• European indices and US futures are firmer this morning, Euro Stoxx 50 +0.6% & ES +0.4%, but with the Nasdaq +0.8% leading the way after updates from Netflix and European tech giant ASML
• 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
• Biden is to issue a number of executive orders on his first day in office focusing on the environment/immigration; measures which have for the most part been widely flagged in recent sessions
• DXY has reclaimed a positive foothold aided via GBP's pressure on the EUR while the debt space pulled-back slight following a tepid 30yr Bund with BTPs unable to benefit further from Conte's Senate passage
• Looking ahead, highlights include Canadian inflation, BoC rate decision & press conference, US Inauguration Day, BoE's Bailey, supply from the US
• Earnings from 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)

Pfizer (PFE) and BioNTech (BNTX) COVID-19 vaccine appears to be effective against the British variant of the disease, according to a study. (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 (+1.0%) and Shanghai Comp. (+0.4%) 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.

Alibaba (9988 HK) founder Jack Ma makes first public appearance since October through videoconference with rural teachers. (Newswires)

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%)

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)

Chinese Premier Li says China's development is still facing relatively large challenges and uncertainties; economic operations will be kept within a reasonable range. (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. (Newswires)

US

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)

Presidential-Elect Biden is to sign 15 executive actions when he is sworn in as President, according to a spokeswoman. (Newswires) In-fitting with recent reports around Biden's plan for his first day in office

UK/EU

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)

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)

UK CPI YY* (Dec) 0.6% vs. Exp. 0.5% (Prev. 0.3%); MM* (Dec) 0.3% vs. Exp. 0.2% (Prev. -0.1%)

• Core CPI YY* (Dec) 1.4% vs. Exp. 1.3% (Prev. 1.1%); MM* (Dec) 0.3% vs. Exp. 0.2% (Prev. -0.1%)

EU HICP Final YY (Dec) -0.3% vs. Exp. -0.3% (Prev. -0.3%); X-F & E Final YY (Dec) 0.4% vs. Exp. 0.4% (Prev. 0.4%)

• X-F, E, A & T Final YY (Dec) 0.2% vs. Exp. 0.2% (Prev. 0.2%)

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)

Chinese military aircraft reportedly entered Taiwan's air defense identification zone (ADIZ) on the 20th January, according to reports. (Newswires)

Greece says it is willing to discuss the demarcation of the Aegean maritime zones in the Mediterranean; not hold discussions on matters of national sovereignty. (Newswires)

EQUITIES

European stocks kicked the mid-week session off with respectable gains across the board (Euro Stoxx 50 +0.6%), after the region picked up the baton from a mostly positive APAC session, and as markets brace for a pick-up in earnings and eye the inauguration of President-elect Biden and VP-elect Harris – with sentiment underpinned on stimulus hopes and Europe also supported by prospects of a fruitful relationship with the US. That being said, US equity futures vary in terms of performance, with the tech-led NQ (+0.8%) outperforming vs the value cyclical-driven RTY (-0.1%) – with some citing potential “sell the news” play, albeit the breadth of price action is still somewhat contained. The outperformance in the NQ could also be attributed to tailwinds from post-earnings Netflix (+12% pre-market) whose shares soared after-hours on a strong rise in subscriber growth and the prospect of share buybacks. Meanwhile, State-side earnings today include updates from the likes of UnitedHealth Group (+0.8% pre-market post-earnings) – the largest weighted Dow component with a 7.5% weighting as of yesterday, alongside Procter & Gamble (12:00GMT/ 2.8% DJIA weighting) and Morgan Stanley (12:30GMT). Note - some banks have a tendency to report earlier than expected. Back to Europe, sectors are mostly firmer and portray more of a cyclical bias, with IT the stand-out outperformer amid Netflix’s earnings coupled with numbers from ASML (+4.2%) whereby revenue topped estimates, 2020 dividend increased by 15% and the group also expects “another year of growth driven by strong Logic demand and continued recovery in Memory”. Auto names also reside among the winners in light of an update from Volkswagen (+2%) in which it expects China's overall car market sales to exceed 2019 levels and the Co's own sales will see "substantial growth". On the flip side, Oil & Gas resides towards the bottom of the pile due to a modest pullback in oil prices. In terms of individual movers, Hugo Boss (+5.8%) is bolstered on reports that Fraser Group's (+0.6%) Mike Ashley has increased his stake in Hugo Boss to 15.2% (prev. 5.1%) through stocks and derivatives. Elsewhere, Burberry (+5%) trade with firm gains post earnings, whilst Danone (-1.0%) is pressured after French Finance Minister Le Maire stated that France needs to be vigilant regarding the Co’s situation, referring to the Bluebell Capital Partners’ call for Danone to replace its CEO Faber following what it said has been a period of “disappointing” share price performance.

