• Indices remain pressured following cautious APAC trade with downside exacerbated by the deterioration in oil; Euro Stoxx 50 -1.2%, ES -0.7%
• The EUR saw a resurgence following the German PMIs with EUR/USD just below 1.2200 at best to the detriment of the DXY paring its advances and bolstering FX peers; though, GBP was hindered post-UK data
• Intel beat on EPS and revenue making gains just before the close before paring to trade lower by 4% in the pre-market while IBM's release was mixed and as such are -7.0% in the pre-market
• NIH's Fauci said the administration is seeking higher vaccine production from Moderna (MRNA), Pfizer (PFE) and Johnson & Johnson (JNJ)
• Italian PM Conte is reportedly considering the possibility of elections, becoming increasingly tempted by early voting due to the current state of polls; pressuring BTP's with BTP-Bund 10yr spread at 125bp
• Looking ahead, highlights include Canadian retail sales, US flash PMIs, existing home sales, DoEs

CORONAVIRUS UPDATE

US COVID-19 cases +188,156 (prev. +153,106) and deaths +4,383 (prev. +2,297), while a major newswire tally stated US cases rose by at least 191,982 to 24.51mln and deaths rose by at least 4,157 to almost 410.0k. (Newswires)

US President Biden released his national strategy for the COVID-19 response and stated the vaccine rollout has been a dismal failure so far. Biden also warned that things will get worse before it gets better, while he announced that everyone flying to the US will need to test before they get on a flight and will also have to quarantine. (Newswires)

NIH's Fauci said the administration is seeking higher vaccine production from Moderna (MRNA), Pfizer (PFE) and Johnson & Johnson (JNJ). (Newswires)

EU Commission President Von der Leyen suggested targeted measures are needed to keep external and internal borders open and proposed a "dark red" zone to show an even worse COVID-19 situation. (Newswires)

A UK government source has suggested that a two-phase unlocking plan is under consideration whereby the national lockdown would be stretched out for several months before moving the entire country into tier 2 restrictions. (Telegraph)

Portugal PM Costa announced the suspension of flights to and from the UK beginning on Saturday to curb spread of the COVID-19 variant. It was also reported that EU leaders are to move towards restricting non-essential travel, while German Chancellor Merkel said she opposes vaccine certificates for now and warned EU leaders of a risk of dramatic rise in infections. (Newswires)

Hong Kong is to impose a lockdown for tens of thousands of its residents who will have to show negative tests to exit certain neighbourhoods and which is expected to begin this weekend. (SCMP)

Japan's vaccine programme chief Kono said Japan will begin its vaccinations using Pfizer (PFE) vaccines and they aim to begin vaccinations as soon as late February with 10k medical staff at 100 hospitals. (Newswires)

ASIA

Asian equity markets traded cautiously after the mixed lead from Wall St where most indices stalled at record levels aside from the Nasdaq which was bolstered by continued strength in large tech including firms gains in Intel which announced its results prior to the closing bell and beat on both top and bottom lines and with Apple also boosted by optimism from Morgan Stanley regarding the tech giant’s upcoming earnings report. Nonetheless, trade across the Asia-Pac region was subdued with ASX 200 (-0.3%) pressured by heavy losses in the energy sector and as smaller tech stocks were shunned in the shadow of the global industry giants, with a larger than expected decline in Retail Sales adding to the glum mood. Nikkei 225 (-0.4%) was negative following soft inflation data, which was not as bad as feared, but still registered the fastest pace of decline since September 2010. In addition, there was an initial report that Japan's government is said to have privately concluded the Tokyo Olympics will have to be cancelled due to the pandemic and focus will be on securing games for Tokyo at the next available year in 2032, although PM Suga later pushed back against this and said they are determined to realize the Olympics. Hang Seng (-1.6%) and Shanghai Comp. (-0.4%) conformed to the downbeat picture with Hong Kong weighed on by expectations of a tough lockdown to be imposed from this weekend for certain districts and with CNOOC the worst performer after MSCI announced yesterday it will delete the Co. from its MSCI ACWI and MSCI China All Share Indexes. There were also recent comments from US Treasury Secretary nominee Yellen who suggested the US will use a full array of tools to counter China's abusive and illegal practices, while she added that they will not alter China tariffs until allies have been consulted and that a new approach is needed for meaningful pressure on China. Finally, 10yr JGBs are lower after its pullback from resistance near the 152.00 focal point and alongside similar lacklustre trade in T-notes, with prices ignoring the improved results and stronger demand seen at the enhanced liquidity auction for JGBs ranging from 2yr- 20yr maturities.

