• Asian equity markets steadily deteriorated as the initial emboldenment from the rebound on Wall St gradually faded
• Novavax vaccine was 89% effective against COVID-19, according to a UK study. However, efficacy was 60% in a South African Trial
• In FX, the DXY recouped some lost ground overnight, EUR/USD hovers around 1.21, GBP/USD trades near the 1.37 mark
• US Senate panel is to hold a hearing on the current state of the stock market in wake of the GameStop situation
• Italia Viva Leader Renzi said he is ready to help form a new government
• White House reiterated there is no intention to split COVID relief package to make its passage easier
• Looking ahead, highlights include German jobs report, US PCE, personal consumption, Canadian GDP, Chicago PMI, Uni. of Michigan (final), ECB's de Guindos, Fed's Kaplan, Daly
• Earnings from Chevron, Caterpillar, Honeywell, SAP, Siemens, Ericsson, BBVA

CORONAVIRUS UPDATE

Novavax (NVAX) vaccine was 89% effective against COVID-19, according to a UK study. UK PM Johnson later commented that the UK medicines regulator will now assess the Novavax vaccine. However, the South African trial of the vaccine was only 49% effective for those with HIV and 60% effective for non-HIV individuals, while preliminary results showed over 90% of sick subjects for whom sequencing data was available, had been infected with the new South Africa variant. (Newswires/WSJ)

EU could block millions of COVID-19 vaccine doses from entering the UK in a move to address supply shortages, while there were separate reports that the EU warned it is to consider legal action in its COVID-19 vaccine supply dispute with AstraZeneca (AZN LN) (The Guardian/Sky)

ASIA

Asian equity markets steadily deteriorated as the initial emboldenment from the rebound on Wall St, where the major indices atoned for their recent weakest performance in 3 months, gradually faded on month-end and with overnight newsflow dominated by earnings results and data releases. ASX 200 (+0.6%) failed to sustain early gains and finished negative despite better-than-expected private sector credit data with the downturn led by underperformance in the financials and mining sectors, while Nikkei 225 (-1.9%) was lifted at the open amid a weaker currency but then reversed course as participants also digested a heavy slate of earnings and economic data including mixed Tokyo inflation numbers and a larger than anticipated decline for Industrial Production. Hang Seng (-0.8%) and Shanghai Comp. (-0.6%) were initially kept afloat after the PBoC injected liquidity into the market, although the gains were later pared as today’s CNY 98bln net injection failed to allay liquidity and policy tightening concerns which saw money market rates continue to creep higher to push the overnight repo rate to its highest since 2015. Finally, 10yr JGBs were lower following similar pressure in T-notes and after the BoJ Summary of Opinions pointed to the likelihood of a more flexible approach to yield curve control in the March review such as permitting the 10yr yield to trade at a wider range around the 0% target which would effectively allow yields to increase more before the central bank steps in.

PBoC injected CNY 100bln via 7-day reverse repos at rate of 2.20% for a net daily injection of CNY 98bln. (Newswires) PBoC set USD/CNY mid-point at 6.4709 vs exp. 6.4657 (prev. 6.4845)

BoJ Summary of Opinions from the January Meeting stated that easing is making a positive impact and there was the opinion that the BoJ must strengthen its easing stance as the risk of deflation has heightened further. BoJ stated it must study effect its easing had on economy, prices and financial conditions, while it must consider in the review how to balance effects and side effects of policy. BoJ stated the important issue of the review is to enhance sustainability of daily operations and make tools agile to respond to changes in a timely manner, while the BoJ must reconfirm the purpose of its 2% target and should maintain the current framework in the review, noting that the key is to make YCC and ETF purchases more flexible. Furthermore, it stated the impact on the economy will be limited even if long-term rates are allowed to move more and permitting 10yr JGB yields to move in a wider range around the target will help stabilize the financial system. (Newswires)

• Tokyo CPI (Jan) Y/Y -0.5% vs. Exp. -0.3% (Prev. -1.3%)
• Tokyo CPI Ex. Fresh Food (Jan) Y/Y -0.4% vs. Exp. -0.6% (Prev. -0.9%)
• Tokyo CPI Ex. Fresh Food & Energy (Jan) Y/Y 0.2% vs. Exp. 0.0% (Prev. -0.1%)
• Japanese Industrial Production (Dec P) M/M -1.6% vs. Exp. -1.5% (Prev. -0.5%)
• Japanese Industrial Production (Dec P) Y/Y -3.2% vs. Exp. -3.1% (Prev. -3.9%)

