• European bourses were initially mixed following the subdued APAC lead but have since experienced notable upside amid a lack of fresh catalysts; Euro Stoxx 50 +1.4%, ES U/C
• Italian PM Conte has reportedly informed his cabinet of his intention to resign and is to meet with President Mattarella on the matter today
• US Senate Democrat Leader Schumer said they will attempt to pass President Biden's COVID-19 bill through the budget reconciliation process if the GOP block the legislation
• DXY remains elevated with peers largely unchanged in-spite of brief upside as the EUR failed to benefit with focus on Italian matters; though, BTPs remain supported
• Looking ahead, highlights include US consumer confidence, ECB's Villeroy, supply from the US
• Earnings from Microsoft, Verizon, Lockheed Martin, Starbucks, Raytheon

CORONAVIRUS UPDATE

US coronavirus cases increased by at least 154,367 to 25.16mln and deaths rose by at least 1,852 to 420.8k, according to a major newswire tally. (Newswires)

US President Biden said the US should be able to vaccine 1mln people a day or more in about three weeks and that the 100-day goal on vaccinations may rise to 150mln instead of 100mln, while he added the US should be well on its way to herd immunity by summer and clarified in the Q&A that he is optimistic 1.5mln vaccine shots can be delivered per day. (Newswires)

Moderna (MRNA) is currently examining a 3rd booster shot of its COVID-19 vaccine 6-12 months following the second dose but not sooner and it expect durability of protection from the primary series of its COVID-19 vaccine to last a year or longer. (Newswires)

Reports that the AstraZeneca vaccine is unlikely to work for seniors with the German federal government only expecting an 8% effectiveness for older people. However, the Co. later refuted this and stated that these reports were completely incorrect. Subsequently, the German Health Ministry have refuted this report and it appears as if the journalist misread the release regarding the 8% figure. (Newswires/Handelsblatt)

Swedish Health Ministry says it has halted payments to Pfizer (PFE) for its COVID-19 vaccine as it seeks clarification on the number of doses in each vial and payment for them. (Newswires)

Japan's vaccine programme chief Kono stated that the central government will shoulder all costs regarding COVID-19 vaccines, while it was also reported that the government is likely to extend the state of emergency for 11 prefectures. (Newswires)

ASIA

Asian equity markets declined across the board with sentiment subdued after the flimsy risk appetite amongst global peers including in the US where stocks whipsawed ahead of this week’s FOMC, tech earnings and month-end, as well as ongoing concerns about vaccine effectiveness against the new COVID-19 variants and doubts on the ability of Democrats to pass the USD 1.9tln COVID-19 relief plan in its entirety, while the absence of participants in Australia and India due to holiday closures also contributed to the lacklustre picture. Nikkei 225 (-1.0%) was negative with the index subdued by recent currency inflows. KOSPI (-2.1%) underperformed despite better-than-expected South Korean GDP growth figures for Q4, as this still resulted in a 1.0% annual contraction for 2020 which was the economy’s worst performance since 1998. Elsewhere, Hang Seng (-2.6%) and Shanghai Comp. (-1.5%) declined with the mainland pressured after the PBoC resumed its tepid liquidity operations which facilitated increases in China’s benchmark overnight repo rate to its highest since November 2019 and with MSCI to delete several securities from its indexes including China National Nuclear Power Co., China Shipbuilding Industry and Inspur International. The losses in Hong Kong were also exacerbated by profit taking in the city’s main index which retreated from the 30k level and near 21-month highs as Tencent shares also pulled back from record levels after it recently approached USD 1tln market cap status. Finally, 10yr JGBs tested the 152.00 level to the upside with prices underpinned by the negative mood across stocks and following the bull flattening in USTs which was helped by a solid 2yr auction, while the 40yr JGB auction results were mixed with a slightly higher b/c.

PBoC injected CNY 2bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 78bln. (Newswires) PBoC set USD/CNY mid-point at 6.4847 vs exp. 6.4826 (prev. 6.4819)

PBoC adviser Ma proposed to drop the GDP target permanently, while it was suggested that stabilizing the job market and controlling inflation should be the major goals for China’s macroeconomic policy. (21st Century Business Herald)

US State Department said the US should hold China accountable for unfair and illegal practices, as well as make sure US tech does not facilitate China's military build-up or human rights abuses. The State Department also commented that President Biden is committed to ensuring Chinese firms cannot misuse US data and that US tech doesn't support China's malign activities, while it added that a comprehensive strategy and more systematic approach is required on US-China competition instead of the piecemeal approach seen in the recent few years. (Newswires)