PBoC injected CNY 2bln via 7-day reverse repos at rate of 2.20% for a weekly net injection of CNY 598bln. (Newswires) PBoC set USD/CNY mid-point at 6.4617 vs exp. 6.4618 (prev. 6.4696)

Japan's government was reported to have privately concluded that Tokyo Olympics will have to be cancelled due to the pandemic and focus is on securing games for Tokyo next available year in 2032, according to The Times citing a senior ruling coalition member. However, Japanese PM Suga later said they are determined to realize the Olympics with close cooperation with Tokyo and the IOC, while a government spokesman also affirmed there was no truth to the report about a possible Olympics cancellation and that they will clearly deny the report. (Newswires)

• Japanese National CPI (Dec) Y/Y -1.2% vs. Exp. -1.3% (Prev. -0.9%); fastest decline since Sept. 2010
• Japanese National CPI Ex. Fresh Food (Dec) Y/Y -1.0% vs. Exp. -1.1% (Prev. -0.9%)
• Japanese National CPI Ex. Fresh Food & Energy (Dec) Y/Y -0.4% vs. Exp. -0.4% (Prev. -0.3%)

US

Republican Senator Collins commented that more COVID-19 aid may be needed in a couple of months, while she wants to hear the justification for a large stimulus plan and stated it is difficult to see why such a large package is required. (Newswires)

US President Biden is to sign an executive order to direct the treasury to do more to get stimulus checks to those who have not received them. (Newswires)

US Senate Republican Leader McConnell proposed that the House presents former President Trump's impeachment charge on January 28th and for Trump to be given 2 weeks after that to prepare for the trial. (Newswires)

UK/EU

UK Chancellor Sunak is reportedly set to unveil plans to restore the nation's finances as part of the March budget. The extent of the plans will be contingent on developments surrounding the pandemic. (Newswires)

Italian PM Conte is reportedly considering the possibility of elections, becoming increasingly tempted by early voting due to the current state of polls. (Corriere)

EU Markit Composite Flash PMI (Jan) 47.5 vs. Exp. 47.6 (Prev. 49.1)

• Services Flash PMI (Jan) 45.0 vs. Exp. 44.5 (Prev. 46.4)
• Manufacturing Flash PMI (Jan) 54.7 vs. Exp. 54.5 (Prev. 55.2)

German Markit Composite Flash PMI (Jan) 50.8 vs. Exp. 50.3 (Prev. 52.0)

• Services Flash PMI (Jan) 46.8 vs. Exp. 45.3 (Prev. 47.0)
• Manufacturing Flash PMI (Jan) 57.0 vs. Exp. 57.5 (Prev. 58.3)

UK Flash Composite PMI (Jan) 40.6 vs. Exp. 45.5 (Prev. 50.4)

• Services PMI (Jan) 38.8 vs. Exp. 45.0 (Prev. 49.4)
• Manufacturing PMI (Jan) 52.9 vs. Exp. 54.0 (Prev. 57.5)

UK Retail Sales MM (Dec) 0.3% vs. Exp. 1.2% (Prev. -3.8%); YY (Dec) 2.9% vs. Exp. 4.0% (Prev. 2.4%)

• Ex-Fuel MM (Dec) 0.4% vs. Exp. 0.8% (Prev. -2.6%); YY (Dec) 6.4% vs. Exp. 7.0% (Prev. 5.6%)
• UK GfK Consumer Confidence (Jan) -28 vs. Exp. -29 (Prev. -26). (Newswires)
• PSNB, GBP* (Dec) 33.375B GB (Prev. 30.837B GB)
• PSNB Ex Banks GBP* (Dec) 34.109B GB vs. Exp. 32.1B GB (Prev. 31.6B GB)
• PSNB for Dec is the highest December borrowing on record and the 3rd highest for any month; spending includes GBP 10.0bln of additional expenditure on the COVID-19 job support schemes