ASML (ASML NA) - Q4 net EUR 1.35bln vs prev. EUR 1.1bln. Revenue EUR 4.25bln vs exp. EUR 3.734bln (prev. EUR 4.04bln). Co. guides Q1 2021 net sales between EUR 3.9bln to 4.1bln vs exp. EUR 3.52bln. Gross margin between 50% and 51% and R&D costs of EUR 620mln. ASML intends to declare a total dividend over 2020 of EUR 2.75 per ordinary share (15% increase). CEO said "For 2021, we expect another year of growth driven by strong Logic demand and continued recovery in Memory. The build out of the digital infrastructure and the continued technology innovation is relevant to the consumer, automotive and industrial markets and drives demand across our entire product portfolio." (Newswires/ASML)

Netflix (NFLX) - Q4 2020: EPS 1.19 (exp. 1.39); Revenue 6.64bln (exp. 6.63bln). Global streaming net additions: 8.51mln (exp. 6.1mln vs company guide of 6.0mln); Q1 2021 view: 6.00mln (exp. 8mln). Q1 21: EPS 2.97 (exp. 2.10); Revenue 7.13bln (exp. 7.02bln). Co. is to explore ongoing stock buybacks and no longer sees external financing need for day to day operations. (Netflix) +12.0% in pre-market.

Intel (INTC) has reportedly been in discussion regarding a minimum of 5 projects with TSMC looking to outsource production of some of their flagship processors to TSMC, via Nikkei; chips would be available from 2022 and in significant volume by 2023. (Nikkei)

UnitedHealth Group (UNH) Q4 2020 Adj EPS 2.52 (exp. 2.41/2.20 reported); Revenue 65.5bln (exp. 65.06bln); affirms FY21 outlook. UNH has a 7.5% Dow weight, and a 1.0% SPX weight

FX

DXY/GBP - The Dollar continues to retreat on a mixture of broad risk factors and US specifics following confirmation that Treasury Secretary-in-wating Yellen favours bold fiscal stimulus and market forces when it comes to the Greenback’s value, while she also intimated that increased spending should not necessarily raise the tax burden for businesses extortionately (or proportionately). The index is trying to keep tabs on the 90.500 level having declined to 90.272 and hold above support ahead of 90.000 via the 21 DMA that comes in at 90.141 today. Conversely, Sterling is back in the ascendency, and across the board as Cable sets sights on 1.3700+ again and Eur/Gbp tests bids into 0.8850 amidst reports of heavy selling interest after the cross breached 0.8900. Firmer than forecast UK inflation metrics may have prompted some upside, but the Pound’s revival appears more corrective and positional in advance of another speech from BoE Governor Bailey.

AUD/CAD/NZD - All extending recent recovery rallies vs their US counterpart, with the Aussie eyeing 0.7150 before top tier data in the form of jobs and retail sales, while the Loonie is pivoting 1.2700 awaiting Canadian CPI and the BoC and Kiwi is close to 0.7150, but losing a bit more ground to its Antipodean peer below 1.0800 towards 1.0850. Note, 1.1 bn option expiry interest in Usd/Cad from 1.2700 to 1.2715 looks more influential than 1 bn expiries in Aud/Usd between 0.7690-0.7700 at this stage.

