confidence index tomorrow, Chicago PMI (also tomorrow) and a host of regional central bank indices. Other notable indicators due include durable goods orders today and the advance goods trade balance tomorrow.

Asian equity markets are trading lower this morning with the KOSPI (-1.19%) leading losses across the region while the Hang Seng (-0.75%), the CSI, (-0.21%) the Shanghai Composite (-0.12%) and the Nikkei (-0.19%) all trading in the red. In overnight trading, US stock futures are fairly flat alongside US yields.

Earlier this morning, the government’s nominee for the Bank of Japan (BOJ) Governor, Kazuo Ueda in his speech to the parliament stressed the need to maintain the central bank’s ultra-loose policy to support the Japanese economy despite various market side-effects. Meanwhile, candidates for the BoJ deputy governor (Uchida and Himino) will appear for hearings in the Upper House tomorrow, following this week’s Lower House hearings.

Looking back on last week now, both equities and fixed income retreated as markets priced in further central bank hikes following mounting evidence that inflation was continuing to prove persistent. The selloff gathered pace on Friday, following the aforementioned US PCE inflation data surprising firmly to the upside, with headline PCE at +0.6% (vs +0.5% expected) month-on-month, and +4.7% (vs +4.3% expected) year-on-year. Further adding to the view that inflation is durable, core PCE inflation also came in above consensus, with the month-on-month print at +0.6% (vs +0.4% expected) whilst year-on-year came in at +4.7% (vs +4.3% expected).

This data led markets to swiftly priced in a more aggressive price of rate hikes from the Fed. In particular, there was growing speculation that the Fed might step up their hikes to 50bps again, with a +30.3bps move priced into the next meeting in March, up from +27.5bps at the start of the week. US terminal rate timing is starting to be evenly balanced between July (5.400%) and September (5.401%), rather than the July peak we’ve had for several weeks. It’s also at the highest level of the cycle. The pricing for the July meeting climbed up +11.8bps last week (+5.3bps on Friday), while the September meeting pricing rose +14.6bps last week (+6.9bps on Friday). Expectations also increased for rates remaining higher for longer, with the December meeting now implying a 5.28% rate. This was up +11.0bps on Friday and +21.6bps on the week – marking a fifth consecutive weekly increase.

Renewed expectations of additional hikes by central banks triggered a sell-off in both US and European equities on Friday. The S&P 500 fell back -1.05% on Friday, finishing off the week down -2.67% and marking its worst weekly performance so far this year. The Nasdaq similarly retreated, down -3.33% last week (-1.69% on Friday), its largest weekly down move since mid-December. European equities fell back too, with the STOXX 600 retreating -1.42% last week (-1.04% on Friday).

This sell-off was echoed across fixed income markets, with 10yr Treasury yields up +6.6bps on Friday and +12.8bps over the course of last week. 2yr Treasuries significantly underperformed, as yields rose +11.6bps on Friday and +19.7bps over the week, reaching their highest level since July 2007. It was a similar story in Europe, with the 2yr German yield up +11.7bps on Friday in their largest up move since December and hitting their highest level since October 2008. Over the course of the week, that left them up +15.3bps at 3.03%. In the meantime, 10yr bund yields rose +9.7bps last week (+5.9bps on Friday) to 2.54%, and the German 2s10s curve inverted to -50bps after it fell -5.6bps on Friday, which made up nearly the entirety of the -5.8bps flattening last week.

Finally, commodity markets fell back most of last week before a rally in oil on Friday (WTI +1.23% & Brent +1.16% Friday) left WTI crude down just -0.03% on the week at $76.32/bbl and Brent crude up +0.19% at $82.16/bbl. On the other hand, metals saw continued selling on Friday, with copper futures falling back -3.81% overall (-2.64% on Friday), and nickel down -4.93% last week (-3.33% on Friday). Looking at the market more broadly, the Bloomberg Industrial Metals Index fell back -3.17% over the course of last week (-2.44% on Friday). All this likely down to some concerns that the Chinese reopening isn’t quite as smooth and bouyant as hoped.

A corporate video released by Tesla for the opening of its new engineering headquarters in California might have leaked design drawings of its upcoming new electric compact car, according to Electrek. 

In the video, we see the drawing shown above, and next to it there are two other design drawings that can be directly linked to existing Tesla vehicles:

Those drawings appear to be of a more compact vehicle from Tesla, which is leading some Tesla fans to believe it could be the $25,000 car that Musk talked about before.

An affordable Tesla was announced by Elon Musk back in 2020:

“Tesla will make a compelling $25,000 electric vehicle that is also fully autonomous.”

