• European bourses began the session indecisive following a mixed APAC handover but subsequently selling pressure has intensified; Euro Stoxx 50 -1.4%, ES -0.6% though NQ (U/C) outerperforms somewhat post-MSFT
• MSFT beat on top and bottom lines and are +2.8% in the pre-market while chip names have been pressured post AMD & TXN; in Europe, LVMH initially bolstered luxuries but has succumbed to the general sentiment
• ECB's Knot says we have the tools to counter EUR appreciation if required, and rates can be cut if necessary - commentary that pressued the EUR
• Looking ahead, highlights include US durables, DoEs, FOMC rate decision & Fed Chair Powell press conference, NZ trade, ECB's Lane, supply from the US
• Earnings from Apple, Facebook, Boeing, Tesla

CORONAVIRUS UPDATE

US COVID-19 cases +133,913 (prev. +142,259) and deaths +1,891 (prev. +1,926). (Newswires)

US President Biden said that millions more will receive vaccines sooner than expected, while he added it will take months to get a majority of Americans vaccinated and mask wearing is the best tool against the virus now not the vaccine. Furthermore, President Biden's administration is to purchase a total 200mln new doses of vaccines from Pfizer (PFE) and Moderna (MRNA) with new doses expected to be delivered by summer, and weekly supply to states will to increase to 10mln from 8.6mln doses for next 3 weeks. (Newswires)

ASIA

Asian equities traded mixed and attempted to shrug off the weak handover from the US where there was a slight negative bias amid pre-FOMC caution and ongoing doubts regarding President Biden’s USD 1.9tln stimulus proposal, although participants also reflected on earnings and a late boost was seen in Nasdaq 100 futures after-hours due to strong results from Microsoft which beat on both its top and bottom lines. ASX 200 (-0.7%) was led lower by weakness across the mining-related sectors and as yesterday’s regional losses caught up with the index on return from its holiday closure, while Nikkei 225 (+0.3%) was kept afloat by recent conducive currency moves but with upside capped amid expectations for an extension to the state of emergency in areas still seeing a high number of infections. KOSPI (-0.2%) swung between gains and losses as early strength in the local tech giants petered out including Samsung Electronics which is planning to increase FY21 chip capex by 20% Y/Y to KRW 35tln and with LG Display turning south despite posting a profit of KRW 620.9bln vs prev. loss KRW 1.8tln Y/Y. Hang Seng (-0.3%) and Shanghai Comp. (+0.1%) were indecisive after another substantial liquidity drain by the PBoC, as well as continued US-China tensions with President Biden’s Commerce Secretary nominee vowing to use the full tool kit to protect US networks from companies such as Huawei and ZTE, while FTSE Russell is mulling whether to eject more Chinese firms from key index listings. However, there were some encouraging developments including a jump in Chinese Industrial Profits for December which grew by 20.1% Y/Y and with Alibaba lifted by recent comments from the PBoC Governor who suggested Ant Group’s mammoth IPO could be revived after its issues are resolved. Finally, 10yr JGBs were lacklustre with price action stalling beneath the psychological 152.00 level as Japanese stocks remained in the green and following similar indecisive trade in T-notes, but with downside cushioned by the BoJ’s presence in the JGB market today for a relatively reserved JPY 600bln total.

PBoC injected CNY 180bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 100bln. (Newswires) PBoC set USD/CNY mid-point at 6.4665 vs exp. 6.4663 (prev. 6.4847)

US Republican Senator Rubio reintroduced legislation to establish standards and restrictions concerning Chinese and other high-risk foreign apps. (Newswires)

Beijing city officials said the government will take measures to encourage people to stay put for the upcoming Spring Festival holiday, by issuing consumption vouchers and 20GB free mobile data for each phone user, according to Global Times. (Twitter)

• Chinese Industrial Profits (Dec) Y/Y 20.1% (Prev. 15.5%)
• Chinese Industrial Profits YTD (Dec) Y/Y 4.1% (Prev. 2.4%)

UK/EU

ECB's Knot says we have the tools to counter EUR appreciation if required, EUR strength would take greater prominence for the Bank if it posed a threat to the inflation outlook. Have explored the effective lower bound but yet to find the level as such there is still room to lower rates further. Will act in the event the financing conditions were to deteriorate due to market stress. Optimistic on the prospects for the banking sector. (Newswires)

French Finance Minister Le Maire said the EU recovery fund is too slow and complicated, while he is urging for a review of fiscal regulations to address the blockages in distributing the recovery funds to member states. (FT)

German DIW Economic Institute says it sees Q1 German GDP -3% Q/Q, Q4 2021 seen flat Q/Q. (Newswires)

• UK BRC Shop Price Index (Jan) Y/Y -2.2% (Prev. -1.8%)