MSCI said China National Nuclear Power Co (601985 CH), China Shipbuilding Industry (601989 CH) and Inspur International (596 HK) will be deleted for MSCI ACWI Indexes from January 27th, while their securities will also be delisted from the MSCI China All Shares Indexes along with CGN Power (0003816 CH) and China National Chemical Engineering (601117 CH). In separate news, India is to permanently ban TikTok and 58 other Chinese apps. (Newswires)

BoJ Minutes from the December meeting stated that members shared the view that BoJ should ease without hesitation if required with an eye on the pandemic and a few members suggested BoJ must analyse the effect of its policies to see how it can reach its price target. Most members said there was no need to change guidance for policy rates and members said it is appropriate to examine policy measures on the basis it will maintain the current policy framework. Furthermore, several thought the BoJ should seek ways to make ETF purchases more flexible as ultra-loose policy is prolonged, however one member noted ETF buying is already flexible but it is worth looking for more ideas and a member suggested the BoJ should take control of shape of yield curve more meticulously as desirable for curve to steepen moderately. (Newswires)

BoJ Governor Kuroda says monetary policy does have some limits as the Bank's maximum blow of stimulus did not achieve the 2% inflation target; obvious that the BoJ will consider an exit from ultra-easy policy approaches 2%. (Newswires)

• South Korea GDP (Q4 A) Q/Q 1.1% vs. Exp. 0.7% (Prev. 2.1%)
• South Korea GDP (Q4 A) Y/Y -1.4% vs. Exp. -1.7% (Prev. -1.1%)
• South Korean Advanced 2020 GDP -1% Y/Y, which is the first full year contraction since 1998.

US

President Biden said he doesn’t expect we will know whether we have an agreement until we get right down to the very end of this process which will be "in a couple of weeks" and he is open to negotiating regarding his proposed USD 1,400 COVID-19 relief checks. (Newswires)

US Senate Democrat Leader Schumer said they will attempt to pass President Biden's COVID-19 bill through the budget reconciliation process if the GOP block the legislation. There were also comments from Senate Republican Leader McConnell that President Biden's stimulus relief plan misses the mark and reiterated that it must be targeted, while Republican Senator Collins said President Biden and Democrat lawmakers should set aside minimum wage increase from the COVID-19 relief proposal. (Newswires/The Hill)

US Senate voted 84 vs 15 to confirm Janet Yellen as Treasury Secretary, while the Senate Foreign Relations Committee approved President Biden's nomination of Antony Blinken for Secretary of State which sends the nomination to the full Senate. (Newswires)

US House lawmaker carried the article of impeachment charging former President Trump with incitement of insurrection to the Senate for trial, while it was later reported that President Biden said he doesn't believe that there will be enough votes to convict former President Trump in the Senate impeachment trial. (Newswires/CNN)

UK/EU

Italian PM Conte has reportedly informed his cabinet of his intention to resign and is to meet with President Mattarella on the matter today. (Newswires) Link to newsquawk analysis on Conte's resignation

UK ILO Unemployment Rate (Nov) 5.0% vs. Exp. 5.1% (Prev. 4.9%); Claimant Count Unemployment Change (Dec) 7.0k vs. Exp. 35.0k (Prev. 64.3k, Rev. 38.1k)

• UK Average Earnings (Ex-Bonus) (Nov) 3.6% vs. Exp. 3.2% (Prev. 2.8%)
• Average Week Earnings 3M YY (Nov) 3.6% vs. Exp. 2.9% (Prev. 2.7%, Rev. 2.8%)

GEOPOLITICAL

Saudi has intercepted a drone over its capital Riyadh; some reports note of a ballistic missile being intercepted. (Twitter)

