• Indices have been under pressure in a continuation of the APAC deterioration; however, both European bourses and US futures are well off lows, Euro Stoxx 50 -0.7% & ES -0.5%
• Novavax (NVAX) vaccine was 89% effective against COVID-19, according to a UK study; however, efficacy was 60% in a South African Trial
• ECB rate reduction discussion has been marginal in policy talks, according to sources; benefits seen as limited; downplayed Euro appreciation
• JPY has been under-pressure with USD/JPY having approached 105.00 at best following data & BoJ SOMP; the DXY has lost its initial support with EUR/USD and Cable having reclaimed 1.21 and 1.37 respectively
• Looking ahead, highlights include US PCE, personal consumption, Canadian GDP, Chicago PMI, Uni. of Michigan (final), ECB's de Guindos, Fed's Kaplan, Daly

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 (-0.9%) 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) PBoC says rumours that it has increased the SLF interest rate are untrue. (Newswires)

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)

BoJ is planning to purchase JPY 200-550bln of 3-5yr five times in Feb (prev. JPY 250-600bln five times in Jan); JPY 250-255bln 1-3yr five times (prev. JPY 300-600bln five times). (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 rate reduction discussion has been marginal in policy talks, according to sources; benefits seen as limited. ECB is focusing on financing conditions, including bond prices, lending rates in policy decisions and much less on FX. Sources have downplayed concerns over the firmer EUR, adding that moves in the past six months have been small. (Newswires)

ECB's Makhlouf does not see an ECB rate cut coming right now; is cautiously optimistic about the economic outlook; keeping a close eye on EUR strength. If required, rate cut is certainly an option; important that fiscal and monetary support is not rolled back. (Newswires)

German GDP Flash QQ SA (Q4) 0.1% (Prev. 8.5%); Flash YY NSA (Q4) -2.9% vs. Exp. -3.4% (Prev. -3.9%)

• Unemployment Change SA (Jan) -41k vs. Exp. 6.0k (Prev. -37.0k, Rev. -40k)
• Unemployment Rate SA (Jan) 6.0% vs. Exp. 6.1% (Prev. 6.1%, Rev. 6.0%)

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

GEOPOLITICS

Chinese military aircraft simulated missile attacks on US aircraft carrier during an incursion into Taiwan's ADZ, according to US/allied intelligence via FT; bombers and some aircraft involved were conducting an exercise in proximity to a US Navy group which was in a similar area to a simulated target. Note, the PLA is due to conduct another exercise in the South China Sea which will conclude on Saturday, via China's maritime administrator. (FT)

India's President says they have strengthened military forces at the de-facto border with China. (Newswires)

EQUITIES

European equities see losses across the board (Euro Stoxx 50 -0.7%), but have clambered off worst levels after the downbeat APAC reverberated into Europe. US equity futures meanwhile remain pressured with more pronounced losses seen in the tech-heavy NQ (-1.6%) vs the value-driven RTY (-0.4%) - with month-end flows also to factor in amidst the heat the earnings season. Macro developments for stocks have been scarce during the final European session thus far as traders look ahead to the US open, with the Reddit hype likely to steal the limelight again as trading platforms are lifting trade bans on Gamestop (+107% pre-market), AMC (+62% pre-market), albeit further platform issues will be watched for given the sheer volumes expected. On this note, US Senate panel is to hold a hearing on the current state of the stock market in wake of the GameStop situation, while reports also noted that the New York AG office is reviewing Robinhood app activity. Back to Europe, sectors are mostly lower with no real risk bias telegraphed, whilst the breakdown sees Telecoms and Autos outpacing whilst Healthcare, and Finance resides on the other end of the spectrum. The gains in the Telecoms sector are led by heavyweights Ericsson (+9%) post-earnings, whilst Nokia (+4.9%) cheers the trading lift ban imposed by various retail platforms. In terms of individual movers, AstraZeneca (-1.1%) is weighed on by threats of legal action by the EU regarding the vaccine dispute. Daimler (+1%) underpins the Auto sector after reporting results significantly above guidance and market expectations. Other earnings related movers include BBVA (-2.6%), Caixabank (+2.5%) and JC Decaux (+2.8%).

