• Asian equity markets traded mostly higher as the region took impetus from global peers including the advances on Wall St
• Tech giants Google and Amazon saw earnings beat on top and bottom lines
• Oxford/AstraZeneca vaccine shows sustained protection of 76% during 3m interval until 2nd dose
• Talks over forming a new coalition in Italy have broken down, former ECB President Draghi could be appointed as a replacement PM
• In FX markets, the DXY held on to 91.00 status, EUR/USD capped at 1.2050 and GBP/USD sits on a 1.36 handle
• Looking ahead, highlights include EZ, UK & US Markit PMIs (final), EZ CPI, US ADP, ISM services, DoEs, OPEC+ JMMC, Fed's Kashkari, Bullard, Harker, Mester, Evans, Kaplan, ECB's Hakkarainen, US quarterly refunding announcement, supply from the UK
• Earnings from AbbVie, Qualcomm, eBay, Siemens, Santander, Volvo, GSK

CORONAVIRUS UPDATE

US COVID-19 cases +125,735 (prev. +112,772) and deaths +1,876 (prev. +1,920), vaccines administered 32.8mln (prev. 32.2mln). (Newswires)

US COVID-19 Response Coordinator Zients said the federal government is further increasing vaccines to states by 5% and will distribute 10.5mln doses per week to all jurisdictions for the next three weeks. It was also reported that New York Governor Cuomo was told by the White House that federal supply of COVID-19 vaccines will be increased by roughly 20% (prev. pledge of a 16% increase). (Newswires)

UK study found that antibody protection lasts for at least 6 months which scientists state supports the government plan to delay the second dose of COVID-19 vaccines. (FT)

Oxford/AstraZeneca (AZN LN) vaccine shows sustained protection of 76% during 3m interval until 2nd dose; efficacy 82.4% with 12 or more weeks to the 2nd dose, compared to 54.9% for those where booster was given under 6 weeks after 1st dose - paper. (Newswires)

French President Macron said we must now prepare vaccines for next winter and early next year, while he added that sites in France will begin producing vaccines in early March but noted that vaccination strategy alone, will not be able to prevent a new lockdown. (Newswires)

New Zealand gave provisional approval for the Pfizer (PFE)/BioNTech (BNTX) COVID-19 vaccine and PM Arden said they are to start preparations for the vaccine roll out in which the broader community will be vaccinated in H2, while the vaccines are expected to arrive at end of Q1. (Newswires)

ASIA

Asian equity markets traded mostly higher as the region took impetus from global peers including the advances on Wall St. where Reddit concerns continued to subside and amid vaccination progress, while after-market earnings also provided encouragement after tech giants Google and Amazon both beat on top and bottom lines. ASX 200 (+0.9%) was led higher by the property sector and financials following the RBA’s recent QE extension and with Governor Lowe reiterating the central bank’s dovish tone at the National Press Club of Australia Conference where he stated the cash rate will be kept at 0.10% for as long as necessary and it will be some years before inflation and unemployment goals are achieved which they do not expect to occur before 2024 and possibly later. Nikkei 225 (+0.9%) climbed above the 28,500 level despite the state of emergency extension which had been widely telegraphed beforehand, with focus in Japan centred on earnings results including Panasonic which was boosted by an upgrade to its FY net forecasts, while the KOSPI (+0.8%) was driven by its largest automakers Hyundai Motor and affiliate Kia Motors amid reports that Apple is to invest KRW 4tln in the latter for an EV joint venture. Conversely, Hang Seng (-0.5%) and Shanghai Comp. (-0.2%) were subdued after the PBoC drained liquidity and with local media noting the central bank’s recent open market operations pattern shows it is aiming to keep liquidity tightly balanced to avert risks from over leveraging, while PMI data added to the headwinds after Chinese Caixin Services PMI missed expectations to print its lowest since April 2020 and Caixin Composite PMI data also slowed from the prior month. Finally, 10yr JGBs were lacklustre after the bear-steepening in USTs and with haven demand sapped by the mostly positive risk tone, while the BoJ’s presence in the market also failed to support prices as the central bank reduced purchase amounts of 1yr-3yr and 3yr-5yr JGBs as it had flagged when it announced this month’s buying intentions.