Tesla has been planning for a small hatchback in the future. Electrek pointed out the hatchback could be for Chinese markets.

Model Y was the last new model to be released in 2020. The Cybertruck is next, and deliveries might not begin until late 2023 or early 2024. 

Tesla has been extremely slow at delivering new models to the market, while other EV companies offer diverse lineups to attract buyers. 

Authored by David Atlee via CoinTelegraph.com,

By the time MiCA makes it through the EU, will it be enough to effectively regulate the crypto industry on the continent?

The final vote on the European Union’s much-awaited set of crypto rules, known as the Markets in Crypto Assets (MiCA) regulation, was recently deferred to April 2023. It was not the first delay — previously the European lawmakers rescheduled the procedure from November 2022 to February 2023. 

The setback, however, was caused solely by technical difficulties, and thus, MiCA is still on its way to becoming the first comprehensive pan-European crypto framework. But that will happen only in 2024, whereas during the second half of last year, when the MiCA text had already been mostly written, the industry was shaken with a number of shocks, provoking new headaches for regulators. There’s little doubt that in an industry as dynamic as crypto, the whole of 2023 will bring some new hot topics as well.

Hence, the question is whether MiCA, with its already existing imperfections, could qualify as a truly “comprehensive framework” a year from now. Or, which is more important, will it for an effective set of rules to prevent future failures akin to TerraUSD or FTX?

These questions have certainly appeared in the mind of the president of the European Central Bank, Christine Lagarde. In November 2022, amid the FTX scandal, she claimed “there will have to be a MiCA II, which embraces broader what it aims to regulate and to supervise, and that is very much needed.”

Cointelegraph reached out to a range of industry stakeholders to know their opinions on whether the Markets in Crypto Assets regulation is still enough to enable the proper functioning of the crypto market in Europe.

EU DeFi regulations still a ways off

One main blindspot with regard to the MiCA is decentralized finance (DeFi). The current draft generally lacks any mention of one of the later organizational and technological forms in the crypto space, and it surely could become a problem when MiCA arrives. That certainly drew the attention of Jeffrey Blockinger, general counsel at Quadrata. Speaking to Cointelegraph, Blockinger imagined a scenario for a future crisis: 

“If DeFi protocols disrupt the major centralized exchanges as a result of a broad loss of confidence in their business model, new rules could be proposed to address everything from money laundering to customer protection.”

Bittrex Global CEO Oliver Linch also believes there is a global problem with DeFi regulation and that MiCA won’t make an exception. Linch said that that DeFi is inherently unregulatable and, to some degree, even a low priority for regulators, as the majority of customers engage in crypto mainly through centralized exchanges.

However, Linch told Cointelegraph that just because regulators can supervise and engage with centralized exchanges most easily doesn’t mean there isn’t an important role for DeFi to play in the sector.

The lack of a distinct section dedicated to DeFi doesn’t mean it’s impossible to regulate. Speaking to Cointelegraph, Terrance Yang, managing director at Swan Bitcoin, said that DeFi is to some degree transferable to the language of traditional finance, and therefore, regulatable:

“DeFi is just a bunch of derivatives, bonds, loans and equity financing dressed up as something new and innovative.”

The yield-bearing, lending and borrowing of collateralized crypto products are things that investment and commercial banks are interested in and should be regulated similarly, Yang believes. In that way, the suitability requirements as formulated in MiCA can actually be helpful. For instance, DeFi projects may potentially be defined as providing crypto asset services in MiCA’s vocabulary.

Lending and staking

DeFi may be the most notable, but surely not the only limitation of the upcoming MiCA. The EU framework also fails to address the growing sector of crypto lending and staking.

Given the recent failures of the lending giants, such as Celsius, and the rising attention of American regulators to staking operations, EU lawmakers will need to come up with something as well.

“The market collapse in the last year was spurred by poor practices in this space like weak or non-existing risk management and reliance on worthless collateral,” Ernest Lima, partner at XReg Consulting, told Cointelegraph.

Yang noted the particular problem of disbalance in the regulation of lending and staking in the Eropean Union. Ironically, at the moment, it is the crypto market that enjoys an asymmetrical advantage in terms of loose regulation when compared to the traditional banking system in Europe. Legacy commercial or investment banks and even “traditional” fintech companies are overregulated relative to the arguably heavily under-regulated crypto exchanges, crypto lending and staking platforms:

“Either let the free market work with no regulation at all, except maybe for fraud, or make the rules the same for all who offer economically the same product to Europeans.”