UK/EU

ECB's Schnabel said we must minimise the risk of cliff effects associated with an abrupt and premature withdrawal of fiscal support. (Newswires)

Italy's Italia Viva Leader Renzi said he is ready to help form a new government and that he prefers a political government but would also back a technocrat government, while he is ready to discuss ideas with past coalition partners and wants to hear if they are still open to a new accord. (Newswires)

• UK Lloyds Business Barometer (Jan) -7 (Prev. -4)

FX

In FX markets, the greenback nursed the losses seen in the prior US session where a rebound in stocks had dragged the DXY briefly beneath 90.50. Nonetheless, the DXY recouped its lost ground overnight as the momentum in stocks waned which in turn, pressured its major counterparts. EUR/USD trickled beneath the 1.2100 level owing to the USD strength. GBP/USD pulled back from yesterday’s gains and just about retained the 1.3700 status with price moves limited amid a lack of fresh catalysts and USD/JPY outperformed due to the rebound in the USD and after mixed data in Japan, as well as the BoJ Summary of Opinions which suggested the potential for increased flexibility to YCC and ETF purchases at the March policy revision amid anticipation of prolonged ultra-loose policy. Antipodeans were lacklustre with AUD/USD and NZD/USD retracing some of their recent advances as risk momentum petered out which saw the former extend its retreat from yesterday’s resistance near the 0.7700 handle.

COMMODITIES

Commodities were mostly uneventful as risk appetite soured overnight which saw WTI crude futures languish at yesterday's lows near the USD 52.00/bbl level, while newsflow for the complex was light although Libya's NOC had announced it resumed output at the Farigh field which produces gas and petroleum condensates following a 1-year halt. Gold was rangebound overnight as it took a breather after yesterday's fluctuations owing to the Reddit short squeeze on silver, while copper prices underperformed as the risk aversion gradually took hold across the Asia-Pac region.

US

Duration sold off as risk assets recovered and data was incrementally better. By settlement, 2s +0.2bps at 12.1bps, 10s +3.9bps at 105.3bps, 30s +3.9bps at 181.9bps; TYH1 volume was strong; real yields were lower by a couple of bps. The brunt of the move lower in USTs occurred as US participants arrived this morning. The move lower was reportedly accentuated by hedge funds hitting the bid as jobless claims data came in better than expected and Q4 GDP data didn't shock to the downside. With stocks recovering from their losses and the approaching 7-year auction, the trend higher in yields was supported, especially given that yields have moved a way lower in the recent week or two and have failed to break key resistance levels (1% for 10s). The USD 62bln 7-year note auction was average, with a slight stop-through but the dealer community was allocated an amount inline with its average. Given the lack of rampant demand, USTs edged slightly lower across later trade to settle close to lows of the session. Note, there has been an increasing amount of ink being spilled on renewed bearish Treasury option flow, where some reports noted that in late US trade there had been a large (unnamed) bond fund working some put spreads to hedge some downside risk. T-note (H1) futures settled 9 ticks lower at 137-08.

White House reiterated there is no intention to split COVID relief package to make its passage easier. There were also comments from White House Chief of Staff Klain that President Biden's relief plan is gaining momentum in Congress, while economic adviser Rouse said he does not see an automatic repeal of Republican tax credits and that President Biden will look at options to ensure companies are paying their fair share. (Newswires)

US Senate panel is to hold a hearing on the current state of the stock market in wake of the GameStop (GME) situation, while reports also noted that the New York AG office is reviewing Robinhood app activity. Furthermore, regulatory sources said the SEC will be looking at a market manipulation case on the Robinhood, Reddit and GameStop situation and expect the SEC to ask for Robinhood's blue sheets trading data and to try match it up with suspicious comments on Reddit. In relevant news, Robinhood is likely to increase margin requirements with the system said to be under stress and it plans to allow limited purchases of securities that had restrictions on such as GameStop, while GameStop short seller Citron Research said it will make a major announcement this Friday at 0900EST. (Newswires)