Mondelez International (MDLZ) reported Q4 20 (USD): Adj. EPS 0.67 (exp. 0.66), Revenue 7.30bln (exp. 7.16bln). “company expects performance in line with its long-term growth algorithm of 3%+ Organic Net Revenue growth, high single-digit percent Adjusted EPS growth on a constant currency basis and Free Cash Flow of USD 3+bln. The company estimates currency translation would increase 2021 net revenue growth by approximately 3% with a positive USD 0.10 impact to Adj. EPS.” CONFERENCE CALL: Overall growth rate continues to be challenged by reduced on-the-go consumption and mobility restrictions, but it expects a gradual recovery through 2021; expects a slower growth rate in Q1 21 and still faces some headwinds regarding impact on profit and price net of cost dynamics. (Newswires) -2.6% in the pre-market

Visa Inc. (V) - Q4 20 (USD): EPS 1.42 (exp. 1.28); Revenue 5.70bln (exp. 5.53bln); announces 8bln share repurchase programme. Cross-border volumes at constant currency -21% (exp. -25%, prev. +9% Y/Y). Total visa processed transactions +4% (exp. +3.67%). Payments volume at constant currency +5% (exp. +6.39%, prev. +8% Y/Y). CONFERENCE CALL: Outside US, holiday retail spending growth broadly accelerated. Spending in areas hardest hit by pandemic remains suppressed. Visa still plans to grow expenses in double digits in H2 as it increases investments on key growth initiatives. +0.6% in the pre-market

Caterpillar (CAT) Q4 2020 (USD): EPS 2.12 (exp. 1.49); Revenue 11.2bln (exp. 11.25bln)

Honeywell (HON) Q4 2020 (USD): EPS 2.07 (exp. 2.00); Revenue 8.9bln (exp. 8.4bln)

Daimler (DAI GY) - Prelim FY20 group EBIT EUR 6.6bln vs exp. EUR 5.25bln. Industrial Free Cash Flow EUR 8.259bln vs exp. EUR 5.296bln. Net industrial liquidity EUR 17.0bln vs prev. EUR 13.1bln Prelim results have factored in legal proceedings and restructuring. Co. noted the results are significantly above guidance and market expectations. The company will report detailed results and full-year guidance on the 18th Feb. (Daimler) +0.4% in European trade

SAP (SAP GY) - Final Q4 EPS EUR 1.69 vs prev.. EUR 1.82 Y/Y. Operating profit EUR 2.77bln vs prelim. EUR 2.77bln. Revenue EUR 7.54bln vs prelim. EUR 7.54bln. Co. affirms guidance. CFO expects cloud revenue growth to re-accelerate after a trough in Q1. (Newswires) -1.4% in European trade

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)

US is to reportedly push Taiwan and TSMC (2330 TT) to resolve the auto chip shortage. (Newswires)

FX

JPY - Little sign of salvation or even remote support for the Yen via decent 1.2 bn option expiry interest between 104.40-45 in Usd/Jpy as the pair extends its breach of the 100 DMA through 104.50 to circa 104.94 and well beyond well 104.75, which was the higher from December 2nd 2020. Clearly, 105.00 beckons next before a virtual double bottom from mid-November last year that might offer a bit more in the way of respite (105.14 on November 16 and 105.15 on the preceding Friday). Meanwhile, upward momentum has also been building in Eur/Jpy above 126.50 to just over 127.00 amidst month end tailwinds from rebalancing models flagging a moderate Dollar sell against most majors, bar the Yen, and at least one bank pointing to the obvious attraction of killing 2 birds that the cross provides. Moreover, the Yen has hardly been helped by weaker than forecast Japanese IP or mixed Tokyo CPI data any more than the latest BoJ Summary of Opinions that highlighted rising deflation risks as reason for the Bank to enhance its easing stance.

USD - Aside from the obvious assistance of Yen depreciation, the Buck is managing to stave off aforementioned sales for portfolio purposes due to safe-haven demand as broad risk sentiment sours again. However, the DXY remains capped below recent recovery highs close to 91.000 within a 90.780-520 range ahead of a final batch of US data to round off January and the first post-FOMC meeting Fed speakers in the form of Kaplan and Daly to glean extract any further policy insight, while also keeping an eye on the Euro as the biggest component of the index following another ECB ‘sources’ piece.

