• Asian equity markets were mostly positive as the region partially sustained the momentum from the tech-led gains on Wall St
• US President-elect Biden's incoming Secretary of State Blinken said President Trump was right in taking a tougher stance on China but disagrees with the way he did it
• ECB is reportedly to pursue a strategy of yield spread control with the purpose of limiting the spreads between strongest and weakest EU economies
• Italian PM Conte won the confidence vote at the Senate through a vote of 154 vs 140
• In FX, the DXY sits sub-90.50, EUR/USD eyes 1.2150 and GBP/USD trades above 1.3650
• Looking ahead, highlights include UK, EZ & Canadian inflation, BoC rate decision & press conference, US Inauguration Day, BoE's Bailey, supply from Germany & the US
• Earnings from ASML, UnitedHealth and Morgan Stanley

CORONAVIRUS UPDATE

US coronavirus cases increased by at least 197,683 to 24.14mln and deaths rose by at least 2,754 to 401.5k, according to a major newswire tally. (Newswires)

Moderna (MRNA) said it is fully cooperating with the California Department of Public Health review investigating vaccine adverse effects and that it is unaware of comparable clusters of adverse events from other vaccination centres, which may have administered vaccines out of the same lot. (Newswires)

Canada is to see a serious reduction in supply of Pfizer (PFE) vaccines over the next three weeks, according to an official. (Newswires)

ASIA

Asian equity markets were mostly positive as the region partially sustained the momentum from the tech-led gains on Wall St, where participants reflected on earnings results and sentiment was underpinned by stimulus hopes as Treasury Secretary nominee Yellen asserted the need for fiscal support, while she also suggested focus is on providing relief not raising taxes and that although President-elect Biden will tweak the 2017 tax cuts, it would not be a complete repeal. ASX 200 (+0.4%) was higher with gains led by tech after similar outperformance stateside and with miners lifted including BHP which reported higher quarterly iron ore output, record HY iron ore shipments and raised its FY iron ore production guidance. Nikkei 225 (-0.4%) failed to hold on to opening gains with the index pressured by currency effects as the JPY reverses some of the recent outflows and KOSPI (+0.4%) was choppy despite reports policymakers were considering extending the short-selling ban by 3 months and with Kia Motors advancing by around 9% on news that the Co. could build the Apple self-driving car at its Georgia plant. Hang Seng (+0.5%) and Shanghai Comp. (Unch.) were kept afloat after the PBoC boosted its liquidity efforts and maintained its Loan Prime Rates for a 9th consecutive month as expected, with Alibaba shares also boosted after its founder Jack Ma made his first appearance since October through a video conference which dispelled concerns he may have been detained. However, the upside in Chinese stocks was restricted after comments from US President-elect Biden’s Secretary of State Blinken which suggested the incoming administration is likely to maintain its pressure on China as he noted that the US must ensure it does not import goods made with forced labour from China's Xinjiang and agreed with the White House's determination of 'genocide' regarding China's repression of Uighur Muslims. Finally, 10yr JGBs traded higher following on from the short-covering in USTs and as Japanese stock markets lagged against, with the BoJ also present in the market for nearly JPY 1.3tln of JGBs with 1yr-10yr maturities.

PBoC injected CNY 280bln via 7-day reverse repos at a rate of 2.20% for a net daily injection of CNY 278bln. (Newswires) PBoC set USD/CNY mid-point at 6.4836 vs exp. 6.4792 (prev. 6.4883)

• PBoC 1-Year Loan Prime Rate (Jan) 3.85% vs. Exp. 3.85% (Prev. 3.85%).
• PBoC 5-Year Loan Prime Rate (Jan) 4.65% vs. Exp. 4.65% (Prev. 4.65%)

US Secretary of State Pompeo denounced China's treatment of Uighur Muslims and called for others to join in the US’ effort to hold China accountable. There were later comments from China's Ministry of Foreign Affairs that stated it strongly opposes US statement regarding Xinjiang and the US move interferes with China's internal affairs. (Newswires)