EQUITIES

European stocks kicked off the mid-week session in an indecisive mid-week manner before extending on losses (Euro Stoxx 50 -1.4%) as the region initially picked the tentative APAC tone in the run-up to the FOMC policy announcement and presser (full preview available in the Newsquawk Research Suite). US equity futures also remain on standby with the NQ (U/C) initially outperforming on the back of Microsoft’s numbers (+2.5%, pre-market) amid a number of COVID-related tailwinds including a surge in PC sales and increased cloud services revenue. Back to Europe, sectors are mixed with a slight defensive bias, with Real Estate outperforming as Unibail-Rodamco (+13%) and Klepierre (+12%) gain with some citing easing fears of a third national lockdown in France. Meanwhile, Telecoms are propped up alongside reports that Vodafone (+2%), Telefonica (+3%) and Three are partnering to build and share mobile masts to boost 4G coverage in rural areas, whilst sources stated Vodafone is reportedly looking into different options for their Ghanaian business with a view to reorganise the unit and reduce its debt. The broader IT sector meanwhile is softer on the day with pre-market losses in AMD (-2%) also weighing on chip names. In terms of individual movers, LVMH (+0.7%) holds onto opening gains after reported robust COVID-influenced numbers whilst topping revenue forecasts. Evotec meanwhile (+2%) opened higher by some 30% following reports that Reddit-stricken Melvin Capital is closing its short positions amid the suffering caused by Gamestop (+85% pre-market), although GME trimmed pre-market gains after CNBC reported that Melvin Capital has closed their Gamestop positions. Elsewhere, the quarterly production update by Fresnillo (-8%) was not well received despite an improve in gold production as guidance underwhelmed.

Microsoft Corp. (MSFT) (Information Technology/Systems Software) Q2 21 (USD): EPS 2.03 (exp. 1.64); Revenue 43.1bln (exp. 40.18bln). Server Products and Cloud services revenue +26% driven by Azure +50%. CAPEX 4.17bln, +18% y/y (exp. 4.79bln). SEGMENT: Productivity and Business Processes revenue 13.35bln (exp. 12.94bln). Intelligent Cloud revenue 14.60bln (exp. 13.75bln). More Personal Computing revenue 15.12bln (exp. 13.55bln). Q3 21 REVENUE VIEW: productivity and business processes revenue view 13.35-13.6bln, intelligent cloud revenue view 14.7-14.95bln, more personal computing revenue 12.3-12.7bln. 2.6% in the pre-market

Advanced Micro Devices Inc (AMD) - Q4 20 (USD): Adj. EPS 0.52 (exp. 0.47), Revenue 3.24bln (exp. 3.02bln). Computer and graphics revenue rose 18% Q/Q to USD 1.96bln vs exp. USD 1.82bln. Enterprise, embedded and semi-custom revenue rose 13% Q/Q to USD 1.28bln vs Exp. USD 1.19bln. Adjusted gross margin 45% vs exp. 45.1%. Sees Q1 revenue USD 3.20bln vs exp. USD 2.73bln. (Newswires)AMD CEO expects gaming chip sales to be above normal seasonal levels in Q1. -3.1% in the pre-market

Texas Instruments Inc (TXN) - Q4 20 (USD): EPS 1.80 (exp. 1.34), Revenue 4.08bln (exp. 3.6bln). (Newswires)-1.4% in the pre-market

LVMH (MC FP) - FY20 adj operating profit EUR 8.13bln vs exp. EUR 7.20bln. Adj. net EUR 4.70bln vs prev. EUR 7.17bln. Revenue EUR 44.7bln vs prev. EUR 53.7bln. Co. proposes a EUR 6/shr dividend. Q4 organic revenue in-line with forecasts. Q4 Wines & Spirits -11% vs exp. -1.5%, Fashion & Leather +18% vs exp. +11 to 12%, Perfumes & Cosmetics -15% vs exp. -10 to -11%, Watches & Jewellery -2% vs exp. -8 to -9%, and Selective Retailing -26% vs exp. -22%. Revenue in Asia and Japan rose 21% and 5% respectively in the period while Europe lagged.

Taiwan Economics Commissioner says they have met with chip makers today to discuss supply issues hoping they will be able to increase supply but notes the shortage will take time to rectify, will be very difficult for manufacturers in Taiwan to increase capacity for auto chips. (Newswires)

FX

USD - The Dollar is flat to a tad firmer across the board in the run up to the FOMC amidst little expectation of anything major in terms of policy moves or fresh guidance beyond the inevitable updated assessment of the economic situation and outlook since the prior meeting, plus anything Fed chair Powell reveals in the press conference via text or during the Q&A (full preview of the event available in the Research Suite). However, durable goods in the interim often has the potential to surprise and could provide the Buck and index with another test of resilience after the latter extended its run of consecutive closes above 90.000 on Tuesday to 9 trading sessions, and just carved out a firmer 90.432 intraday high vs 90.119 at one stage, albeit with a big helping hand from the Euro.

