• Indices are firmer this morning with the gains more pronounced stateside vs Europe, Euro Stoxx 50 +0.2%, ES +0.8%, while the RTY outperforms +1.3% ahead of Yellen's hearing
• Treasury Secretary nominee Yellen is expected to call for big action to spur a recovery
• German Chancellor Merkel is reportedly looking to extend the German lockdown to February 15th
• Italian PM Conte won a vital confidence vote in the House while he faces a more difficult test at the Senate today; as such, BTPs are outperforming
• The DXY underperforms weighed on by most G10 peers, particularly GBP and EUR - though safe-haven JPY is currently unable to benefit
• IEA lowered 2021 oil demand in-fitting with the EIA STEO but contrasting the OPEC MOMR
• Looking ahead, highlights include 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. Separately, California's state epidemiologist has called for sites to swap out Moderna (MRNA) vaccines from a particular batch after 6 recipients suffered 'severe allergic reactions'. (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)

German Chancellor Merkel is reportedly looking to extend the German lockdown to February 15th (vs. current end-Jan expiry), according to Bild; proposal adds that aid to companies should be further enhanced. (Bild)

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)

Russia says its second COVID-19 vaccine by Vector Institute has an efficacy of 100% based on clinical trial results, via Tass. (Twitter)

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 (+1.4%) 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 (+2.7%) and Shanghai Comp. (-0.8%) 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)

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)

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)

The European Commission has cautioned that some prelim national spending plans for the recovery fund are lacking in detail and need to be improved, according to sources; countries yet to submit need to do so prior to the end-April deadline. Plans will be rejected if not accompanied by reforms. (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)

German ZEW Economic Sentiment (Jan) 61.8 vs. Exp. 60.0 (Prev. 55.0); Current Conditions (Jan) -66.4 vs. Exp. -68.5 (Prev. -66.5)

• Export expectations have risen significantly
• EZ ZEW Expectations (Jan): 58.3 vs prev. 54.4

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)

Russia's Gazprom says they are risks of suspending/scrapping the Nord Stream 2 project given various challenges which include political pressures, via Eurobond prospectus. Subsequently, the Kremlin says they intend to complete the project. (Newswires)

EQUITIES

European bourses experience mixed trade (Euro Stoxx 50 +0.2%) following on from a mostly optimistic APAC handover where mainland China was the only major underperformer on the back of heightened US-Sino tensions. Markets thus far remain tentative and await more concrete catalysts as US players are set to return from their long weekend and will bring along with them more corporate earnings (Bank of America - 12:00GMT, Goldman Sachs - 12:30GMT, Netflix – 21:00GMT), and Incoming Treasury Secretary nominee Yellen’s confirmation hearing at 15:00GMT (full primer can be found here). Back to Europe, the FTSE MIB (+0.4%) modestly resides as one of top gainers after Italian PM Conte won a vital confidence vote at the Chamber of Deputies - but he faces a more difficult test at the Senate on Tuesday. Meanwhile, Germany’s DAX (Unch) gave up some gains after reports via Bild suggested German Chancellor Merkel is reportedly looking to extend the German lockdown to February 15th (vs. current end-Jan expiry). That being said, the paper quoted Merkel last week floating an 8-10 week extension, thus some argue this was shorter-than-expected, but does not omit the chance of another extension in the future – the meeting on further restrictions is poised to take place today at 13:00GMT according to Bild. Sectors are mostly higher with Tech and Banks leading the gains amid supporting demand and yields respectively. On the other end of the spectrum, Auto names are dented as EU27 December car registrations fell YY whilst the 2020 figure slumped 24% amid COVID-19 - the largest drop on record. Travel & Leisure meanwhile sees lacklustre trade as the sector balances vaccine rollouts with reports US President-elect Biden's adviser stated the incoming administration does not intend to lift travel restrictions on Europe or Brazil on January 26th. In terms of individual movers, HSBC (+2%) is bolstered by the yield environment coupled with comments from its chairman Tucker who said the group is mulling revising its strategy and will focus on Asian expansions. Additionally, Tucker said they are looking at resuming dividends as soon as possible. Elsewhere, Rio Tinto (Unch) was firmer after reporting Y/Y increases in Q4 Pilbara iron ore production, shipments and aluminium output, albeit copper output fell modestly. The miner said China's buying remains robust despite localised impacts from COVID-19 in some regions. Finally, Danone (+1.5%) is supported by reports activist investor Bluebell Capital has taken a stake in the Co. and is seeking the removal of Chairman and CEO Faber due to their underperforming share price.

Boeing (BA) - EASA expects to issue an airworthiness directive next week which will allow the 737 MAX to fly, according to an executive director

Geely (175 HK) has signed an agreement with Tencent (700 HK) to work on a smart car cockpit and autonomous driving. (Newswires)

India are looking to consider changes to foreign investment rules for e-commerce sector, according to sources. (Newswires) Potentially of note for the likes of Amazon (AMZN)

FX

DXY - Buck bulls have been impeded by a broad upturn in risk sentiment first and foremost, but the fact that the index failed to sustain gains through a key technical level in the form of the 50 DMA at 90.931 on Monday vs 90.927 today, and extend beyond 91.000 may also be telling. However, the DXY is holding around 90.500 on the way back down to keep chart proponents encouraged and it would be far too premature to suggest that the Dollar is set for a complete turnaround Tuesday in terms of its overall recovery from worst levels, barring a further, deeper retreat or something more detrimental from US Treasury Secretary nominee Yellen at her confirmation hearing – for a full primer of the event check out the headline feed at 8.30GMT.

