• Equity indices were pressured from the European cash open in a continuation of APAC performance; subsequently, this downside intensified though we are currently well off lows - Euro Stoxx 50 -0.3%, ES -0.1%
• Apple -3%, Facebook -1% & Tesla -6% all reported after the close with pressure attributed to the lack of/vague guidance from Apple; as such, the NQ -0.7% is the morning's underperformer
• ECB’s Rehn says policy tools can be adjusted if required; inflation outlook is too low for his taste
• The DXY has remained supported given the broader risk-environment but is currently off the session high and yet to test yesterday's peak while core debt is broadly unchanged and the 10-year yield pivots 1.01%
• Looking ahead, highlights include German CPI, US GDP (Q4), PCE, IJC, Japanese unemployment, ECB's Schnabel
• Earnings from Visa, Mastercard

CORONAVIRUS UPDATE

In vitro studies showed the Pfizer (PFE)/BioNTech (BNTX) COVID-19 vaccine elicits antibodies which neutralize SARS-CoV-2 with key mutations present in UK and South African variants, while the Co.'s are encouraged by the early findings. (Newswires)

Norway PM Solberg announced that it will close the country to all but essential visits from midnight Friday. (Newswires)

ASIA

Asia-Pac indices were negative on spillover selling from the US where stocks had their worst day since October. There wasn't a specific headline catalyst for the downside; analysts had cited some forced hedge fund liquidations, covering shorts in some of the stocks subject to 'retail activism', forcing desks to cut profitable longs elsewhere. Better-than-expected earnings from tech giants Apple and Facebook failed to provide any meaningful reprieve in either index futures or their respective stocks during extended trade. ASX 200 (-1.9%) was dragged lower in which tech led the broad declines and with miners also subdued following weaker quarterly production updates from the likes of Fortescue Metals and Newcrest Mining. Nikkei 225 (-1.5%) suffered alongside the widespread risk aversion and as earnings season picked up in Japan, while the KOSPI (-1.7%) was predominantly influenced by corporate results including index heavyweight Samsung Electronics which disappointed on its Q4 net. Hang Seng (-2.6%) and Shanghai Comp. (-1.9%) also weakened after the PBoC continued to drain liquidity and amid mixed signals from the US as the White House reaffirmed the view that telecom equipment from untrusted vendors such as China's Huawei was a threat to security, although it was also reported that the US issued a General License 1A which authorizes transactions involving securities of certain Communist Chinese military companies and that MSCI reversed its decision on index deletions for Chinese firms. Finally, 10yr JGBs were uneventful and failed to take advantage of the subdued risk appetite with prices constrained within this week’s tight range beneath the 152.00 level and which follows a mixed 2yr auction.

PBoC injected CNY 100bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 150bln. (Newswires) PBoC set USD/CNY mid-point at 6.4845 vs exp. 6.4802 (prev. 6.4665)

China is said to be likely to avoid setting a 2021 GDP target, no decision has yet been made; China expected to target 2021 inflation at around 3% vs prev. 3.5% in 2020, sources state. China may again use employment and other measure as implicit GDP target, PBoC's Ma Jun also suggested that Beijing should focus on stabilising employment and controlling inflation as its main macroeconomic policy goals.(Newswires)

US President Biden spoke with Japan PM Suga and discussed US commitment to Japan's defence and deterring North Korea, as well as security issues including China. (Newswires)

US Secretary of State Blinken said in call with the Philippines Foreign Minister that the US will stand with southeast Asian countries against pressure from China in the South China Sea. (Newswires)

US Treasury Department's Office of Foreign Assets Control issued General License 1A which authorizes transactions involving securities of certain Communist Chinese military companies, while it was also reported that MSCI reversed its decision regarding index deletions for Chinese companies. (Newswires)

Samsung Electronics (005930 KS) Q4 net KRW 6.6tln vs exp. KRW 7.5tln, oper. profit KRW 9.1tln vs prelim. KRW 9.0tln, rev. KRW 61.6tln vs prelim. KRW 61.0tln, Co. is to pay year-end dividend of KRW 1932/shr, while it stated that mobile market demand is likely to recover to pre-pandemic levels this year and it may conduct a meaningful sized M&A between 2021-2023. (Newswires)