Another issue to watch is the nonfungible tokens (NFTs). In August 2022, European Commission Adviser Peter Kerstens revealed that, despite the absence of the definition in MiCA, it will regulate NFTs as cryptocurrencies in general. In practice, this could mean that NFT issuers will be equated to crypto asset service providers and required to submit regular accounts of their activities to the European Securities and Markets Authority at their local governments.

Cause for optimism 

MiCA was largely met with moderate optimism by the crypto industry. Despite a few rigidities in the text, the approach seemed generally reasonable and promising in terms of market legitimization.

With all the tumult in 2022, will the next iteration of the EU crypto framework, a hypothetical “MiCA-2,” be more restrictive or crypto-skeptical? “The further delays MiCA has faced have only highlighted the idle approach taken by the EU to introduce legislation that is needed more now than ever before, particularly given recent market events,” Linch said, claiming the necessity of tighter and swifter scrutiny over the market.

Lima also anticipates a closer approach with more issues covered. And it is really important for European lawmakers to pace up with the regulatory updates:

“I expect a more robust approach to be taken in some of the technical standards and guidelines that are currently being worked on and will form part of the MiCA regime. We might also see greater scrutiny by regulators in authorization, approval and supervision, but ‘crypto winter’ will have long since thawed by the time the legislation is revised.”

At the end of the day, one shouldn’t get caught up in the stereotypes about the tardiness of the European Union’s bureaucratic machine.

It is still the EU, and not the United States, where there is at least one large legal document, scheduled to become a law, and the main effect of the MiCA was always much more important symbolically, whereas the urgent issues in crypto could actually be covered by less ambitious legislative or executive acts. It is the mood of these acts, however, that remains crucial — the last time we heard from the EU it decided to oblige the banks storing 1,250% risk weight on their exposure to digital assets.

Authored by EurAsiaNet via OilPrice.com,

• Kazakhstan’s state-owned natural gas company, QazaqGaz, has vowed to prevent future gas shortages by refraining from exporting gas and importing gas when necessary.

• Despite sitting atop 3.8 trillion cubic meters of gas, Kazakhstan’s energy officials urge citizens to conserve gas and be more economic in their use of it to avoid peak demands that could cause shortages.

• Plans are being drawn up to build a transnational pipeline from Russia to China to extend gas supplies to the east of Kazakhstan, and a processing plant with the capacity to produce up to 1 billion cubic meters of gas will be built at Kashagan by 2024.

Kazakhstan’s state-owned natural gas company has vowed that there will be no repeat shortages of the fuel next fall and winter like the ones that the country began to experience in late 2022.

But Arman Kasenov, the deputy chairman of QazaqGaz, has said that consumers must in future also do their share in helping avoid crunches at times of peak demand by being more economic in their use of gas. Anybody failing to do so could face stiff bills, he hinted.

In the short-term, Kazakhstan plans to prevent shock deficits by refraining from exporting gas. 

“Taking the growth in gas consumption within Kazakhstan into account, QazaqGaz cannot count on exports in the next fall-winter period,” Kasenov said on February 24.

Indeed, far from thinking about exports – and China is the only game in town in this area – Kazakhstan is now resorting to buying imported gas. 

Earlier this week, Energy Minister Bolat Akchulakov said at a government meeting that plans are being drawn up to import gas from Russia to provide for areas in the east of Kazakhstan. Akchulakov said no prices have yet been discussed.

The infrastructure for those specific imports does not yet exist, however. Extending gas supplies to those regions of Kazakhstan will be contingent on completion of a transnational pipeline running from Russia to China. 

“We have earlier proposed to Gazprom the idea of a transit route through the territory of the East Kazakhstan Region,” Kasenov said at a meeting held under the auspices of the Samruk-Kazyna state holding company.

“It is under development. We have already carried out technical and economic feasibility studies.”

In October, Kazakh President Kassym-Jomart Tokayev said QazaqGaz had reached a sales agreement with Turkmenistan’s Turkmengaz and that he hoped up to 1.5 billion cubic meters of gas could be imported annually under a long-term deal.

According to QazaqGaz data, gas consumption in Kazakhstan in 2022 reached 21 billion cubic meters, while 5 billion cubic meters were earmarked for export. The expectation is that consumption will soar to 40 billion cubic meters by 2030.

The irony of Kazakhstan’s reliance on imports is that it has more than enough gas of its own.

