• A positive tone was observed in the Asia-Pac region and US equity futures recovered from the early stumble seen at the reopen
• Chinese official manufacturing, non-manufacturing and Caixin manufacturing PMI data all fell short of estimates but remained in expansion territory
• In FX markets, the DXY heads into the EU open softer, EUR/USD rangebound on a 1.21 handle, GBP/USD extended gains above 1.3700
• Gold gapped higher in tandem with the 7% surge in silver at the reopen which saw the latter test the USD 29/oz level
• Italia Viva’s Renzi is pushing for Finance Minister Gualtieri to be replaced in discussions to forge a new coalition government led by PM Conte
• Looking ahead, highlights include EZ, UK, US final manufacturing PMIs, US construction spending, ISM manufacturing, Fed's Bostic, Rosengren

CORONAVIRUS UPDATE

US CDC reported total COVID-19 cases rose to 25.92mln from 25.78mln the day before and total deaths rose to 438.0k from 435.2k the day before. (Newswires)

NIH's Fauci said the UK COVID-19 variant is projected to become more prevalent in the US by end-March or at the beginning of April and they are aiming to be able to vaccinate children by late Spring and early Summer. (Newswires)

NY Governor Cuomo said on Friday that New York's positivity rate was the lowest since December 11th at 4.65% and that a reduction in the post-holiday surge continues, while he added that New York City can reopen indoor dining at 25% capacity on February 14th. (Newswires)

Johnson & Johnson (JNJ) CEO said that their COVID-19 vaccines will likely start being delivered in March and that shots will likely be needed for the next few years, while a board member separately commented that there could be enough vaccines for the entire adult population in the US by summer. (Newswires)

Moderna (MRNA) asked the US FDA for permission to fill its COVID-19 vaccine vials with up to five additional doses to ease a bottleneck in manufacturing, according to a person familiar with the matter. In other news, Novavax (NVAX) reportedly could be planning to boost its production of vaccines to 150mln doses a month by May or June. (CNBC/Newswires)

BioNTech (BNTX) could deliver additional 75mln doses of COVID-19 vaccines to the EU in Q2. (Der Spiegel)

EU’s Von der Leyen said AstraZeneca (AZN LN) will increase its European manufacturing capacity and will deliver 9mln additional COVID-19 vaccine doses in Q1 with deliveries to begin a week earlier than scheduled. Furthermore, she stated that it is going to be a difficult situation for vaccines in the next 2 months and that they agreed with UK vaccine output from both sides of the channel would go in both directions, while she wants 70% of adults in Europe vaccinated by end of summer. Separate reports noted that France and Germany are threatening legal action against AstraZeneca after warning that any firm that favoured orders from the UK would be penalised. (Newswires/Telegraph)

UK COVID-19 cases +21,088 (prev. +23,275) and deaths +587 (prev. +1,200), France cases +19,235 (prev. +24,392) and deaths +195 (prev. +242), Italy cases +11,252 (prev. +12,715) and deaths +237 (prev. +421). (Newswires)

UK ministers were warned that social distancing rules may remain in place in Britain for the entire year unless a vaccine proves to be 85% effective at stopping transmission of COVID-19, while modelling suggests UK will experience a 3rd large spike in deaths unless vaccines cut COVID-19 transmission significantly. (Telegraph)

France announced new COVID-19 restrictions on Friday, although French PM Castex later said a new lockdown is not necessary for now but additional measures will be taken regarding the curfew, while he added all traffic to and from countries outside the EU is banned from Sunday and intra EU traffic will require PCR test. (Newswires)

Australia’s health minister announced that green zone flights from New Zealand will resume. It was also reported that most of Western Australia including the city of Perth went into a “full lockdown” for 5 days after a hotel quarantine worker tested positive for the UK variant of COVID-19. (Newswires)

Hong Kong Chief Secretary Cheung said that there could be more lockdowns soon, while he stated the goal is reduce the number of COVID-19 cases to zero and that they may launch various operations to impose mandatory tests in the future. (Newswires)

ASIA

A positive tone was observed in the Asia-Pac region with most regional bourses in the green and US equity futures also recovered from the early stumble seen at the reopen where there was some residual pressure after Friday's losses on Wall St which were due to month-end flows, recent overvaluation concerns, large hedge fund losses and fears of tighter regulation amid the main street trading frenzy. ASX 200 (+0.8%) initially underperformed amid fresh COVID-19 restrictions in Western Australia including the state capital of Perth which was placed on a snap 5-day lockdown after a quarantine hotel guard tested positive for the UK COVID-19 variant, although the index then recovered alongside the gradually improving mood in the region and with upside led by miners after silver prices surged again on the Reddit short squeeze play. Nikkei 225 (+1.4%) shrugged off early cautiousness and reclaimed the 28K level with newsflow dominated by earnings results, while the KOSPI (+2.1%) was boosted after better-than-expected trade figures which showed Exports jumped by 11.4% Y/Y for January. Hang Seng (+1.9%) and Shanghai Comp. (+0.4%) were kept afloat as China’s overnight repo rate eased from a 5-year high after the PBoC injected liquidity through open market operations, although the mainland lagged as longer-term money market rates began to creep up again and with participants digested the latest Official Manufacturing, Non-Manufacturing and Caixin Manufacturing PMI data which all fell short of estimates but remained in expansion territory. Finally, 10yr JGBs languished after its recent declines and with demand hampered after risk appetite steadily improved, while the BoJ also reduced its purchase intentions for Rinban operations this month in 1yr-3yr and 3yr-5yr maturities.