US President-elect Biden's incoming Secretary of State Blinken said he agrees with the Trump administration's determination of 'genocide' regarding China's repression of Uighur Muslims and that the US must ensure we do not import goods made with forced labour from China's Xinjiang or export tools of repression, while he added that forcing people into concentration camps and trying to re-educate them to adhere to China Communist Party ideology amounts to genocide. Furthermore, Blinken earlier commented that there is no doubt China poses the most significant threat to the US of any nation and believes there is a very strong foundation to build a bipartisan policy on China, while he added President Trump was right in taking a tougher stance on China but disagrees with the way he did it and noted the US commitment to ensure Taiwan has the ability to defend itself will endure under the Biden administration. (Newswires)

UK/EU

BoE's Haldane said BoE is not engaging in monetary financing and that QE is a temporary action to keep borrowing costs low, while he added the UK does not need higher inflation that would cause borrowing costs to rise. Haldane stated he would not expect further losses of jobs if the furlough scheme is tapered off when the economy is 5-10% smaller than its pre-COVID level and that it was absolutely necessary for the UK government to increase its borrowing with debt levels above 100% of GDP are not unprecedented in the UK. Furthermore, he commented that the cost of servicing debt has never been lower, the UK is not facing any impending funding strike and when the time comes to reverse QE, the bank will do so in a gradual fashion. (Newswires)

ECB is reportedly to pursue a strategy of yield spread control with the purpose of limiting the spreads between strongest and weakest EU economies, although officials were said to not be in favour of having explicit yield targets. (Newswires)

EU regulators to extend looser state aid rules until the end of 2021 to help virus-hit companies, allowing EU countries to grant more funding. (Newswires)

Italian PM Conte won the confidence vote at the Senate through vote of 154 vs 140 against and 16 abstained. (Newswires)

US President-elect Biden strongly agrees with members of congress that the Nord Stream 2 Pipeline is a bad idea, according to his incoming Secretary of State Blinken. (Newswires)

FX

In FX markets, the DXY weakened beneath the 90.50 level amid the recent positive risk appetite and following on from Treasury Secretary nominee Yellen’s remarks at the Senate confirmation hearing in which she said that she would not actively seek out a weaker USD but would let the market determine where the currency should sit. The softer greenback spurred its major counterparts with EUR/USD approaching 1.2150 after Italian PM Conte’s confidence vote win at the Senate (154 in favour vs 140 against) whereby most Italia Viva senators abstained which sees him hold on to power albeit with a minority government. There were also source reports that the ECB are to pursue a yield spread control strategy to limit spreads between the bloc’s strongest and weakest economies although policy makers were said to be against explicit yield targets, while GBP/USD prodded above 1.3650 to build upon this week’s gains. BoE’s Haldane noted that QE is a temporary action to keep borrowing costs low and when the time comes to reverse QE, the Bank will do so in a gradual fashion. USD/JPY continued to retreat after stalling near 104.00 due to the weaker USD and as the BoJ kick-starts its 2-day policy meeting where the central bank is expected to maintain its policy settings but could downgrade current fiscal year economic growth forecasts amid the virus resurgence, while antipodeans were supported by the risk tone, marginal gains in commodities and firmer PBoC reference rate.

COMMODITIES

WTI crude futures marginally extended on gains above USD 53.00/bbl helped by the mostly positive risk appetite. There were also some bullish comments from the UAE Energy Minister who expects good oil demand in China and India, as well as for the oil market to begin recovering this year with room for demand to surpass 100mln BPD, while Goldman Sachs also affirmed its optimistic outlook for oil and sees a recovery in demand this year. Gold was underpinned amid a weaker USD and stimulus expectations which saw prices approach USD 1850/oz, while copper failed to comply to the mostly constructive mood with price action contained within a tight range overnight.

Goldman Sachs maintained its positive outlook for oil in 2021/2022 and expects demand to recover this year but non-OPEC will not. Furthermore, it sees a return to 2019 demand level by year-end but with potential for near-term volatility until widespread vaccinations boost demand for jet fuel and oil, while it forecasts WTI at USD 58.50 and USD 62.00/bbl in 2021 and 2022. (Newswires)

Standard Chartered expects WTI to average USD 49/bbl in 2021 and USD 56/bbl in 2022, while it sees Brent averaging USD 51/bbl in 2021 and USD 59/bbl in 2022. Standard Chartered also commented that the palladium market remains tight in which it expects another deficit in 2021 and realigned its 2021 average gold price forecast to USD 1,958/oz as bouts of dollar strength and a move up in US yields capped near-term upside. (Newswires)