ECB Survey of Professional Forecasters - Link to release

EQUITIES

Bourses in Europe continue to extend on losses (Euro Stoxx 50 -1.1%) as the downbeat APAC performance reverberates into the region amid woes of further shut downs due to worsening COVID-19 outbreaks. This fallback in sentiment has also been reflected in the EZ and UK PMI figures which waned M/M. The risk-off mood is Europe has also seeped into US equity futures which are also dented - with the ES -0.6%, NQ -0.5%, RTY -0.9% and YM -0.8%. Cash bourses in Europe mostly see broad-based losses with a few of outliers – UK’s FTSE (-0.7%) sees more contained declines with the aid of favourable Sterling dynamics, Italy’s FTSE MIB (-2.1%) underperforms as COVID-fears fuse with political jitters as reports via Corriere suggested that Italian PM Conte is reportedly considering the possibility of elections, and is becoming increasingly tempted by early voting due to the current state of polls. Meanwhile, losses in the SMI (-0.2%) are cushioned by risk-off defensive flows into pharma names. As such Healthcare resides as one of the better performing sectors in the region. On the other end of the spectrum, Oil & Gas is the laggard amid price action in the crude complex (see the commodities section), with Travel & Leisure also hit in a similar vein on further lockdown woes. Banks reside towards the bottom of the pile against the backdrop of a lower yield environment and drag from the politically-hit Italian banks, with UniCredit (-3%), Bper Banca (-2.8%) and Intesa Sanpaolo (-2.6%) all towards the bottom of the Italian benchmark index. The IT sector also feel some pressure despite positive metrics from Intel (-4% pre-mkt) but underwhelming earnings from IBM (-7.5% pre-mkt) – with some also suggesting profit-taking/sell-the-fact play after the recent tech rally. In terms of individual movers, DAX heavyweight Siemens (+4.5%) is bolstered and in turn is stemming downside in the DAX (-0.5%) following stellar prelim-earnings in which Q1 revenue rose 5% Y/Y, exceeding expectations. Airbus (-0.1%) is relatively flat following a mixed update but noted that overall production rates are to remain lower for longer.

Intel Corp (INTC) Q4 20 (USD): EPS 1.52 (exp. 1.10), Revenue 20bln (exp. 17.5bln). Raises dividend by 5%. Q1 revenue view 17.4bln (exp. 16.18bln); Q1 EPS view 1.10 (exp. 0.95). Co. noted strong progress on 7nm chips. CEO said they will likely expand outsourcing but is confident majority of chips will be produced in-house in 2023. CFO said 10nm production volumes will be greater than 14nm volumes in H2 21. (Newswires) Shares initially spiked higher before paring gains to trade -4.0% in the pre-market

International Business Machines Corp (IBM) Q4 20 (USD): Adj. EPS 2.07 (exp. 1.79), Revenue 20.40bln (exp. 20.67bln). Total cloud revenue USD 7.5bln, +10%. Red hat revenue +19%. Gross profit margin +70bps; Adj. gross profit margin +70bps. (Business Wire) -7.0% in the pre-market

New Oriental Education (EDU) Q2 21 (USD): EPS 0.43 (exp. 0.34), revenue 0.888bln (exp. 0.89bln)

FX

USD - Another downturn in broad risk sentiment, softer crude and commodity prices have combined with a retreat in several currency counterparts to save the Buck from a further collapse, while perma bulls may also derive more encouragement from the fact that the DXY fended off the latest attempt to flush out underlying and psychological bids at 90.000, albeit even more narrowly (at 90.039 vs 90.043 yesterday). Indeed, the index and Greenback overall remain depressed, with rebounds running into offers at increasingly lower levels and readily, ie 90.286 so far compared to 90.454 on Thursday and 90.699 the day before. Ahead, US Markit preliminary PMIs and existing home sales are scheduled and could provide impetus, but perhaps on the good news is bad and vice-versa mantra for the downbeat Dollar.

GBP/CAD/AUD/NZD - The writing was on the wall for the Pound after early UK data disappointment in the form of retail sales and public sector finances, but the so called flash PMIs were anything but, and have seen Cable relinquish the 1.3700 handle, while Eur/Gbp has rebounded to 0.8900+ from its pre-ECB low around 0.8830. Elsewhere, the aforementioned retreat in oil and perhaps some trepidation ahead of Canadian consumption figures have exacerbated the Loonie’s reversal to circa 1.2700 from 1.2590 or so on Thursday, while a bigger than expected drop in Aussie retail sales and the negative risk tone have dragged Aud/Usd back under 0.7750. Conversely, the Kiwi is only holding up marginally better in wake of firmer than forecast NZ CPI and another RBNZ rate outlook upgrade (Kiwibank not looking for a sub-zero OCR any more) by virtue of a retracement in the Aud/Nzd cross to test 1.0750.

EUR/CHF/JPY - More post-ECB volatility for the Euro, though above 1.2150 vs the Buck, as a significant deterioration in already contracting French services sector activity outweighed strength in manufacturing in stark contrast to Germany that compensated sufficiently to keep the pan Eurozone prints close to consensus. However, an official German GDP downgrade for 2021 and technical resistance ahead of 1.2200 via the 21 DMA (1.2196) is capping Eur/Usd, while Eur/Chf is softer again sub-1.0780 on renewed Italian political uncertainty amidst reports that PM Conte is contemplating calling an early election to give Usd/Chf the impetus to breach 0.8850. On the flip-side, not much in the way of safe-haven demand for the Yen following fractionally less deflationary than anticipated Japanese inflation data, as Usd/Jpy bounces from beneath 103.50 towards 103.75 eyeing decent option expiry interest between 103.40-50 (1 bn).