As the country’s energy officials enjoy boasting, Kazakhstan sits atop 3.8 trillion cubic meters of gas, enough to last them 100 years. A good 70 percent of that total is concentrated in four huge fields: Karachaganak, Tengiz, Kashagan and Zhanazhol.

What remains, however, is to get that gas out of the ground. 

On that point, the Energy Ministry has said that a processing plant with the capacity to produce up to 1 billion cubic meters of gas will be built at Kashagan by 2024. 

In spite of all this potential, officials are nevertheless insistent that consumers need to be trained into more parsimonious usage.

“In northern regions, where the fall-winter period lasts almost nine months, households consume about 500-1,000 cubic meters. But in southern and western regions, consumption is three times higher. This suggests that there is some kind of business being run out of the household: a hotel or a store,” Kasenov said.

“We want to introduce a social minimum threshold. If it is a household, or if it is an individual housing unit, if the baseline bits of equipment are a cooker, a gas stove and a boiler, we can calculate the standard consumption. Everything above that is excess consumption.” 

CIA Director William Burns has weighed in directly on Biden administration assertions that China is mulling providing Russia with lethal aid to further its military action in Ukraine. 

Burns told CBS’ “Face the Nation” on Sunday that the US is “confident” that Beijing is considering it at this point. “We’re confident that the Chinese leadership is considering the provision of lethal equipment,” he said.

“We also don’t see that a final decision has been made yet, and we don’t see evidence of actual shipments of lethal equipment.”

Burns went on to say in reference to recent warnings from Secretary of State Antony Blinken, “That’s why, I think, Secretary Blinken and the President have thought it important to make very clear what the consequences of that would be as well … because it would be a very risky and unwise bet.”

This means that clearly at the very least the US has no evidence that such aid has actually been delivered, despite some ambiguous media accusations reaching back to last summer. CBS also noted…

Earlier this month, Burns told students at Georgetown University that Xi had been “very reluctant to provide the kind of lethal weapons to Russia to use in Ukraine that the Russians are very much interested in.”

Additionally, the whole accusations theater seems more by design to act as a preemptive warning against what Beijing might contemplate in the future. Ultimately it seems a big nothingburger. 

But it’s China’s silence amid G20 meetings that speaks loudest at this point: 

Finance ministers of the world’s largest economies have failed to agree on a closing statement following a summit in India, after China refused to condemn Russia’s invasion of Ukraine.

Beijing declined to accept parts of a G20 statement that deplored Russia’s aggression “in the strongest terms”.

Moscow said “anti-Russian” Western countries had “destabilized” the G20. It comes after China this week published a plan to end the conflict that was viewed by some as pro-Russian.

So China does no longer sign up to the statement as it was given by the G20 in Bali? That’s bad news. https://t.co/sAfd7hIpC9

— Ulrike Franke (@RikeFranke) February 26, 2023

A G20 statement condemning the war included a footnote which said it was “agreed to by all member countries except Russia and China”.

Authored Joe Lauria via ConsortiumNews.com,

Western leaders privately told Ukrainian President Volodymyr Zelensky that Ukraine can not win the war against Russia and that it should begin peace talks with Moscow this year in exchange for closer ties with NATO. 

Élysée Palace where Macron and Scholz told Zelensky to seek peace. (U.S. State Dept.)

The private communications are at odds with public statements from Western leaders who routinely say they will continue to support Ukraine for as long as it takes until it achieves victory on the battlefield. 

The Wall Street Journal, which reported on the private remarks to Zelenksy, said:

“The public rhetoric masks deepening private doubts among politicians in the U.K., France and Germany that Ukraine will be able to expel the Russians from eastern Ukraine and Crimea, which Russia has controlled since 2014, and a belief that the West can only help sustain the war effort for so long, especially if the conflict settles into a stalemate, officials from the three countries say.

‘We keep repeating that Russia mustn’t win, but what does that mean? If the war goes on for long enough with this intensity, Ukraine’s losses will become unbearable,’ a senior French official said.

‘And no one believes they will be able to retrieve Crimea.’

French President Emmanuel Macron and German Chancellor Olaf Scholz told Zelensky at an Élysée Palace dinner earlier this month that he must consider peace talks with Moscow, the Journal reported.

According to its source, the newspaper quoted Macron as telling Zelensky that “even mortal enemies like France and Germany had to make peace after World War II.”

Macron told Zelensky “he had been a great war leader, but that he would eventually have to shift into political statesmanship and make difficult decisions,” the newspaper reported.   