JPY/EUR/CHF - The Yen has eked further gains through 104.00 against the Buck even though risk sentiment remains buoyant and the BoJ is widely expected to stand pat on all policy elements at the end of its 2-day meeting that kicked off today pending the results of a framework review due in March. However, the Euro and Franc seem to be losing momentum after the former failed to sustain gains beyond 1.2150 and latter revisited Tuesday’s best around 0.8865. Indeed, Eur/Usd is now in the low 1.2100 area and Usd/Chf back up near 0.8900, with Eur/Chf hovering just under 1.0800 in wake of Italian PM Conte surviving the 2nd and more challenging Senate confidence vote.

SCANDI/EM- Another upturn in oil prices may be fuelling the Nok, but relative Sek underperformance could well be down to tentative signs of divergence in Norges Bank vs Riksbank policy leanings ahead of Thursday non-MPR convene in Norway and after more talk about returning to NIRP in Sweden, this time courtesy of Skingsley. Elsewhere, the Zar is carving climbing further beyond 15.0000 vs the Usd alongside Xau on a break above Usd 1850/oz, with little reaction to in line SA inflation data, while the Mxn has overcome key technical resistance at 19.6600 (200 WMA) on the way to a 19.5900+ peak

Major FX expiry options for today's NY cut:

• AUD/USD: 0.7690-0.7700 (1BN)
• USD/CAD: 1.2500 (900M), 1.2700-15 (1.1BLN), 1.3000 (540M)

FIXED

The bullish risk backdrop and a rather underwhelming 2050 German auction may have thwarted the recovery efforts of Bunds that reached 177.50 on Eurex vs 177.25 at worst and 177.40 by the close on Tuesday. Clearly, investors could have been more attracted to other long-dated issuance carrying higher yields, while technical traders might be disappointed that the half round number was respected and a similar lack of follow-through from 134.51 in Gilts may have precipitated the ensuing reversal to a minor new 134.23 Liffe low compared to yesterday’s 134.45 settlement. Elsewhere, US Treasuries have also retreated towards overnight session lows and the curve is re-steepening ahead of 20 year supply and the official ceremony to start the Biden era as President, post-Canadian CPI and the BoC.

COMMODITIES

WTI and Brent futures remain firm in early European trade in a continuation of the upward price action seen overnight on the inauguration day of US President-elect Biden, with some positive omens emanating from reflationary hopes, whilst a weaker Buck also underpins the complex. That being said, the short-term outlook for crude prices remain somewhat clouded amidst the tightening of COVID-related restrictions – with Germany extending its lockdown yesterday and Beijing entering a partial lockdown more recently. That being said, the ramp-up in vaccinations (barring delays) and OPEC+ support help to keep prices elevated. Brent Mar holds its USD 56/bbl status (low USD 55.88/bbl) whilst its WTI counterpart trades around USD 53.50/bbl (vs low USD 53.07/bbl). In terms of forecasts, Goldman Sachs maintained its positive outlook for oil in 2021/2022 and expects demand to recover this year, while Standard Chartered sees WTI averaging USD 49/bbl in 2021 and USD 56/bbl in 2022, while it forecasts Brent to average USD 51/bbl in 2021 and USD 59/bbl in 2022. Elsewhere, spot gold sees constructive gains as the yellow metal made its way above its 200 DMA (c. USD 1845.50/oz) and then the USD 1850/oz psychological mark as it sets its sight on its 50 DMA, 21 DMA and 100 DMA at USD 1859/oz, USD 1875/oz and USD 1883/oz respectively. Some base metals meanwhile remain supported by the reflationary play with LME copper trading on either side of the USD 8,000/t mark. Finally, mining giant BHP forecasts record annual iron ore output of 244-253mln tonnes as it resumed production at the Samarco plant.

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)