• European indices faded opening gains in-light of a subdued German Ifo print and in contrast to the firmer APAC handover; Euro Stoxx 50 -0.1%, ES +0.2%
• German Ifo (Jan) readings missed expectations and dropped from the prior with the institute noting services continues to represent the majority of the decline
• EUR was hampered post-Ifo lifting the DXY into positive territory and applying pressure on major counterparts though magnitudes are slim at present
• Mixed reports around the intentions of Italian PM Conte, ahead of this week's key Senate vote for his Justice Ministers annual report
• Iraq plans to reduce oil output in January and February in which it will produce 3.60mln bpd vs 3.85mln bpd in December in order to compensate for breaches to the OPEC+ agreement in 2020
• Looking ahead, highlights include ECB's Lane, Elderson, BoE Governor Bailey, Chinese President Xi at the WEF & US supply

CORONAVIRUS UPDATE

US CDC reported total COVID-19 cases rose to 24.88mln from 24.70mln the day before and total deaths rose to 416.0k from 412.6k, while a major newswire tally stated US cases increased by at least 131,188 to 25.00mln and deaths rose by at least 1,852 to 419.5k, according to a major newswire tally (Newswires)

US President Biden will sign an order on Monday to ban entry to most non-US citizens who have travelled to UK, Ireland, Brazil and South Africa. It was also reported that the CDC will sign an order requiring mask use on all flights, trains and ride-sharing vehicles, while it will not grant waivers for airlines seeking exemptions from COVID-19 testing requirements for all international flights. (Newswires)

White House Chief of Staff Klain said the Biden administration is working with states and agencies to improve rate of vaccinations, while he added they are very dedicated to passing priorities including minimum wage and that he has seen a lot of progress in bipartisanship at the Senate. (Newswires)

Pfizer (PFE) will ship fewer COVID-19 vaccine vials to account for ‘extra’ doses in each vial and will account a 6th dose in each vial towards its prior commitment of supplying 200mln doses by end-July after it received FDA approval to change the vaccine’s formal authorization language to acknowledge an additional dose for a total 6 doses per vial. (New York Times)

UK COVID-19 cases +30,004 (prev. +33,552) and deaths +610 (prev. +1,348), France cases +18,436 (prev. +23,924) and deaths +72 (prev. +230), Italy cases +11,629 (prev. +13,331) and deaths +299 (prev. +488). (Newswires)

UK PM Johnson is to approve a new border crackdown on Tuesday which could ban entry into the UK for nationals of COVID-19 hotpots, while there are also proposals for those arriving from hotspots including British citizens to be escorted to isolation hotels upon arrival where they will need to quarantine at their own expense. The government quietly extended COVID-19 lockdown laws to provide local councils authority to shut pubs, restaurants, shops and public spaces until July 17th this year. (Newswires/Telegraph)

UK PM Johnson tells reporters that he is 'looking at the potential of relaxing some measures' before mid-February, according to Sky's Pike. (Twitter)

As many as 500k fewer doses of COVID-19 vaccine will be supplied to the UK’s NHS in the week ahead as Whitehall sources admitted the target of vaccinating priority groups by mid-February was increasingly “tight". (Telegraph)

Oxford University researchers are planning the first, large high-quality trial of ivermectin which is a low-cost drug that claimed to reduce deaths by 80% among patients in hospitals, although other scientists were sceptical of the data which was from a combination of 11 prior trials and said that more results would be required before it could be considered as a treatment. (The Times)

French President Macron may announce a 3rd national lockdown on Wednesday night which could take effect from the end of the week and last at least 3 weeks, amid concerns of a new wave of COVID-19 infections driven by the UK variant. (Journal du Dimanche)

Norwegian government is to widen the lockdown in the capital region in which the number of affected municipalities will be raised to 25 from the initial 10 that had been placed under the restrictions on Saturday. (Newswires)

Australia approved the Pfizer (PFE)/BioNTech (BNTX) COVID-19 vaccine for use and PM Morrison stated that they are on track to begin the vaccine rollout late next month. In relevant news, Western Australia announced to loosen its COVID-19 lockdown policy towards New South Wales and Queensland from Monday although travellers would still be required to test & isolate for 14 days, while Victoria eased restrictions to permit entrance to the state for most people from Sydney where social distancing regulations limiting gatherings were also eased. (Newswires)

South Africa’s regulator permitted the health department to distribute AstraZeneca (AZN LN)/University of Oxford COVID-19 vaccine which is the country’s first approval for COVID-19 inoculations. (BBG)