A Return to Realism

Macron at the Munich Security Conference last week. (Kuhlmann/MSC)

At the Munich Security Conference last week, Gen. Petr Pavel, the Czech Republic’s president-elect and a former NATO commander, said:

“We may end up in a situation where liberating some parts of Ukrainian territory may deliver more loss of lives than will be bearable by society. … There might be a point when Ukrainians can start thinking about another outcome.”

Even when he was a NATO commander Pavel was a realist in regard to Russia. During controversial NATO war games with 31,000 troops on Russia’s borders in 2016 — the first time in 75 years that German troops had retraced the steps of the Nazi invasion of the Soviet Union — Pavel dismissed hype about a Russian threat to NATO. 

Pavel, who was chairman of NATO’s military committee at the time, told a Brussels press conference that, “It is not the aim of NATO to create a military barrier against broad-scale Russian aggression, because such aggression is not on the agenda and no intelligence assessment suggests such a thing.”  

The German foreign minister at the time, Frank-Walter Steinmeier, also embraced realism towards Russia, saying: “What we shouldn’t do now is inflame the situation further through saber-rattling and warmongering. Whoever believes that a symbolic tank parade on the alliance’s eastern border will bring security is mistaken.”

Instead of an aggressive NATO stance towards Russia that could backfire, Steinmeier called for dialogue with Moscow. “We are well-advised to not create pretexts to renew an old confrontation,” he said, saying it would be “fatal to search only for military solutions and a policy of deterrence.”  Under U.S. leadership NATO clearly did not follow that advice, as it continued to deploy more troops to Eastern Europe and to arm and train Ukraine (under cover of pretending to back the Minsk Accords).

Before its intervention in Ukraine, Russia cited NATO’s eastward expansion, the deployment of missiles in Romania and Poland, war games near its borders and the arming of Ukraine as red lines that the West had crossed. 

After a year of war, Western leaders appear now to be turning to a realist approach. Macron, for instance, at the Munich Security Conference dismissed any talk of regime change in Moscow. 

 No US Reaction

Left to Right: Ukrainian Foreign Minister Dmytro Kuleba, U.S. Secretary of State Antony Blinken and German Foreign Minister Annalena Baerbock at Munich Security Conference. (Schulmann/MSC)

Washington has not commented on the Journal‘s story about the peace talks-for-arms proposal.

U.S. Secretary of State Antony Blinken last month discussed with The Washington Post arming Ukraine post-war but he did not say that Ukraine should seek peace talks.

“We have to be thinking — and we are — about what the postwar future looks like to ensure that we have security and stability for Ukrainians and security and stability in Europe,” Blinken told the conference in Munich.

The proposal to bring Ukraine even closer to NATO than it already is, with greater access to weapons after the war, should be on the agenda at NATO’s annual meeting in July, said Rishi Sunak, the British prime minister, at the Munich conference.

“The NATO summit must produce a clear offer to Ukraine, also to give Zelensky a political win that he can present at home as an incentive for negotiations,” a British official told the Journal. 

The deal with NATO would not include membership with its Article 5 protection, the newspaper reported. “We would like to have security guarantees on the path to NATO,” Zelensky told a press conference on Friday.

 In the meantime, Macron, according to the WSJ report, said that Ukraine should press forward with a military offensive to regain territory in order to push Moscow to the peace table. 

There has been no reaction from Moscow about the proposal. Political analyst Alexander Mercouris, in his video report on Saturday, said Russia would likely be incentivized to continue fighting rather than enter peace talks with the knowledge that Ukraine would be heavily armed by NATO after the war.   

“The Russians are never going to agree with something like this,” Mercouris said.

“They must be saying to themselves that instead of agreeing to this plan, it actually makes more sense … to continue this war because one of [Russia’s] objectives is the total demilitarization of Ukraine.”

What the Western powers are proposing is the opposite, he said. Given that Russia considers it is winning and “there seems to be a general acknowledgment amongst Western governments that Ukraine can’t win this war, …where is the incentive for … Russia to even consider this plan?”

For Moscow, Mercouris said, Ukraine’s demilitarization is an “absolute, existential matter.”  

If Ukraine is going to get even more advanced weapons from NATO after the war as opposed to what it would get “whilst the war is still underway, then it makes even less sense” for Russia “to stop the war and agree to this plan.” 

Russia is facing a “weakening adversary now,” Mercouris said, and Moscow clearly prefers that to facing a “strengthened adversary later.”  

Authored by Alexander Zhang via The Epoch Times,

Britain is “on the cusp” of securing a new deal with the European Union on post-Brexit trading terms in Northern Ireland, Deputy Prime Minister Dominic Raab says.

