• Asian equity markets mostly rallied with risk appetite spurred as trade picked up from Monday’s holiday lull
• Italian PM Conte won a vital confidence vote in the Chamber of Deputies and now faces a more difficult test at the Senate on Tuesday
• The DXY retreated further away from its recent failed attempt to surmount 91.00, EUR/USD eyes 1.21, GBP/USD reclaimed 1.36
• Treasury Secretary nominee Yellen is expected to call for big action to spur a recovery
• Looking ahead, highlights include German ZEW, Yellen's Treasury Secretary confirmation hearing, BoE's Haldane, earnings from GS, BofA and Netflix

CORONAVIRUS UPDATE

US coronavirus cases increased by at least 136,484 to 23.94mln and deaths rose by at least 1,403 to 398.7k, according to a major newswire tally. (Newswires)

US President Trump was initially reported to lift travel restrictions from January 26th for much of Europe including UK and also for Brazil which were imposed due to COVID-19, according to sources. However, President-elect Biden's adviser later stated the incoming administration does not intend to lift travel restrictions on Europe or Brazil on January 26th. (Newswires)

NY Governor Cuomo said he asked Pfizer (PFE) if NY can buy vaccines directly from them and stated the US made a bad situation worse by not adding supply. (Newswires)

UK Health Minister Hancock stated that the nation’s vaccination plan is on track and that supply was the rate-limiting factor for vaccine delivery. There were also comments from Public Health England official Hopkins that it was very difficult to provide a date for the reopening of schools, while the UK government also stated that hauliers will need a negative COVID-19 test before travel from UK to Denmark and the Netherlands. (Newswires)

UK government sources stated there is a grim dawning realisation surfacing that tough restrictions (Tiers 3 & 4) are likely to remain in place in large UK cities through April and even into May due to high level of infections, according to Times Radio's Tom Newton Dunn. (Twitter)

Germany is expected to extend and toughen its lockdown restrictions past January amid increasing fears concerning variant strains of the COVID-19 virus. (AFP)

Hong Kong Chief Executive Carrie Lam announced an extension of social distancing measures which were due to expire on Thursday and stated it is obvious there is no room for any relaxation in COVID-19 restrictions. (Newswires)

ASIA

Asian equity markets mostly rallied with risk appetite spurred as trade picked up from Monday’s holiday lull owing to the absence of US participants for MLK Jr. Day. ASX 200 (+1.2%) was lifted in which miners, industrials and financials spearheaded the broad gains across sectors, with quarterly production updates adding to the constructive mood after Rio Tinto reported higher Pilbara iron ore output and shipments Y/Y and OceanaGold guided stronger FY21 production. Nikkei 225 (+1.3%) was boosted as exporters benefitted from currency outflows and despite sources suggesting the BoJ is to consider scaling back ETF buying at the March review, as the reports also noted the central bank will look into making its ETF buying more flexible and that there was no consensus on how best to tweak guidance on ETF purchases, while KOSPI (+2.6%) was among the biggest gainers with the index helped as Samsung Electronics and its affiliates nursed yesterday’s losses that were triggered by the sentencing of the group’s de facto chief. Hang Seng (+2.4%) and Shanghai Comp. (-0.7%) were mixed with Hong Kong conforming to widespread optimism amid strong southbound Stock Connect flows which recently hit record highs and after the PBoC upped its liquidity efforts, although mainland China lagged on lingering tensions after China's Foreign Ministry decided to impose sanctions on US officials for actions related to Taiwan affairs and with President Trump issuing an executive order instructing agencies to prioritize the removal of Chinese-made drones for government fleets. Finally, 10yr JGBs were choppy with prices initially subdued by the gains in stocks which also pressured T-note futures overnight, although JGB prices were later supported following the 20yr auction which showed a firmer bid-to-cover and higher accepted prices.