ASIA

Asian equity markets began the week with a mildly positive tilt and US equity futures also rebounded from Friday’s losses although upside was limited amid a lack of significant bullish catalysts with weekend newsflow dominated by COVID-19 headlines and as participants look ahead with the FOMC meeting and month-end on the horizon. ASX 200 (+0.4%) was led higher by consumer stocks amid an easing of restrictions after Western Australia and Victoria relaxed some lockdown policies concerning neighbouring states, while trade data was also encouraging as it showed a 16% M/M jump in exports. Nikkei 225 (+0.4%) was kept afloat as exporters benefitted from mild currency outflows and with Toshiba shares the stellar performer in Tokyo after its approval to return to the first section of the exchange. Hang Seng (+2.4%) and Shanghai Comp. (+0.5%) were also positive amid recent speculation the PBoC could potentially utilize the contingent reserve arrangement ahead of the Lunar New Year which allows banks to dip into their reserves to plug any shortfalls in liquidity, with the gains in Hong Kong exacerbated by southbound Stock Connect flows and after the city’s authorities lifted the weekend lockdown that was imposed in Kowloon. Finally, 10yr JGBs treaded water overnight following recent upside in USTs and with the BoJ also in the market for nearly JPY 1.4tln of JGBs in up to 10yr maturities, although upside was restricted with some analysts recently suggesting that JGB purchases could weaken in the current quarter as participants await further clarity regarding the BoJ’s March review given that potential tweaks could steepen the curve.

PBoC injected CNY 2bln via 7-day reverse repos at a rate of 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.4819 vs exp. 6.4836 (prev. 6.4617)

15 Chinese aircraft including 12 fighter jets entered Taiwan’s air defence identification zone on Sunday although did not cross the median line that divides the Taiwan Strait and 13 Chinese planes were also reported to have entered Taiwan’s ADIZ on Saturday, according to Taiwan’s Defence Ministry. Furthermore, the US urged that Beijing cease its military, diplomatic and economic pressure against Taiwan and said it is committed to deepening ties with Taiwan, as well as assisting it in maintaining sufficient self defence capability. (Newswires)

BoJ's Kuroda says the most important policy is to avoid unemployment and corporate failures, and both fiscal/monetary responses have previously been successful in combating this; expects by around the end of fiscal 2021 or start of 2022, the Japanese economy would recover and return to pre-pandemic levels. (Newswires)

US

US Senate Democrat Leader Schumer stated that the Trump impeachment trial will be fair but will move at a relatively fast pace, while he added that a big and bold stimulus plan is required and hopes Republicans will join Democrats. (Newswires)

UK/EU

UK Chancellor Sunak doubled the offer for a one-off payment to millions of universal credit claimants to GBP 1,000 to replace the weekly GBP 20 uplift to quell a growing revolt among Tory MPs, while Sunak warned MPs that COVID-19 handouts 'can't go on forever' and is said to have begun rolling a pitch for revenue-raising tax measures although is understood to want to wait until later in year. (Telegraph)

UK government trade advisers are reportedly encouraging businesses exporting to the EU to set up separate companies inside the EU to avert extra charges, paperwork and taxes following the Brexit. (Observer)

UK is reportedly facing a crisis that would pressure the union with polls showing the majority of voters in Scotland and Northern Ireland want referendums on the break-up of Britain. (Sunday Times) Scotland’s governing SNP party set out a road map for a second independence referendum after the coronavirus pandemic, while a judge said she will make a “very swift” ruling regarding whether Scotland has the power to conduct a referendum without the UK’s approval. (Newswires)

London Stock Exchange is creating plans for a GBP 300mln listed vehicles aimed at increasing survival chances for companies affected hard by the coronavirus pandemic. (Newswires)

The BoE is being urged by MPs to add a "green twist" to its QE programme with The Environmental Audit Committee (EAC) stating that the Bank is risking creating a "moral hazard" by snapping up "high-carbon bonds" and financing the largest emitters. (Telegraph)

ECB's Lagarde says climate change could potentially cause a durable divergence between headline and core measures of inflation and influence the inflation expectations of households and businesses. (ECB)

ECB’s Rehn stated there are better ways than yield curve control to achieve favourable financing conditions in the euro area. (Newswires)

Italian PM Conte is reportedly close to resigning and is looking to form a new Gov't which would have a more substantial majority, according to papers. Subsequently, PM Conte is reportedly not intending on resigning. (Newswires)

Portugal President Marcelo Rebelo de Sousa was re-elected by a landslide, according to preliminary results. (Newswires)