EUR - Surprisingly strong German jobs data, better than feared GDP and another Eurozone M3 beat did not really register, but the Euro has reacted to latest reports quoting ECB sources pushing back on the notion of a rate cut, and dumbing down on the level of concern over the single currency’s strength – see 10.24GMT post on the headline feed for more details. Eur/Usd is now forming a firmer base on the 1.2100 handle, and eyeing 1.2150 ahead of a series of descending peaks below 1.2200 that also align with 21 and 50 DMA resistance at 1.2170 and 1.2189 respectively.

NZD/CAD/CHF - All narrowly mixed and rangebound vs their US counterpart, with the Kiwi hovering between 0.7150-84 having failed to retain grasp of 0.7200 on several occasions after getting within a whisker of 0.7250 at one stage, while the Loonie is still holding above 1.2900 following its sharp post-BoC retreat and now seeking some independent impetus from Canadian monthly GDP, albeit rather stale now for November. Elsewhere, the Franc is treading water above 0.8900 and 1.0800 vs the Euro in advance of Monday’s update on Swiss bank sight deposit balances.

GBP/AUD - The other G10 laggards, as Cable reversed under 1.3700 yet again and Sterling weakens against the Euro into month end where RHS interest in the cross is often prevalent, while the Aussie is also underperforming across the board, with Aud/Usd pivoting 0.7650 and Aud/Nzd back under 1.0700.

SCANDI/EM - Some payback for the Nok, though partly corrective and flow related as the Norges Bank will more than double its daily FX ops in February vs this month. Elsewhere, mixed fortunes in EMs, but the Try and Cnh maintaining strength from the CBRT and PBoC.

Notable FX Expiries, NY Cut:

• USD/JPY: 104.00 (359M), 104.40-45 (1.2BLN)

HKMA 10bln Yuan quota for intra-day funding was nearly utilised by 06:00GMT. (Newswires)

Riksbank has extended its swap agreement with the Fed for a further six months to 30th September 2021. (Newswires)

FIXED

It looks the latest ECB roll-back on a potential near term rate cut along with apparently less angst about the Euro’s recent exertions was tantamount to the proverbial last straw for debt futures, as Bunds tumble through 177.00 to 176.89 (-88 ticks on the day), Gilts breach 134.00 to trade at 133.94 (-62 ticks) and the 10 year T-note follows suit, at 137-02 (-6/32). Indeed, apart from residual month end duration needs, even any remnant of asset-switching from stocks seems to have evaporated, and the Eurozone periphery is also reversing sharply ahead of a pretty packed pm agenda.

COMMODITIES

WTI and Brent front month futures see a choppy session thus far as the contracts nursed losses in early European hours – with the former now around USD 52.50/bbl (vs low 51.96/bbl) and the latter just under USD 55.50/bbl (vs low 54.92/bbl). The two benchmarks see somewhat of a dichotomy, with the US contract outperforming its Brent counterpart, with reports also suggested that the US oil industry is looking to forge a partnership with corn growers and biofuel to push against Biden’s green policy. Furthermore, the week saw substantial surprise draws in both Private Inventories and DoEs which further supports a bullish backdrop. Aside from that, the macro narrative remains the balance between the COVID-impacted demand and OPEC-supported supply. Elsewhere, spot gold and sport silver are supported despite the backdrop for a firmer Dollar, with some potential reflationary play, but one of the main drivers cited by analysts includes the Reddit crowd’s silver influence causing sympathy plays across precious metals. Spot gold resides around USD 1850/oz with its 50 DMA at 1856 and yesterday’s low around USD 1833/oz, whilst spots silver probes USD 27/oz. In terms of base metals, LME copper prices track the broader stock markets lower, albeit trades off lows – with some supply side reports suggested that Peru will also permit mining during COVID-related lockdowns. Finally, China’s steel rebar futures fell 1.4% amid surging inventories.

Belarus to increase oil transit tariff by 6.6% from February 1st, via Ifx. (Newswires)