US

Chairman of House Budget Committee Yarmuth said the plan is to bring the FY21 resolution to the floor next week to begin the reconciliation process for stimulus and will skip the committee mark-up. (Newswires)

UK/EU

German Foreign Minister Maas commented after talking with US Secretary of State Blinken in which he stated that they formed a basis for a step-by-step improvement in transatlantic ties and that they should consider whether transatlantic sanctions make sense in regards to Nord Stream 2. (Newswires)

ECB’s Rehn says policy tools can be adjusted if required; inflation outlook is too low for his taste. Does not speculate on specific instruments (when questioned if rate cuts are more likely). Monitoring FX developments closely; a clear and symmetric inflation target could lift expectations.

ECB has asked banks to address credit risks and improve efficiency, overall SREP requirements and guidance is stable due to the pragmatic approach; banks show resilience but vulnerabilities remain in several areas particularly credit risk

EU Consumer Confidence Final (Jan) -15.5 vs. Exp. -15.5 (Prev. -15.5)

• Economic Sentiment (Jan) 91.5 vs. Exp. 89.5 (Prev. 90.4, Rev. 92.4)
• Industrial Sentiment (Jan) -5.9 vs. Exp. -7.2 (Prev. -7.2, Rev. -6.8)
• Services Sentiment (Jan) -17.8 vs. Exp. -18.8 (Prev. -17.4, Rev. -17.1)

German Saxony State CPI YY (Jan) 1.0%; MM (Jan) 0.5% (Prev. 0.5%)

UK 2020 car production declined 29% Y/Y to 920,928 which is the lowest level since 1984, according to SMMT. (Newswires)

GEOPOLITICAL

Chinese Defence Ministry says the PLA's recent activities in the Taiwanese Strait are in response to provocations by foreign forces; adds that "Taiwanese independence means war". (Newswires)

EQUITIES

European stocks trade in a sea of red (Euro Stoxx 50 -0.3%), but well off worst levels after the region picked up a similarly pessimistic lead from APAC with some citing “retail activism”, although it’s also worth bearing in mind that any regulations imposed on retail traders could hinder one of the driving forces behind stocks since the pandemic hit markets. Meanwhile, the after-market State-side tech space continued to unwind its recent gains despite better-than-expected earnings from Apple (-3.0%) and Facebook (-1.3%) – albeit analysts cite the lack of forecasts for the former’s downside, whilst Tesla’s (-5.8%) release underwhelmed markets as it missed on EPS and provided vague guidance; as such, the Nasdaq future is the current underperformer with losses just shy of 1.0%. Back to Europe, sectors are all in negative territory with Oil & Gas the marginal underperformer as prices in the crude complex remain somewhat capped. Consumer Staples meanwhile is cushioned but the Food & Beverage sector outperforms as Diageo (+3.6%) provides some post-earnings support whilst noting that it delivered strong sequential improvement compared to the H2 2020. Elsewhere, Industrials bear the brunt of the weaker base metal prices (see commodities section below), whilst construction sees some benefit from this price action. In terms of individual movers, Nokia (unch) opened higher by 10% due to Reddit's retail traders bolstering the Co’s ADR almost 70% at one point yesterday. Onto some earnings-related movers – STMicroelectronics (+4%) is firmer following improvements in Y/Y earnings alongside firm demand in Auto products and Microcontrollers. On the flip side Swatch (-3.5%) shares are pressured amid worse-than-expected pandemic-hit numbers coupled with a decline in Swiss watch exports.