SCANDI/EM - The Nok is unwinding post-Norges Bank strength alongside the retracement in crude prices to 10.3345 vs 10.2120+ against the Eur, while the Mxn is also having to contend with more Government moves that would put the onus on Banxico to mop up excess Usd and other foreign currency reserves. Nevertheless, the Krona and Peso are not depreciating as much as some on risk-off or averse positioning ahead of the weekend.

• Australian Retail Sales (Dec P) M/M -4.2% vs. Exp. -2.5% (Prev. 7.1%)
• New Zealand CPI (Q4) Q/Q 0.5% vs. Exp. 0.0% (Prev. 0.7%)
• New Zealand CPI (Q4) Y/Y 1.4% vs. Exp. 1.0% (Prev. 1.4%)
• New Zealand RBNZ Sectoral Factor Model Inflation (Q4) 1.8% (Prev. 1.7%)

RBNZ provided an update on the investigation regarding the data breach earlier this month in which it stated that the breach is now understood and resolved with the bank's core functions unaffected, sound and operational. RBNZ will update on the independent review process next week and is to postpone the publication of most statistical releases following the hacking incident, but added no data was lost and no publications will be cancelled, with its new system expected to be available next month. (Newswires)

The Mexican government is reportedly preparing a banking product to help migrant workers change their dollars as an alternative to a bill in Congress that would put the responsibility for excess foreign cash on the central bank. (WSJ)

Major FX expiry options for today's NY cut:

• EUR/USD: 1.2100 (758M), 1.2160-70 (432M), 1.2275 (1.9BLN)
• USD/JPY: 103.25 (400M), 103.30 (402M), 103.40-50 (1BLN), 104.00 (430M)

FIXED

The earlier buying spree has abated, but Bunds, Gilts and US Treasuries remain elevated amidst renewed weakness in stocks and commodities to imply a return to some degree of inverse asset correlation. The respective core bonds have topped out at 177.14, 134.19 and 137-00 for now, with the former just a single tick shy of relatively meaningful chart resistance in the guise of a 50% fib retracement from Thursday’s pre-ECB high to post-ECB low. However, a partial rebound in the Dax and fellow indices plus BTPs may also have sapped strength from the Eurozone benchmark awaiting Wall Street’s reaction to overnight developments, US Markit PMIs after quite mixed preliminary EU prints and existing home sales to round out the week.

COMMODITIES

WTI and Brent front month futures continue to edge lower in early European trade in a continuation of the price action seen overnight, as sentiment is dented by some supply and demand side developments. Firstly, the complex has been knocked off-course as the severity of the new COVID-19 outbreaks have prompted further economies to impose lockdown measures, with Hong Kong the latest to restrict city residents for the first time, whilst UK PM Johnson suggested UK’s lockdown could run into the summer. On the supply side, Iran’s OPEC governor said the country has started ramping up oil production, which comes as Biden took the helm of the White House – with hope for Iranian sanctions to be unwound. That being said, we have yet to see any firm commitment from the Biden admin and the reaction from the OPEC+ de-facto heads - Saudi and Russia, namely the former after the 1mln BPD voluntary cuts announced in Jan for Feb and Mar. Iran is currently exempt from quotas but increased flows into the market during the rise of COVID-19 variants may not bode well with fellow producers. Brent relinquished its USD 55/bbl handle as it extends its decline from USD 56.20/bbl highs, while its WTI counterpart dipped south of USD 52/bbl (vs high USD 53.13/bbl). Looking ahead, today sees a delayed release of the weekly EIA stockpiles (crude exp. -1.167mln bbl) given Monday’s MLK holiday and Wednesday’s US inauguration. Elsewhere, spot gold and spot silver are softer as the Dollar regains traction and extends its gains, with the former around USD 1860/oz with nearby levels including the 50 DMA (1859.50/oz), USD 1850/oz and 200 DMA (USD 1846.4/oz). In terms of base metals, LME copper is faltering amid a similar performance in Shanghai amid the resurgence of the virus causing demand jitters ahead of Lunar New Year holiday next month in China. Similar downside was also seen in Dalian iron ore futures overnight, with near-term outlook also impacted by weakening steel margins.

Goldman Sachs said that a lack of urgency from the US government to lift Iranian sanctions and a push for larger fiscal spending support the constructive view on oil and gas prices, while it estimated USD 2tln stimulus over 2021-2022 would increase US demand by 200k bpd and stated that delays in a full return of Iran production would support the bullish oil outlook. (Newswires)

Iran has started ramping up oil production according to Iran's OPEC governor. (Newswires)