GEOPOLITICAL

US President-elect Biden's Secretary of State Blinken said the US has an urgent responsibility to prevent Iran from acquiring a nuclear weapon and that Iran's breakout time has gone from over a year to three or four months based on public reporting, while the US is still a long way on a strengthened Iran deal. Blinken also commented that the Biden administration intends to review the entire approach and policy regarding North Korea, while he noted that Turkey's purchases of Russian air defense systems in unacceptable as a NATO ally and the US should observe the impact of existing sanctions on Turkey then decide if further action is required. Furthermore, Blinken committed to the US keeping its embassy in Jerusalem and said the US is planning to join the COVAX vaccine initiative, as well as return to the WHO to help with its reforms. (Newswires)

US

Treasuries were ultimately little changed after incoming Treasury Secretary Yellen accentuates short-covering. By settlement, 2s -0.4bps at 13.3bps, 10s -0.3bps at 109.4bps, 30s -1.1bps at 184.1bps; futures volumes were average; TIPS curve bull steepened with the 5yr TIPS yield -7.1bps at -171.4bps. Yields were modestly higher heading into US trade, coinciding with firmer stock futures as US cash trade returned from the long weekend. One desk noted the triggering of UST algo buy programmes as lows from Friday were held. The main focal point of the session was Yellen's grilling in Congress, where she affirmed expectations that she would not actively seek out a weaker US dollar (although said she would let the market determine where the dollar should sit) and alluded to potential tax hikes (caveating that corporate tax rates would not return to the levels before the 2017 TCJA). As she began speaking on taxes there was some pressure in stocks, which coincided with a bid for Treasuries, bringing yields flat on the session. There was some brief cheapening of yields after she said she would consider a 50-year bond offering, although nothing substantial. Interestingly, TIPS yields richened strongly, particularly in the short-end, perhaps as participants raised their expectations of fiscal stimulus injection as Yellen spoke strongly about the need for such. Also, a Treasury that stands ready to not interfere with the dollar's downtrend will only serve to support inflationary forces, whatever they may be. Looking ahead, Tuesday will see the US sell USD 24bln of 20-year bonds, in what is expected to be a decent auction after last week's other successful duration auctions, with participants seizing the fresh post-COVID high in yields as some draw scepticism on the room for further bond selling. T-note (H1) futures settled 2+ ticks higher at 136-30.

US President Trump is said to have discussed with aides about starting a new party, while it was separately reported that President Trump decided to grant clemency to several people including former White House adviser Steve Bannon. (Newswires/WSJ)

US Treasury Secretary nominee Yellen responded that it is not the right time to withhold support and revenue shortfalls could be a tremendous drag on the economy when asked about fiscal support for state and local governments, while she said there is an advantage to funding debt with long-term debt issuance and that she would be pleased to look at the possibility when asked about a 50-year bond. Yellen also commented that some investment programmes for the public sector would have strong returns that argue in favour of borrowing to finance them and that she believes capital gains should be taxed at some point in which mark-to-market is one method to ensure they are collected but will also look at other approaches and stated that President-elect Biden is not proposing to raise corporate taxes to level before 2017 tax cuts. (Newswires)

US Senate Republican Leader McConnell said the split US Senate offers no mandate for sweeping changes. However, it was later reported that Senate Leaders McConnell and Schumer were discussing a power sharing agreement in a split Senate, the impeachment trial and confirmations, while Schumer commented there are a lot of issues they can move forward on. (Fox News)

NY Governor Cuomo is seeking USD 15bln of the USD 350bln aid in Biden's proposal and commented that drastic budget cuts would slow the economic recovery, while he proposes raising the top income tax rate in the state to 10.86% from 8.82% in which the top income bracket would pay a combined city and state rate of 14.7% making it the highest in the US. (Newswires)

Netflix (NFLX) Q4 2020: EPS 1.19 (exp. 1.39); Revenue 6.64bln (exp. 6.63bln). Global streaming paid net additions: 8.51mln (exp. 6.1mln vs company guide of 6.0mln); Q1 2021 view: 6.00mln (exp. 8mln). (Newswires)