Apple Inc. (AAPL) - Q1 21 EPS 1.68 (exp. 1.41); Revenue 111.4bln (exp. 103.28bln). SEGMENTS: iPad: 8.4bln (exp. 7.4bln), iPhone: 65.6bln (exp. 59.3bln), Mac: 8.7bln (exp. 8.5bln), Wearables, Home, Accessories: 13bln (exp. 12bln), Services: 15.8bln (exp. 14.9bln). CEO COMMENTARY: AAPL has active installed base of 1.65bln devices, more than 1bln iPhones; AAPL has 620mln paid subscribers on its platform; iPhone upgrades set an all-time record in China. Noted it is very optimistic on its services business, iPad performance was ‘very impressive’ in Q1. Expects to see a deceleration in wearables and AirPods growth in Q2. iPhone 12 Pro and Pro Max did especially well in Q1; results were strong in China. AAPL’s new Mac chip is boosting its line growth rate. (Newswires) Shares fell 3% in the pre-market with some citing a lack of guidance

Facebook, Inc. (FB) - Q4 20 (USD): EPS 3.88 (exp. 3.21); Revenue 28.1bln (exp. 26.41bln); Advertising: 27.18bln (exp. 25.8bln). Expects ads targeting headwinds in 2021. Boosts share buyback programme by USD 25bln. USER METRICS: DAUs: 1.84bln (exp. 1.83bln) MAUs: 2.8bln (exp. 2.75bln) -1.1% in the pre-market

Tesla Inc (TSLA) - Q4 20 (USD): Adj. EPS 0.80 (exp. 1.01); Revenue 10.7bln (exp. 10.32bln). Free Cash Flow 1.87bln. (exp. 1.04bln). Capex 1.15bln (exp. 0.97bln). DELIVERIES: Q4 2020: 180,667 (exp. 181.5k). Automotive gross margin 24.1% vs 22.5% y/y. Planning to grow manufacturing capacity as soon as possible Berlin and Austin factories remain on track to start production this year with structural batteries leveraging in house batteries. Shanghai factory to continue expansion over 2021. Fremont production to resume in Q1, and ramp to full capacity overtime Semi deliveries to begin in 2021. OUTLOOK: “Given the number of significant projects in the pipeline, we have simplified our approach to guidance for 2021, enabling our teams to remain focused on achieving our long term goals”. “Planning to grow manufacturing capacity as quickly as possible. Expects to achieve 50% average annual growth in vehicle deliveries”. -5.8% in the pre-market

Dow Inc (DOW) Q4 20 (USD): EPS 0.81 (exp. 0.67), Revenue 10.7bln (exp. 10.03bln)

Southwest Airlines Co (LUV) Q4 20 (USD): EPS -1.29 (exp. -1.68), Revenue 2.0bln (exp. 2.11bln). Experiencing stalled demand in January and bookings for February; FY21 capex seen less than 500mln

STMicroelectronics (STM FP) - Q4 EPS USD 0.63 vs prev. USD 0.43 Y/Y. Operating profits USD 657mln vs prev. USD 460mln. Revenue USD 3.24bln vs prelim USD 3.24bln. Co. guides Q1 revenue USD 2.93bln vs exp. USD 2.61bln. Co. guides capex between USD 1.8-2.0bln. Demand in Automotive products and Microcontrollers were the main factors that contributed to Q420 net revenue. (Newswires/STMicroelectronics)

FX

USD - No need for Buck bulls, or bears for that matter, to fight the Fed as policy-makers and chair Powell in the post-meeting press conference stuck rigidly to the script by maintaining caution over the near term economic outlook amidst moderation in the pace of recovery, and retaining guidance for accommodation to continue with no prospect of tapering QE anytime soon. Hence, the Dollar has swiftly returned to its sentiment vigil and dependency on fluctuations in the general market mood for direction, which is still gloomy amidst concerns that the supply of COVID-19 vaccines won’t stretch far enough to meet demand and/or delivery times lag to the extent that restrictions and lockdowns last even longer. In DXY terms, some consolidation has ensued between 90.859-627 after the index peaked at 90.896 on Wednesday, but the Greenback retains a firmer bias ahead of a busy post-FOMC docket and showing little sign of the moderate selling for month end rebalancing, yet.