EUR/AUD/XAU - The Euro and Aussie are vying for top spot among the non-Usd G10 currencies, with the former back above 1.2100 after breaching the 50 DMA at 1.2091, and the latter retesting 0.7700 where big option expiries reside (1.2 bn). Eur/Usd may also be deriving some traction from Italy following PM Conte’s vote of confidence from the Chamber of Deputies, though tonight’s Senate result will likely be a much tighter call as he needs 161 votes to survive vs current expectations of 154-158 in his favour. For the record, only modest upside in reaction to a firmer than forecast ZEW survey towards 1.2135 as Germany looks set to extend its lockdown until mid-February from the end of this month. Meanwhile, Aud/Usd could be gleaning support via Capital Economics contending that the RBA may stop QE in April as a counter to a 5.5% decline in payrolls over Xmas and New Year, per Australia’s Bureau of Statistics. Elsewhere, Gold is also benefiting from the Greenback’s retreat and a rebound in real yields as it eyes the 200 DMA just shy of Usd 1845/oz.

NZD/CHF/GBP/CAD - Also paring recent losses vs their US rival, as the Kiwi regains 0.7200+ status, also with headwinds from Capital Economics that expects the RBNZ to hike rates in 2022, but acknowledging a significant improvement in Q4 NZIER business confidence as well. Similarly, the Franc has rebounded firmly from sub-0.8900 amidst less deflationary y/y and inflationary m/m Swiss producer and import prices, Sterling is back over 1.3600 and the Loonie has recovered from its close encounter with 1.2800 to trade nearer 1.2700 in advance of Canadian manufacturing sales and wholesale inventories before CPI and the BoC on Wednesday. Note, housing starts surpassed consensus by 1.3k in December according to data out yesterday.

JPY - The major laggard due to its safe haven standing and closer correlation with US Treasury/JGB yield differentials, with the Yen trying to contain declines circa 104.00 in the run up to trade, CPI and the BoJ.

SCANDI/EM - All drawing comfort from the more constructive market tone, though to varying degrees as the Sek outperforms and Zar is sufficiently buoyed by spot bullion to shrug off significantly weaker than anticipated SA mining production.

Notable FX Expiries, NY Cut:

• EUR/USD: 1.2000 (1.1BN), 1.2100 (567M), 1.2190 (1.4BN), 1.2200 (2.7BN)
• USD/JPY: 103.00 (1.4BN), 103.25 (735M), 103.50 (447M), 103.65 (390M), 104.00 (606M), 104.35 (362M)
• AUD/USD: 0.7700 (1.2BN)

FIXED

Debt remains relatively rangebound, but upticks have become more fleeting irrespective of equities paring gains and a building sovereign syndication pipeline could well be keeping sellers to the fore. Hence, Bunds, Gilts, OATs and USTs are still closer to troughs than peaks, with an encouraging if not outright upbeat ZEW survey also adding to the negative factors for core bonds, while Italian BTPs nudge higher on the 151.00 handle hoping or hedging for no coalition collapse even if PM Conte receives the thumbs down from Senate. Also ahead, US cash traders return from their long holiday weekend for the confirmation hearing of President-elect Biden’s pick as next Treasury Secretary, Yellen.

France sees a record amount of bids of some EUR 59bln for its 50yr bonds. (Newswires)

COMMODITIES

WTI and Brent front month futures are grinding higher in the run up to the US entrance. Prices initially coat-tailed the softer buck and broader gains across stocks heading into the European open before being briefly knocked off-course by the IEA monthly report. The report lowered the IEA’s Q1 2021 demand growth forecast by a sizable 600k BPD followed by a 300k BPD downgrade to the overall 2021 view - amid resurgence of COVID-19 cases and slowing oil demand rebound. This report chimes more with the EIA STEO release whereby the agency cut its forecast for 2021 world oil demand growth forecast while OPEC kept theirs unchanged. Brent Mar resides just north of USD 55.50/bbl (vs high 55.45/bbl) while its WTI counterpart hovers above USD 52.50/bbl. It’s also worth bearing in mind that there are discrepancies between the WTI and Brent price changes an account of no WTI settlement yesterday due to MLK holiday, whilst Brent settled lower by USD 0.35/bbl. Elsewhere, gains in precious metals are carried by the weaker Buck coupled with some reflationary sentiment heading into incoming Treasury Secretary nominee Yellen’s confirmation hearing in which she is to sell the USD 1.9tln fiscal bazooka. Spot gold has rebounded from its 1835/oz low to hover in close proximity to its 100 DMA (1844.85/oz) ahead of its 50 DMA (circa 1859/oz) and 21 DMA (circa 1875/oz). In terms of base metals, LME copper is firmer and back above USD 8,000/t amid the weaker Dollar and ahead of Yellen’s speech. UBS expect copper prices at USD 9,500/T by mid-2021 and look for a short-term pullback. The bank notes that subsequently market conditions and reducing exchange inventories indicate an upward move. Elsewhere, Dalian iron ore pulled back from 4-week highs amid reported weakening steel margins in China.

IEA Monthly Oil Market Report: Lowers Q1 2021 global oil demand by 600k BPD and by 300k BPD for 2021 as a whole amid resurgence of COVID-19 cases and slowing oil demand rebound, the vaccine rollout is putting fundamentals on a stronger recovery. There may be scope for higher supply growth given the expected H2 2021 demand improvement. (Newswires)

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

UBS expect copper prices at USD 9.5k/T by mid-2021; look for a short-term pullback but subsequently market conditions and reducing exchange inventories indicate an upward move. (Newswires)