EUR/CAD/NZD/AUD - Latest reports regarding the ECB expressing consternation about Greenback weakness in relation to the Euro given relative US-Eurozone and Fed-ECB economic conditions and policy stances, were largely taken in stride, but comments direct from the GC’s mouth via Knot have been taken seriously as said the Bank has the means to counter Euro strength, including further easing – see 9.13GMT post on the Headline Feed for more. In response, Eur/Usd retreated further from circa 1.2170 peaks to trough around 1.2119, while Eur/Gbp recoiled to a fresh January low under the previous 0.8830 base from last Thursday. Elsewhere, the Loonie is also languishing near the bottom of the G10 ranks along with the Aussie and Kiwi that have failed to glean any lasting traction from firmer than forecast CPI or the fact that the Aud/Nzd cross remains top heavy above 1.0700. Usd/Cad is back on the 1.2700 handle, Aud/Usd under 0.7750 and Nzd/Usd sub-0.7250 all awaiting the FOMC, though the latter also has NZ trade data to digest.

GBP/CHF/JPY - Cable marginally extended post-Brexit transition highs before fading when the Dollar got its indirect ECB boost and held then retained grip of the 1.3700 handle due to supportive Eur/Gbp moves as noted above rather than anything UK specific. Similarly, the Franc and Yen are mainly taking cues from elsewhere, and the Buck more so than risk sentiment that is souring again, with Usd/Chf continuing to meet resistance/offers into 0.8900 and Usd/Jpy keeping further distance from 104.00 in advance of key Japanese data to end the month starting with retail sales after the Fed.

SCANDI/EM - Not much support for the Sek in wake of an uptick in Swedish money market inflation expectations, but the Cnh is holding up better than EM counterparts with assistance from an acceleration in Chinese industrial profits to offset ongoing and heightened US-China tensions.

Notable FX Expiries, NY Cut:

• Australian NAB Business Conditions (Dec) 14.0 (Prev. 9.0, Rev. 7.0)
• Australian NAB Business Confidence (Dec) 4.0 (Prev. 12.0, Rev. 13.0)
• Australian CPI (Q4) Y/Y 0.9% vs. Exp. 0.7% (Prev. 0.7%)
• Australian CPI (Q4) Q/Q 0.9% vs. Exp. 0.7% (Prev. 1.6%)

EUR/USD: 1.2100 (714M), 1.2150 (612M), 1.2200 (1.1BLN), 1.2250 (1.5BLN)

FIXED

It would be easy and perhaps valid to suggest that debt has decoupled inverse asset links due to caution ahead of the FOMC, while supply in the form of Usd 28 bn 2 year FRNs still needs accommodating before Usd 62 bn 7 year notes on Thursday. However, UK and German offerings have been relatively well received in cash circles, but not exactly welcomed by debt futures that are hovering near intraday lows. Hence, renewed weakness in Bunds, Gilts and US Treasuries between 177.65-39, 134.72-41 and 137-13+/137-09 respective parameters may be in hindsight after losing all and more of their safe-haven gains yesterday when stocks rebounded sharply. Also ahead, US durable goods data that is notoriously erratic.

COMMODITIES

WTI and Brent front month futures eked modest gains initially in early European hours but prices remain contained within ranges seen since mid-Jan. Despite the disparities across stocks and a downside bias to sentiment, crude prices remain underpinned by last night’s Private Inventory data which showed headline crude posting a sizeable surprise draw of 5.3mln bbl vs forecasts for a modest 0.4mln bbl build; however, as the selling pressure has intensified WTI and Brent are now marginally lower on the session. Participants will now be looking to the more widely-followed EIA release whereby headline crude is expected at a 0.4mln bbl build. More broadly, the crude market will be eyeing the COVID-related developments in light of the new variants and logistical hurdles. Desks are flagging potential demand implications from the localised lockdowns in China, with the government also poised to discourage travel over the upcoming Lunar New Year holiday – “passenger trips during the holiday period to be down 40% from 2019 levels”, according to ING citing the Chinese transport ministry. WTI trades on either side of USD 53/bbl and Brent sees itself just north of USD 56/bbl, with both contracts within USD 0.30-0.40/bbl parameters at the time of writing. Elsewhere spot gold and silver remain within relatively narrow bands ahead of the FOMC policy announcement, with the former on either side of USD 1845/oz and the latter back below USD 25.5/oz. LME copper prices meanwhile are modestly softer amid the indecision seen across markets coupled with Dollar strength, whilst Goldman Sachs raised their 3-,6-and 12-month copper price forecasts to USD 8,500/t, USD 9,000/t and USD 10,000/t respectively. Finally, zinc prices overnight hit over 2-month lows amid higher inventories.

US Private Inventories (w/e Jan 22nd): Crude -5.3mln (exp. +0.4mln), Cushing -3.5mln, Gasoline +3.1mln (exp. +1.8mln), Distillate +1.4mln (exp. -0.4mln). (Newswires)

Fresnillo (FRES LN) - Q4 silver production -2.5% Q/Q and -6% Y/Y. Q4 Gold production +24.8% Q/Q. 2021 silver and gold production expected in the ranges of 52.5-59.5mln oz and 675-725k oz respectively. (Newswires)