Deputy Prime Minister Dominic Raab arrives at BBC Broadcasting House in London on Feb. 26, 2023. (Stefan Rousseau/PA Media)

The UK has been holding talks with the EU to fix issues with the so-called Northern Ireland Protocol for some time, and speculation has been mounting that the two sides are close to an agreement on the future of the controversial trading arrangement.

Appearing on Sky News on Feb. 26, Raab confirmed that “there is real progress” and suggested “there will be good news in a matter of days, not weeks.”

The Cabinet minister later told the BBC, “If we can get this over the line—we’re on the cusp, we’ve made great progress, we’re not there yet—this would be a really important deal.”

Prime Minister Rishi Sunak addresses participants at the Munich Security Conference in Germany on Feb. 18, 2023. ( Ben Stansall-WPA Pool/Getty Images)

Prime Minister Rishi Sunak has said his administration is “giving it everything we’ve got” to finalise the deal to fix issues with the protocol, which was negotiated and signed by former Prime Minister Boris Johnson.

Sunak, speaking to The Sunday Times newspaper, pledged to work to satisfy the demands from the unionist community in Northern Ireland.

“I’m a Conservative, I’m a Brexiteer, and I’m a unionist and anything that we do will tick all of those boxes, otherwise it wouldn’t make sense to me, let alone anyone else,” he told the newspaper.

‘Inching Towards Conclusion’

Leo Varadkar, the Irish republic’s “Taoiseach” or prime minister, also has expressed optimism over the negotiations.

Varadkar told RTE on Feb. 25 that he believes there is a possibility of an agreement in the next few days.

“Certainly the deal isn’t done yet,” he said. “But I do think we are inching towards conclusion and I really want to thank the UK government and the European Commission and the Northern Ireland parties for the level of engagement that they’ve done in recent months to get us to this point.

“I would just encourage everyone to go the extra mile to come to an agreement because the benefits are huge.

“They allow us to have the Northern Ireland Assembly back up and running in the north and the Good Friday Agreement working properly again, and also to put relations between the United Kingdom and Ireland and the European Union on a much more positive footing.”

But it remains unclear if the Democratic Unionist Party (DUP), the largest unionist party in Northern Ireland, will be satisfied with the deal.

The party has issued seven tests that Sunak’s new pact will have to meet in order to win its backing, including addressing what the DUP calls the “democratic deficit” of Northern Ireland being subject to EU rules while not having a say on them.

DUP MP Sammy Wilson told GB News it is a “red line” for his party that “no EU law” should continue to apply in Northern Ireland.

Mark Francois, chairman of the Conservative Party’s eurosceptic European Research Group, warned that it is a “practical reality” that, if the DUP does not agree with the changes Sunak has secured, then “it is simply not going to fly.”

Brexit Hangover

The Northern Ireland Protocol is part of the Brexit withdrawal agreement that was signed by former UK Prime Minister Boris Johnson and EU leaders to ensure the free movement of goods between Northern Ireland, which is a British province, and the Republic of Ireland, an EU member state.

The arrangements shifted customs and regulatory checks to the Irish Sea and created new red tape on the movement of goods between Great Britain and Northern Ireland, with trade in the region remaining subject to certain EU Single Market rules.

But the protocol has been fiercely opposed by unionists in the British province, who claim it has undermined the region’s standing within the UK.

Northern Ireland hasn’t had a functioning local government since February 2022, when the DUP withdrew from the power-sharing executive in protest against the protocol.

The DUP has pressed the UK government to act on unionist concerns around the effects of the protocol on trade between Great Britain and Northern Ireland, and on the union. The party said it will not reenter the devolved government until its concerns have been addressed.

On June 2022, the UK government published plans to override parts of the protocol, enabling ministers to establish a “green lane” so that trusted traders are allowed to move goods to Northern Ireland from Great Britain without checks, as long as the products remain within the UK.

But the EU has criticised the UK’s actions for breaking international law and undermining trust between the two sides. The bloc has since launched legal actions against the move.

The dispute could have led to a damaging trade war, with tariffs being imposed or even the suspension of the entire Brexit deal between the UK and EU.

Authored by Krishen Mehta via EurAsiaReview.com,

In October 2022, about eight months after the war in Ukraine started, the University of Cambridge in the UK harmonized surveys conducted in 137 countries about their attitudes towards the West and towards Russia and China.

The findings in the study, while not free of a margin of error, are robust enough to take seriously.