German Economy Ministry expects the domestic economy to return to pre-crisis levels in mid-2022, according to a draft document; underutilisation of production capacities, the world economy and early indicators suggest an additional recovery in the domestic economy. (Newswires)

German Ifo Business Climate New (Jan) 90.1 vs. Exp. 91.8 (Prev. 92.1; Rev. 92.2)

• Current Conditions New (Jan) 89.2 vs. Exp. 90.6 (Prev. 91.3)
• Expectations New (Jan) 91.1 vs. Exp. 93.2 (Prev. 92.8; Rev. 93.0)
• Expects Q1 2021 German GDP to have stagnated; industry continues to be well positioned and export expectations have risen; majority of declines were from the services sector whilst manufacturing remains resilient

S&P affirmed Slovakia at A+; Outlook revised to Stable from Negative. Fitch affirmed Greece at BB; Outlook Stable, affirmed Czech Republic at AA-; Outlook Stable and affirmed the European Stability Mechanism at 'AAA'; Outlook Stable. (Newswires)

GEOPOLITICAL

White House spokesperson said the US has a vital interest in deterring North Korea and will begin a thorough review, as well as work closely with allies. (Newswires)

French Foreign Minister Le Drian said arrests of protestors jeopardises the rule of law and is worried about the authoritarian drift in Russia, while he added the success of demonstrations across Russia was impressive. (Newswires)

EQUITIES

European bourses see a mixed start to week (Euro Stoxx 50 Unch) as the optimism seen during the APAC session petered out in light of a downbeat German Ifo release, and ahead of a slew of high-profile speakers and the first FOMC policy decision of the year. US equity futures meanwhile see similarly mixed, but somewhat more resilient trade with the NQ (+0.9%) remaining the outperformer vs the RTY (-0.1%) ahead of a flood of large-cap tech earnings later this week, including from the likes of Apple, Microsoft, Tesla, Facebook, SAP alongside McDonalds, Boeing, 3M and Caterpillar. Back to Europe, bourses vary in performance with Italy’s FTSE MIB (+0.5%) supported by reports PM Conte is reportedly close to resigning and is looking to form a new government which would have a more substantial majority – albeit this was downplayed by sources. Meanwhile, the CAC 40 (-0.4%) narrowly underperforms its peers with the index pressure by banks and its COVID-exposed aeronautical sector amid chatter of an imminent third national lockdown – with Airbus (-2.3%) and Safran (-2%) also hit by reports that China Southern Airlines, China Eastern Airlines and Air China held off on a total of 58 planes from Boeing and 53 from Airbus last year, whilst Bahrain Gulf Air is reportedly in talks to delay plan orders from Airbus and Boeing. Sectors in Europe are also mixed with no clear risk bias. Energy stands as the straddler following Friday’s losses in the crude complex, whilst financials bear the brunt of a lower yield environment and healthcare sees some defensive inflows. The IT sector stands as the gainer with some potential tailwinds emanating from reports that chipmakers including STMicroelectronics (+2.8%) and NXP Semiconductor (+4.5% pre-mkt) are raising prices on chips that go into cars and telecom equipment in a bid to manoeuvre out of a squeeze created by soaring demand and limited foundry capacity. The chipmakers have reportedly demanded that clients pay 10-20% more, according to sources. In terms of individual movers, Deutsche Bank (-0.2%) is relatively stable with reports over the weekend stating the Co. is looking into whether staff members mis-sold investment banking projects in breach of EU rules.

Airbus (AIR FP) - Boeing (BA) commits to delivering commercial planes capable of flying on 100% sustainable fuel by 2030. Separately, Bahrain Gulf Air is reportedly in talks to delay plan orders from Airbus and Boeing. Furthermore, according to findings by Nikkei, China Southern Airlines, China Eastern Airlines and Air China - held off on a total of 58 planes from Boeing and 53 from Airbus last year. (Newswires/Nikkei)

Mastercard (MA) – Co. will increase as of October 15th the interchange fees placed on every debit/credit card payment using their network from British shoppers who are purchasing from EU based Co’s; taking the charge to 1.5% for credit cards and 1.15% for debit cards from 0.3% and 0.2% respectively of the transactions total value. (FT)

FX

CHF/EUR/USD - Another rise in weekly Swiss bank sight deposits suggests that direct action to curb Franc strength amidst renewed political instability in Italy has been stepped up again, and Eur/Chf has taken some heed along with Usd/Chf as the respective pairs hover off lows within 1.0771-87 and 0.8848-73 ranges. However, the Euro is suffering a bit of a set-back in its own right following a weaker than expected German Ifo survey, as all key metrics missed consensus in contrast to ZEW findings, albeit with both institutes reporting improvements in the outlook for exports. Eur/Usd has retreated further from post-ECB peaks to sub-1.2150, and giving the Dollar a lift indirectly with the DXY eclipsing last Friday’s high having held just above 90.000 again between 90.361-079 parameters. Nevertheless, the Buck and index remain prone to further downside pressure while under 90.500 ahead of the FOMC, US data and month end.