EQUITIES

European stocks kicked of Tuesday’s session indecisive before gaining upward momentum (Euro Stoxx 50 +1.1%) after sentiment improved from the mostly downbeat APAC trade, albeit US equity futures remain subdued vs their trans-Atlantic counterparts with broad-based losses seen across the four major contracts - which are also weighed on by doubts on whether the Democrats can swiftly pass its much-anticipated relief plan. Back to Europe, the region’s performance is relatively broad-based, with Switzerland’s SMI (+0.5%) initially the laggard amid underperformance in the defensive Healthcare sector post-Novartis’ earnings (see below). Italy’s FTSE MIB (+0.8%) conforms to the gains among its peers following the outperformance seen yesterday as markets somewhat look through reports that Italian PM Conte has announced his resignation to his cabinet, in a move described as a “tactical resignation”. This resignation is merely symbolic amid the unguaranteed hope is that Conte will be able to secure a mandate to form a new government. The tail risk after resides on the whether Conte has the ability to form a new coalition – thus markets will be giving more credence to developments on this front in the upcoming sessions; full analysis piece available on the headline feed. Delving deeper into the European sectors, IT is one of the top gainers in the run-up to large-cap US tech earnings, meanwhile, Nokia (+4%) soared at the open as the Reddit WSB retail traders attempted to pump higher Nokia’s ADR – which rose 15.5% in US trade followed by another 7% after-market, in a similar move to the GameStop (+15% pre-mkt) phenomenon yesterday. On this theme, it will be important to keep an eye on any regulatory moves against this type of speculative trading as any attempt to regulate channels - such as Reddit and/or Twitter - may hinder retail speculative buying which acted as and continues be a major equity driving force. Travel & Leisure resides as the laggard as ongoing COVID-variant woes provides the sector with no reprieve. In terms of individual movers, Rolls-Royce (-4.5%) shares slid at the open after a trading update which brought to light the turbulence ahead for the aeronautical sector “In the near-term, more contagious variants of the virus are creating additional uncertainty. Enhanced restrictions are delaying the recovery of long-haul travel over the coming months compared to prior expectations, placing further financial pressure on customers and the wider aviation industry, all of which are impacting cash flows in 2021” – the company said despite reporting in-line trading and year-end liquidity at the upper end of guidance. On the flip side, AstraZeneca (+1.2%) refuted Handelsblatt and Bild reports which suggested the Co’s vaccine had an efficacy of 8% or less than 10%, respectively, in those over 65. Elsewhere, some large-cap earnings related movers include UBS (+1.5%) and Novartis (-2.2%), with the former firmer following an overall positive update and a share buyback announcement, whilst the latter is pressured on a miss in revenue and EPS.

Novartis (NOVN SW) - Q4 revenue USD 12.77bln vs exp. USD 12.9bln. EPS USD 1.34/shr vs exp. USD 1.38/shr. Co. raises FY dividend by 1.7% to CHF 3/shr. Co. guides net sales to grow low-to-mid single digits, core operating income is expected to grow mid single digit, ahead of sales. COVID-19 negatively impacted demand, particularly: ophthalmology, dermatology and Sandoz retail. In terms of the revenue breakdown: Pharmaceuticals BU grew 5% (cc) driven by Entresto (+44% cc), Zolgensma (reaching USD 0.9bln), Cosentyx (+13% cc), Ilaris (+31% cc) and the Xiidra acquisition (+95% cc). Oncology BU grew 3% (cc) driven by Promacta/Revolade (+23% cc), Jakavi (+20% cc), Kisqali (+45% cc), Tafinlar + Mekinist (+16% cc) and Piqray (reaching USD 0.3bln). Sandoz sales were in line (-1% USD cc), with Biopharmaceuticals growing 19% (cc) (Newswires/Novartis)

UBS (UBSG SW) - Q4 net income USD 1.21bln vs exp. USD 1.01bln. All financial targets were met or exceeded in 2020. Co. proposes a dividend of USD 0.37/shr. Co. has started a new three-year share buyback programme of up to CHF 4bln. "The balance between cash dividends and share repurchases has been adjusted from 2020 onward, with a greater weight toward share repurchases as compared with prior years’ returns". In terms of the outlook, UBS says "recent developments, including economic and political situations in some large economies and geopolitical tensions, have again raised questions around the shape and pace of the recovery". UBS expects revenues in Q1 2021 to be positively influenced by seasonal factors such as higher client activity vs Q4 2020, but warns that the continued uncertainty could affect both asset prices and client activity. (Newswires/UBS)

General Electric Co (GE) Q4 20 (USD): EPS 0.08 (exp. 0.09), Revenue 21.9bln (exp. 21.83bln); sees aviation recovery in H2 2021; guides FY21 EPS 0.15-0.25 (vs exp. 0.32); guides FY21 revenue 'low single digits growth'

3M (MMM) Q4 2020 (USD) Adj EPS 2.38 (exp. 2.15); Revenue 8.58bln (exp. 8.4bln); restarts share buybacks

Johnson & Johnson (JNJ) Q4 21 (USD): Adj. EPS 1.86 (exp. 1.82/1.50 reported); Revenue 21.6bln (exp. 21.69bln). Will release COVID-19 vaccine data 'soon'.