These are:

• For the 6.3 billion people who live outside of the West, 66 percent feel positively towards Russia and 70 percent feel positively towards China, and,

• Among the 66 percent who feel positively about Russia the breakdown is 75 percent in South Asia, 68 percent in Francophone Africa, and 62 percent in Southeast Asia.

• Public opinion of Russia remains positive in Saudi Arabia, Malaysia, India, Pakistan, and Vietnam.

Sentiments of this nature have caused some ire, surprise, and even anger in the West. It is difficult for them to believe that two-thirds of the world’s population is not siding with the West.

What are some of the reasons or causes for this?

I believe there are five reasons as explained in this brief essay.

1. The Global South does not believe that the West understands or empathizes with their problems.

India’s foreign minister, S. Jaishankar, summed it up succinctly in a recent interview: “Europe has to grow out of the mindset that Europe’s problems are the world’s problems, but the world’s problems are not Europe’s problems.” He is referring to the many challenges that developing countries face whether they relate to the aftermath of the pandemic, the high cost of debt service, the climate crisis that is ravaging their lives, the pain of poverty, food shortages, droughts, and high energy prices. The West has barely given lip service to the Global South on many of these problems. Yet the West is insisting that the Global South join it in sanctioning Russia.

The Covid pandemic is a perfect example—despite the Global South’s repeated pleas to share intellectual property on the vaccines, with the goal of saving lives, no Western nation was willing to do so. Africa remains to this day the most unvaccinated continent in the world. Africa had the capability to make the vaccines but without the intellectual property they could not do it.

But help did come from Russia, China, and India. Algeria launched a vaccination program in January 2021 after it received its first batch of Russia’s Sputnik V vaccines. Egypt started vaccinations after it got China’s Sinopharm vaccine at about the same time. South Africa procured a million doses of AstraZeneca from the Serum Institute of India. In Argentina, Sputnik became the backbone of their vaccine program. All of this was happening while the West was using its financial resources to buy millions of doses in advance, and often destroying them when they became outdated. The message to the Global South was clear—your problems are your problems, they are not our problems.

2. History Matters: Who stood where during colonialism and after independence? 

Many countries in Latin America, Africa, and Asia view the war in Ukraine through a different lens than the West. Many of them see their former colonial powers regrouped as members of the Western alliance. The countries that have sanctioned Russia are either members of the European Union and NATO or the closest allies of the United States in the Asia Pacific region. By contrast, many countries in Asia, and almost all countries in the Middle East, Africa, and Latin America have tried to remain on good terms with both Russia and the West, and to shun sanctions against Russia. Could it be because they remember their history at the receiving end of the West’s colonial policies, a trauma that they still live with but which the West has mostly forgotten.

Nelson Mandela often said that it was the Soviet Union’s support, both moral and material, that helped inspire Southern Africans to overthrow the Apartheid regime. It is because of this that Russia is still viewed in a favorable light by many African countries. And once Independence came for these countries, it was the Soviet Union that supported them even though it had limited resources itself. The Aswan Dam in Egypt which took 11 years to build, from 1960 to 1971, was designed by the Moscow based Hydro project Institute and financed in large part by the Soviet Union. The Bhilai Steel Plant in India, one of the first large infrastructure projects in a newly independent India, was set up by the USSR in 1959. Other countries also benefited from the support provided by the former Soviet Union, both political and economic, including Ghana, Mali, Sudan, Angola, Benin, Ethiopia, Uganda, and Mozambique.

On February 18, 2023, at the African Union Summit in Addis Ababa, Ethiopia, the foreign minister of Uganda, Jeje Odongo, had this to say, “We were colonized and forgave those who colonized us. Now the colonizers are asking us to be enemies of Russia, who never colonized us. Is that fair? Not for us. Their enemies are their enemies. Our friends are our friends.”

Rightly or wrongly, present day Russia is seen by many countries in the Global South as an ideological successor to the former Soviet Union. These countries have a long memory that makes them view Russia in a somewhat different light. Given the history, can we blame them?

3. The war in Ukraine is seen by the Global South as mainly about the future of Europe rather than the future of the entire world.

The history of the Cold War has taught developing countries that getting embroiled in great power conflicts generates few benefits for them yet carries enormous risks. And they view the Ukraine proxy war as one that is more about the future of European security than the future of the entire world. Furthermore, the war is seen by the Global South as an expensive distraction from the most pressing issues that they are dealing with. These include higher fuel prices, food prices, higher debt service costs, and more inflation, all of which have become more aggravated because of the Western sanctions that have been imposed on Russia.

A recent survey published by Nature Energy states that up to 140 million people could be pushed into extreme poverty due to the higher energy prices that have come about over the past year.