NZD/AUD/CAD/GBP/JPY - The Kiwi continues to benefit from repositioning for a less RBNZ, and more so than the RBA that cut rates and ramped up QE in November. Hence, Nzd/Usd is clinging to 0.7200 as the Aud/Nzd cross retraces towards 1.0700 from just over 1.0750 and Aud/Usd fades after falling a few pips shy of 0.7750 in wake of Aussie trade data revealing an encouraging 16% jump in exports. Elsewhere, the Loonie has probed 1.2700 again with the aid of a rebound in oil prices, but remains well off post-BoC highs after US President Biden’s executive order cancelling the Keystone XL pipeline transit permit and the Pound had another brief look above 1.3700 before yielding to the general Greenback revival. Meanwhile, the Yen is still keeping its head above 104.00 with little reaction to relatively run of the mill rhetoric from BoJ Governor Kuroda – see headline feed at 8.14GMT for details.

SCANDI/EM -The Sek and Nok are both taking advantage of the aforementioned Eur reversal irrespective of the fact that Sweden and Norway are both taking stricter measures to combat COVID-19, as the latter also gleans some traction from crude, but the Try is also outperforming after a marginal rise in Turkish manufacturing sentiment and S&P reaffirming its rating with a stable outlook.

Australian Bureau of Statistics preliminary December trade surplus at AUD 8.96bln, Exports rose 16% M/M and Imports fell 9% M/M. (Newswires)

FIXED

The bounce in core bonds has petered out, but not before the 10 year benchmarks hit peaks of 177.56 on Eurex, 134.50 on Liffe and 137-03+ for the T-note in overnight electronic trade, and the extended gains were front run by Bunds in wake of declines in the latest Ifo survey. However, the even more emphatic recovery in Italian paper is perhaps less straightforward or easy to rationalise given another big test for the PM looms this week. Maybe investors are drawing confidence that he has survived 2 challenges already, or simply buying early for month end given a larger than usual duration extension in the EZ. Note, BTPs are firmly back above 150.00 and have been just over 100 ticks off worst levels (149.62 the low). Ahead, a couple of relatively secondary US releases, more ECB speakers and the Usd 60 bn 2 year note auction before European Commission President von der Leyen orates.

COMMODITIES

WTI and Brent front-month futures kicked off the European week with gains following a similarly firm APAC session, as markets retrace some of Friday’s losses as the complex continues to be underpinned by vaccines, stimulus and recovery hopes alongside OPEC+ flexibility and some geopolitical risks in the face of more stringent near-term lockdown and travel restriction measures due to the rising variants. Further supportive factors for the complex includes reports that Iraq will compensate for its prior overproduction by reducing oil output in January and February, in which it will produce 3.60mln BPD vs 3.85mln BPD in December, also lifting sentiment surrounding OPEC. Geopolitical risks cannot be discounted as Taiwan’s air defence identification zone was breached multiple times by Chinese military aircrafts over the weekend, whilst the Friday saw the passing of a law that would allow Chinese coast guards to fire on foreign vessels – with eyes on the contested South China sea. There were also reports that China and India had a clash, although the severity of the situation was downplayed by both sides. On the demand side, reports noted that France may enter a national lockdown whilst Norway is to widen its lockdown in the capital region. Brent March'21 resides just above USD 56.50/bbl (vs low USD 55.18/bbl) while its WTI counterpart hovers around USD 52.50/bbl (vs low USD 52.05/bbl). Elsewhere, spot gold has gained traction in recent trade to print fresh session highs after declining from its USD 1860/oz overnight higher and dipping below its 50 DMA (USD 1858/oz) to test its USD 1850/oz psychological level ahead of its 200 DMA (USD 1848/oz). In terms of base metals, LME copper edges higher amid the softer Buck and reflationary hopes. Dalian iron ore maintained a narrow range overnight as tighter steel margins countered falling shipments of the base metal from Australia.

Iraq plans to reduce oil output in January and February in which it will produce 3.60mln bpd vs 3.85mln bpd in December in order to compensate for breaches to the OPEC+ agreement in 2020. (Newswires)