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 6.4623 vs exp. 6.4628 (prev. 6.4709)

Chinese survey vessels are increasing their research in the Asia Pacific region and data shows they have been straying into other nations' EEZs, as Beijing steps up efforts to increase its maritime interests. It was also reported that Chinese PLA warplanes entered Taiwan's self-proclaimed southwestern ADIZ on three occasions on Sunday which means there was only one day in January that Chinese planes were not observed in the region. (Nikkei/Newswires)

Xiaomi filed a complaint in a Washington district court on Friday against the US Defense and Treasury Departments, seeking to remove the Chinese smartphone maker from the list of companies with ties to China's military. (Newswires)

• Chinese Manufacturing PMI (Jan) 51.3 vs. Exp. 51.6 (Prev. 51.9)
• Chinese Non-Manufacturing PMI (Jan) 52.4 vs. Exp. 55.0 (Prev. 55.7)
• Chinese Composite PMI (Jan) 52.8 (Prev. 55.1)
• Chinese Caixin Manufacturing PMI (Jan) 51.5 vs. Exp. 52.7 (Prev. 53.0)
• South Korea Trade Balance (Jan P) 3.96B (Prev. 6.77B)
• South Korea Exports (Jan P) Y/Y 11.4% vs. Exp. 9.8% (Prev. 12.6%)
• South Korea Imports (Jan P) Y/Y 3.1% vs. Exp. 1.9% (Prev. 2.2%)

UK/EU

UK Chancellor Sunak will provide a long-term economic blueprint during the budget on March 3rd which will likely mean high state spending for a decade, while it was also reported that Chancellor Sunak was considering an increase in capital gains tax. Other report signalled a potential end to the freeze in fuel duty rises. (Sunday Times/Telegraph) UK Business Secretary Kwarteng said the country cannot spend its way to prosperity, amid increasing debate within the Tory party over state spending in the run-up to the Budget. (Telegraph)

UK will apply to join the CPTPP free trade agreement which involves 11 Asia and Pacific nations on Monday. However, reports added that the immediate impact is likely to be modest as the UK already has free trade deals in place with several CPTPP members, some of which were rolled over from its EU membership. (BBC)

The BoE is expected to reveal its view on whether it thinks that negative interest rates should be part of its policy armoury alongside its rate decision on Thursday. (Times)

Northern Ireland First Minister Arlene Foster called on UK PM Johnson to invoke part of the Brexit agreement to deal with problems in the movement of goods between Great Britain and Northern Ireland. (Newswires)

ECB’s Schnabel said that the central bank was more worried about inflation being low and stated that euro area faces very weak demand which doesn’t look as if it is going to fundamentally change. Furthermore, Schnabel said that a rise in inflation is expected this year but should not be confused with a sustained increase, while she also warned that a rate hike in the current environment would have devastating consequences. (Newswires)

ECB’s Knot said that the continuing increase in global stock markets could be the result of growing hopes for an economic recovery and does not necessarily mean that prices are overly inflated. Knot added that markets could be pre-empting the roll out of vaccines and the reopening of economies, while he added that we might be entering the roaring twenties. (Newswires)

ECB’s Lane said that stocks and bank bond purchases is not in the central bank’s toolkit against the pandemic and that its current toolbox is a mix of short-term rates, asset purchases, targeted lending and forward guidance. (Newswires)

Italia Viva’s Renzi is pushing for Finance Minister Gualtieri to be replaced in discussions to forge a new coalition government led by PM Conte. There were comments on Friday from President Mattarella that the possibility has emerged of a new government backed by the same parties as before and they will launch a fresh initiative to look into this, while he asked the leader of the lower house to mediate in the political crisis and report back on Tuesday. (Newswires)

FX

In FX markets, the DXY slightly weakened to trade around the 90.50 level with price action constrained by the improved risk appetite, recent mixed data releases and ongoing stimulus passage difficulties. Focus for the greenback also turns to this week’s key events including the latest NFP jobs data on Friday although prior to that, participants will get to digest US ISM Manufacturing later today and details of the proposal made by a group of 10 Republican Senators who have called for President Biden to consider a smaller COVID-19 relief than his USD 1.9tln package which they said would provide more targeted assistance. EUR/USD was rangebound at the 1.2100 handle after weekend commentary from central bank officials did little to change the landscape. GBP/USD was positive after having bounced off support near 1.3700 and after the EU backed down last week on a plan to block COVID-19 vaccines crossing its border into Northern Ireland and ultimately into Britain, while some also noted mass migration of fleeing Hong Kong residents into the UK in which around 300k are expected to seek extended residency rights following China's crackdown, as a potential tailwind for the currency. USD/JPY was little changed with price action sideways and antipodeans regained composure after the early wobble seen alongside the initial risk aversion at this week’s futures reopening, with tomorrow’s RBA meeting also keeping AUD/USD tentative.