PBoC injected CNY 80bln via 7-day reverse repos at a rate of 2.20% for a net daily injection of CNY 75bln. (Newswires) PBoC set USD/CNY mid-point at 6.4883 vs exp. 6.4869 (prev. 6.4845)

US President Trump signed an executive order which instructed agencies to prioritize the removal of Chinese-made drones for government fleets and for federal agencies to review security risks of existing drones in federal fleets. (Newswires)

China NDRC said China has the ability and conditions to consolidate economic growth in 2021 and that there will be no sudden shift in monetary policy this year, while it added monetary policy will provide needed support to struggling firms but noted that temporary policy launched due to the pandemic cannot remain in the long-term. (Newswires)

UK/EU

Italian PM Conte won a vital confidence vote at the Chamber of Deputies (321-259), while he faces a more difficult test at the Senate on Tuesday where the government previously only had a narrow majority even with the support of the Viva Party which have since defected. There were separate reports that PM Conte aims to maintain his control of power even if he fails to achieve an outright majority at the Senate vote and plans to push ahead with his legislative agenda for next few weeks while he tries to secure further support, although could still be forced to resign if he is defeated. (Newswires)

Eurogroup chief Donohoe said Eurozone ministers confirmed again the need to maintain very supportive fiscal stance in the face of COVID challenges. (Newswires)

EU is to unveil its plan today to bolster the international role of EUR as part of efforts to curb dominance of USD and reduce its exposure to risks including US sanctions. (Newswires)

FX

In FX markets, the USD softened with the haven losing some appeal amid the heightened risk appetite which saw the DXY retreat further away from its recent failed approach on the 91.00 level, while focus for the currency turns to Treasury Secretary nominee Yellen’s confirmation hearing at the Senate where she is expected to call for big action to spur a recovery amid low rates and state that the US economy was K-shaped prior to the pandemic. EUR/USD is higher and eyes 1.2100 to the upside owing to the weaker greenback and after Italian PM Conte won a vital confidence vote at the Chamber of Deputies by vote of 321-259 and although he faces a more difficult test at the Senate, sources suggested he aims to remain in power even if he fails to achieve an outright majority and will try to secure further support but could still be forced to resign if he is defeated. GBP/USD was firmer and reclaimed the 1.3600 handle but with upside somewhat limited. USD/JPY briefly reclaimed 104.00 status and JPY-crosses joined in on the advances as the heightened risk appetite spurred haven outflows from JPY, while antipodeans were lifted due to their high beta properties, weaker USD and shifting central bank expectations with Capital Economics anticipating the RBA could halt QE in April and sees the RBNZ as the first to hike rates next year.

COMMODITIES

WTI crude futures trade rangebound throughout the session above USD 52.00/bbl and Brent crude briefly reclaimed the USD 55.00/bbl level but with upside limited given the ongoing lockdowns and disruptions brought on by the pandemic, while participants will also have to wait longer for the latest weekly inventory data with the private sector report due on Wednesday and EIA inventories scheduled for Friday owing to the MLK Jr. holiday and Inauguration. Gold was sideways, while copper prices were kept afloat by the widespread constructive mood but with gains restricted alongside the uneventful mood across the complex.

Alberta Premier sees a strong case for seeking damages under NAFTA if US cancels the Keystone XL pipeline. (Newswires)

GEOPOLITICAL

Twitter sources noted reports of multiple explosions from US strikes targeting Iranian-backed Iraqi Shia militia stronghold in Jurf al-Sakhar, Iraq and Middle Eastern press confirmed airstrikes on Jurf al-Sakhar in Iraq with many said to be killed and wounded, although US Defense Department noted there has been no US airstrikes near Baghdad today. (Twitter/Al Mayadeen News/Fox)

North Korean Leader Kim could be planning a missile launch to welcome Biden administration, according to reports citing satellite evidence of work being conducted at a naval base in the port city of Nampo on the country’s west coast, although the reports added that the evidence was not conclusive. (Washington Post)

US

US Treasury Secretary nominee Yellen is to comment at the Senate confirmation hearing today that it is time to act big for a recovery with rates low and that the US economy was K-shaped prior to the pandemic, while she will also highlight inequality in the US. (Newswires)