Soaring energy prices not only directly impact energy bills, but they also lead to upward price pressures on all supply chains and consumer items, including food and other necessities. This hurts the developing countries even more than it hurts the West.

The West can sustain the war “as long as it takes” since they have the financial resources and the capital markets to do so. But the Global South does not have the same luxury. A war for the future of European security has the potential of devastating the security of the entire world.

The Global South is also alarmed that the West is not pursuing negotiations that could bring this war to an early end. There were missed opportunities in December 2021 when Russia proposed revised security treaties for Europe that could have prevented the war and which were rejected by the West. The peace negotiations of April 2022 in Istanbul were also rejected by the West in part to “weaken” Russia. And now the entire world is paying the price for an invasion that the Western media like to call “unprovoked” and which could have been avoided.

4. The world economy is no longer American dominated or Western led and the Global South does have other options.

Several countries in the Global South increasingly see their future tied to countries that are no longer in the Western sphere of influence. Whether this is their perception of how the power balance is shifting away from the West, or wishful thinking as part of their colonial legacy, let us look at some metrics that may be relevant.

The U.S. share of global output declined from 21 percent in 1991 to 15 percent in 2021, while China’s share rose from 4 percent to 19 percent during the same period. China is the largest trading partner for most of the world, and its GDP in purchasing power parity already exceeds that of the United States. The BRICS (Brazil, Russia, China, India, and South Africa) had a combined GDP in 2021 of $42 trillion compared with $41 trillion in the G7. Their population of 3.2 billion is more than 4.5 times the combined population of the G7 countries, at 700 million.

The BRICS are not imposing sanctions on Russia nor supplying arms to the opposing side. While Russia is the biggest supplier of energy and foodgrains for the Global South, China remains the biggest supplier of financing and infrastructure projects to them through the Belt and Road Initiative. And now Russia and China are closer than ever before because of the war. What does it all mean for developing countries?

It means that when it comes to financing, food, energy, and infrastructure, the Global South must rely more on China and Russia more than on the West. The Global South is also seeing the Shanghai Cooperation Organization expanding, more countries wanting to join the BRICS, and many countries now trading in currencies that move them away from the dollar, the Euro, or the West. They also see a deindustrialization taking place in some countries in Europe because of higher energy costs, along with higher inflation. This makes quite apparent an economic vulnerability in the West that was not so evident before the war. With developing countries having an obligation to put the interests of their own citizens first, is it any wonder that they see their future tied more to countries that are not Western led or American dominated?

5. The “rule based international order” is lacking in credibility and is in decline.

The “rule based international order” is a concept that is seen by many countries in the Global South as one that has been conceived by the West and imposed unilaterally on other countries. Few if any non-Western countries ever signed on to this order. The South is not opposed to a rule-based order, but rather to the present content of these rules as conceived by the West.

But one must also ask, does the rule based international order apply even to the West?

For decades now, for many in the Global South, the West is seen to have had its way with the world without regard to anyone else’s views. Several countries were invaded at will, mostly without Security Council authorization. These include the former Yugoslavia, Iraq, Afghanistan, Libya, and Syria. Under what “rules” were those countries attacked or devastated, and were those wars provoked or unprovoked? Julian Assange is languishing in prison, and Ed Snowden is in exile, for having the courage (or perhaps the audacity) to expose the truths behind these actions.

Sanctions imposed on over 40 countries by the West impose considerable hardship and suffering. Under what international law or “rules-based order” did the West use its economic strength to impose these sanctions? Why are the assets of Afghanistan still frozen in Western banks while the country is facing starvation and famine? Why is Venezuelan gold still held hostage in the UK while the people of Venezuela are living at subsistence levels? And if Sy Hersh’s expose is true, under what “rules-based order” did the West destroy the Nord Stream pipelines?

There appears to be a paradigm shift that is taking place away from a Western dominated world and into a more multipolar world. And the war in Ukraine has made more evident those differences or chasms that are part of this paradigm shift. Partly because of its own history, and partly because of the economic realities that are emerging, the Global South sees a multipolar world as a preferable outcome in which their voices are more likely to be heard.

President Kennedy ended his American University speech in 1963 with the following words: “We must do our part to build a world of peace where the weak are safe and the strong are just. We are not helpless before that task or hopeless for its success. Confident and unafraid, we must labor on towards a strategy of peace.”

That strategy of peace was the challenge before us in 1963 and they remain a challenge for us today. And the voices for peace, including those of the Global South, need to be heard.