AUD/NZD/CAD - More pain and underperformance due to high beta and risk correlations for the Aussie, Kiwi and Loonie, with Aud/Usd and Nzd/Usd only just keeping in close proximity of 0.7600 and 0.7100, as the former also takes on board latest worrying reports from China about the Iron and Steel Association calling for the Government to lower its reliance on iron ore imports. Meanwhile, NZ trade data revealed a narrower surplus as imports outpaces exports, and Usd/Cad is above 1.2850 at new post-BoC highs awaiting Canadian building permits and average earnings before monthly GDP and PPI on Friday.

CHF/JPY/GBP - All softer vs their US counterpart as the Franc struggles to contain losses through 0.8900 in wake of a smaller Swiss trade surplus, Yen loses ground following the more concerted breach of 104.00 and Pound pulls back further from 1.3750+ at one stage yesterday to trip some stops sub-1.3650. Note, however, while Cable has now fallen beneath the 200 HMA (1.3665), Usd/Jpy is respecting the 100 DMA (104.40), albeit barely in the run up to a raft of Japanese releases including Tokyo CPI, national labour data, ip and the BoJ’s Summary of Opinions.

EUR - Far from all change, but the Euro is a relative outperformer after its midweek meltdown on dovish ECB vibes directly from the GC and via ‘official sources’. Indeed, Eur/Usd is displaying resilience around 1.2100 having lurched to circa 1.2059 on Wednesday, though mainly in corrective trade rather than fundamentals even though Eurozone sentiment indicators largely beat consensus and German state inflation reports are in line with forecasts for the national y/y rate to snap back from deflationary territory.

SCANDI/EM - Conflicting data and survey news for the Sek via retail sales and unemployment misses vs upbeat sentiment, but the Swedish Krona continues to outpace the Norwegian Crown amidst equally mixed macro inputs in the form of a fall in the LFS jobless rate and much weaker than expected consumption. Eur/Sek has eased back from 10.1400+, while Eur/Nok remains elevated near 10.5000 as Norway heads into virtual complete international border lockdown and the SWF concedes that ROI is unlikely to hit levels achieved in the last 25 years. Conversely, the Try is back to winning ways amidst hawkish CBRT rhetoric and an improvement in Turkish economic sentiment.

CBRT says inflation may increase further in coming months due to supply-side factors that are significant in the short-term, demand-side inflationary effects continue to exist in Q1, though will subside gradually in the upcoming period. (Newswires)

FIXED

A decent bounce in EU stocks has sapped some strength from debt futures, understandably, but not dragged Bunds or Gilts back below par, which might suggest that some are hedging bets in case the equity recovery proves to be short-lived. However, the 10 year benchmarks may also be holding within 177.96-64 and 134.95-63 respective ranges ahead of month end and the underlying extension requirements, while marginal weakness and underperformance in US Treasuries could be supply-related given that Usd 62 bn 7 year note issuance looms after a raft of data. Back to the Eurozone, a minor lag in BTPs post-Italian auctions that more thinly covered and pre-comments from ECB’s Schnabel.

COMMODITIES

WTI and Brent front month futures traded modestly softer in early European hours before nursing losses as the downbeat sentiment across the market seeps into the crude complex, albeit prices remain contained within recent ranges on continued vaccine optimism, OPEC+ support and this week’s substantial surprise draws in crude inventory data. Brent dipped below USD 55.50/bbl in early trade, while its WTI counterpart rebounded after trickling under USD 52.50/bbl. Elsewhere, metals markets are pressured amid the firmer Buck, with spot gold extending losses below USD 1850/oz ahead of yesterday’s USD 1830.80/oz low ahead of the 15th Jan base at around USD 1823/oz. Spot silver meanwhile holds its +25/oz status after briefly dipping below the psychological mark from its current USD 25.30/oz high. Base metals see more pronounced losses as the effect of lockdowns rippled across the complex, with Shanghai copper hitting more than one-month lows as sentiment was tainted overnight. Dalian iron ore futures meanwhile slumped over 5% after the China’s Iron and Steel association called on the government to ease the country’s reliance on imports of iron ore

India gold demand fell 35% in 2020 to its lowest in 26 years amid COVID-related lockdowns, but India's gold consumption could improve this year on pent-up demand, according to the World Gold Council. (Newswires)