Turkish President Recep Tayyip Erdogan replaced two deputy finance ministers in another reshuffle of policy. (Newswires)

COMMODITIES

Commodities were higher with WTI crude futures largely influenced by the risk appetite which saw an initial retreat below the USD 52.00/bbl level due to the jitters at the start of this week's trade and with the near-term outlook for oil not helped by tighter lockdown restrictions, although prices then recovered as the mood gradually brightened across risk assets which also provided some tailwinds for copper overnight. Gold gapped higher in tandem with the 7% surge in silver at the reopen in a continued short squeeze play by retail traders which saw the latter test the USD 29/oz level.

Baker Hughes US Rig Count (w/e Jan 29th): Oil +6 to 295, Nat Gas unchanged at 88, Total +6 to 384. (Newswires)

Goldman Sachs forecasts a tighter oil market in H1 2021 with an average deficit of 0.9mln BPD (prev. 0.5mln BPD deficit) and it sees 5.3mln BPD increase (prev. 6.8mln BPD) in world oil demand between end-2020 and July 2021. Goldman Sachs added that still forecast global oil demand to reach pre-COVID levels of 100mln bpd in August citing higher Q4 2020 consumption, while it stated incoming oil tightness will help prices weather financial market uncertainty and that it sees Brent prices at USD 65/bbl by July. (Newswires)

GEOPOLITICAL

Myanmar State Counsellor and head of government Aung San Suu Kyi was detained along with other senior officials in raids earlier, while the military later alleged the arrests were due to election fraud and that they have taken control of the country for 1 year, as well as declared a state of emergency. (Newswires)

Russian police reportedly detained more than 5,000 people at protests over the weekend related to the detention of opposition leader Navalny. (Newswires)

Chinese military experts and sources said the extension of the New START Treaty between US and Russia means the gap between China and the two nuclear giants will not widen and Beijing can spend the next five years catching up. (SCMP)

US

By settlement, 2s -0.4bps at 11.7bps, 10s +3.9bps at 109.4bps, 30s +3.7bps at 185.6bps; TYH volumes were very strong again; short TIPS yields were lower and long ones higher. The sovereign offer commenced out of Europe as stocks looked to further recover losses. The move higher in yields caught traction as the dust settled from the Johnson and Johnson vaccine results release, with the market focusing on the positives despite the low headline "66% effectiveness" rate; positive Novavax data last night was also supporting the vaccine trade. Furthermore, a firmer than expected PCE print for December emboldened the reflation/recovery momentum. However, as US cash equity trade commenced, risk assets began paring their earlier strength and yields began to descend again. Aside from the risk tone, desks noted the presence of chunky real money accounts buying cash duration amid month-end duration extension. T-note (H1) futures settled 7 ticks lower at 137-01.

Fed's Kaplan (non-voter, hawkish) said downside risks include vaccine efficacy and virus variants but added that upside risks include a bounce in public confidence and that more fiscal action would create upside risks to the growth forecast. Furthermore, Kaplan stated that Fed policy accommodation and asset purchases have potential to create excesses, as well as imbalances and that they should use tools aggressively during teeth of crisis, while he stated that the decision on QE taper will not come out of the blue and we are not anywhere close to that. (Newswires)

A group of 10 Republican senators called for President Biden to consider a smaller COVID-19 relief proposal than his USD 1.9tln package which they said would provide more targeted assistance to Americans with the greatest need, while the details of their proposal will be unveiled on Monday. (Newswires)

New York City Mayor De Blasio announced non-essential travel is restricted from 06:00EST and declared a local state of emergency due to heavy snow, while all flights to NYC have been cancelled for Monday due to the incoming nor'easter. (Newswires/Twitter)

Texas AG issued civil investigative demands on Friday to Robinhood, Discord, Citadel and others and said that Wall Street firms cannot limit public access to the market, citing apparent coordination between hedge funds and others to shut down threats to their market dominance. In relevant news, trading platform IG stopped any new trades in GameStop (GME) and theatre chain AMC (AMC) when markets open on Monday. (Newswires/BBC)

Goldman Sachs noted that last week saw the largest hedge-fund position de-grossing since February 2009, while it added that hedge fund exposures remain near records after shorts and longs are covered which indicates ongoing risks of positioning-driven sell offs. (Newswires)