FX

USD - The Dollar looked all set to test technical resistance in DXY terms amidst another bout of safe haven demand that propelled the index further beyond 90.500 to 90.614, but fell just short of the 50 DMA at 90.678 as sentiment gradually stabilised and is improving to the extent that stocks are now on course for an emphatic turnaround Tuesday. Hence, the Buck has faded across the board to the benefit or relief of rival currencies that seemed destined to suffer heavier losses and breach chart supports or psychological levels along the way. However, the DXY is holding off lows (90.315) and within sight of the half round number in the run up to a busier US agenda on FOMC day 1.

NZD/AUD - Kiwi outperformance continues ahead of tonight’s NZ business PSI and trade data on Wednesday with additional traction to complement less dovish RBNZ expectations coming from PM Arden confirming that the country will sign an upgraded FTA with China. Nzd/Usd is back up near 0.7200 after testing the 10 DMA that aligns with a double bottom around 0.7171, while Aud/Nzd has now crossed 1.0700 to the downside, albeit in thinner volumes due to Australia’s market holiday, and Aud/Usd hovering just shy of 0.7700 in advance of NAB’s business survey and CPI tomorrow.

JPY/EUR/CAD/CHF/GBP - All fractionally softer vs their US counterpart, but the Yen still ‘comfortably’ above 104.00 and Euro surviving another lurch towards 1.2100 following a fade into 1.2150 and loss of the 50 DMA (1.2124). Meanwhile, the Loonie is still straddling 1.2150 with an eye on crude prices and the Franc is afloat on 0.8800 and 1.0700 handles, marginally, wary about further intervention to curb excess strength on any acute investor angst caused by risk events, like Italian PM Conte’s efforts to forge a new coalition Government. Last, but not quite least, Sterling has also staged a comeback after a brief dip under the 21 DMA (to circa 1.3610 vs 1.3624) and is pivoting 0.8900 against the Euro in wake of more UK jobs and wage data ‘propped’ up by Government support.

SCANDI/EM - The Sek and Nok have unwound more gains relative to the Eur irrespective of the constructive risk tone that might be deemed supportive, or firmer oil for that matter, so it seems that COVID-19 jitters have combined with a less bullish chart backdrop to undermine the Crowns. On that note, Sweden is seeking more clarification on the precise number of does per vial and has suspended payments to Pfizer pending answers. Elsewhere, the Try remains relatively firm and Czk is bid amidst talk of CNB tightening in 2021 (Governor giving guidance for up to 1 or 2 hikes), but the Brl could be in for a long Brazilian post-holiday weekend hangover.

New Zealand PM Ardern confirmed they will sign an upgraded FTA with China today, while she added that a travel bubble with Australia looks difficult on a national level but won't rule out a state-by-state approach. (Newswires)

Czech Central Bank Governor Rusnok says the Bank is considering up to two rate hikes this year. (Newswires)

FIXED

As inferred earlier, bulls were rather reluctant to factor in more safe-haven premium before seeing how EU stocks fared in the aftermath of some Wall Street wobbles and all round weakness across APAC bourses, and in hindsight the caution has proved to be prudent given the pretty pronounced rebound that has ensued. In fact, the Dax and other indices are still bouncing, with futures now flirting with 13,850 vs sub-13,600 at one stage to leave Bunds just off a new 177.61 Eurex low compared to 177.96, Gilts only paring more declines from 134.46 vs 134.84 with the aid of a decent 2035 DMO auction and now eyeing results of the 2050 sale. Meanwhile, US Treasuries have flipped from bull re-flattening to bear-steepening again, awaiting several more enticing US releases compared to Monday, including consumer confidence before the 2nd leg of this week’s supply in the form of Usd 61 bn 5 year notes.

COMMODITIES

WTI and Brent front month futures are modestly firmer in what is seemingly early European consolidation, but the benchmarks remain within recent ranges in the grand-scheme of things. News-flow for the complex has been light with traders eyeing the overall risk sentiment in the absence of catalysts – also comprising of any major COVID-related developments to disrupt the current supply/demand balance. WTI resides around 53/bbl having had printed an overnight base at USD 52.32/bbl, while its Brent counterpart trades narrowly above USD 56/bbl after printing a current USD 55.42/bbl intraday low. Elsewhere, spot gold is uneventful on either side of the 1850/oz mark amid a lack of fresh catalysts and ahead of the FOMC policy decision tomorrow. Technicians will be eyeing some levels in the vicinity including the 100 DMA (1880.90), 21 WMA (1879.50), 21 DMA (1873.08), 200 DMA (1848.87) and yesterday’s low (1846.90). Turning to base metals, copper prices edged lower with LME copper back under USD 8000/t amid uncertainties surrounding the US stimulus package. Conversely, Shanghai stainless steel gained for a second consecutive session amid rising raw material prices and prospects for finer demand heading into Chinese New Year holiday in February.