PBoC injected CNY 100bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 80bln. (Newswires) PBoC set USD/CNY mid-point at 6.4669 vs exp. 6.4681 (prev. 6.4736)

• Chinese Caixin Services PMI (Jan) 52.0 vs. Exp. 55.5 (Prev. 56.3); lowest since April 2020.
• Chinese Caixin Composite PMI (Jan) 52.2 (Prev. 55.8)

US State Department spokesman said the US urges Beijing to cease military, diplomatic and economic pressure against Taiwan, while it was separately reported that the US is deeply concerned about China's attempts to disbar and harass two human rights lawyers representing the Hong Kong 12. (Newswires)

US ITC determined that imports of large vertical shift engines from China are subsidized and are harmful to US industry, which paves the way for antidumping and countervailing duties from the Commerce Department. (Newswires)

Suspected Chinese hackers reportedly used the SolarWinds (SWI) bug to spy on the US payroll agency and FBI investigators recently found that a unit inside the US Department of Agriculture was breached. Furthermore, the hack was said to different from the previously known SolarWinds breach and the second set of hackers did not gain access to its own internal systems, according to sources. (Newswires)

BoJ Deputy Governor Wakatabe said they are to examine the impact of YCC easing on the economy and CPI. Wakatabe added there is no need to change YCC framework at the review and would like to emphasise that the policy examination won't be about dialling back monetary stimulus nor is it aimed solely at containing the cost of policy measures. Furthermore, he added that there is nothing wrong with BoJ's basic policy direction and the economy is picking up as a trend although is in a severe situation due to the pandemic. (Newswires)

UK/EU

UK Cabinet Minister Gove is to demand that the EU take urgent action to ease post-Brexit trade rules between Britain and Northern Ireland amid increasing tensions and loyalist threats at ports in Northern Ireland. (Times)

The Times' shadow MPC says that the BoE should leave rates unchanged this week, adding that negative rates should be put in the Bank’s policy toolbox but left there untouched. (Times)

Italy's Italia Viva party said that talks aimed at reviving the Italian coalition have failed and there were also comments from Italian President Mattarella that a failure of government mediation leaves just two alternatives, either a new government or early elections although he questions how elections could be carried out during the pandemic. Furthermore, Mattarella stated he hopes Italy presents plans for an EU Recovery Fund ASAP and that a caretaker government could not draw up recovery plans, while he later summoned former ECB President Draghi for a meeting on Wednesday morning and reports noted that Draghi was now the front-runner to become the next Italian PM although a senior politician in Italy's 5 Star Movement later said they will not support a government led by Draghi. (Newswires)

FX

In FX markets, the DXY slightly eased after yesterday’s advances but just about held on to the 91.00 status with focus in the US remaining on stimulus manoeuvring after the Senate voted to move forward with the debate on the budget reconciliation in an attempt to push through President Biden’s USD 1.9tln relief proposal, although there is uncertainty regarding how much of the plan could fit within the budget reconciliation. EUR/USD nursed some of this week’s losses but with the recovery limited by resistance around 1.2050 alongside ongoing political uncertainty in Italy where talks aimed at reviving the Italian coalition failed. As such, Italian President Mattarella summoned former ECB President Draghi for a meeting on Wednesday morning which catapulted the former ECB head to become the front-runner for Italy’s next PM although there was some push back from a senior politician in Italy’s 5-Star who stated they will not back a Draghi-led government. Elsewhere, GBP/USD was only briefly supported as the greenback slightly eased and USD/JPY was also rangebound with price action oscillating around 105.00, while antipodeans were higher on the mostly positive risk tone, with outperformance in NZD/USD after stronger than expected jobs data in which Employment Change topped estimates at 0.6% vs exp. 0.0% and the Unemployment Rate unexpectedly declined to 4.9% from 5.3%. Furthermore, New Zealand money markets were no longer pricing in a rate cut for this year and ANZ Bank also adjusted its forecasts in which it now sees the RBNZ to keep the OCR on hold at 0.25% vs prev. forecast of a cut to 0.10% in May.

RBA Governor Lowe said the cash rate will be kept at 0.10% for as long as necessary and it will be some years before inflation and unemployment goals are achieved, with targets not expected to be reached before 2024 and possibly later. Governor Lowe added they will consider a shift in the yield target from April 2024 bond to the November 2024 bond later this year, while he added the board has no appetite to go into negative territory and that they could consider extending the Term Funding Facility but it may not be required. Furthermore, he stated that low inflation and wage growth is likely to be with us for some time and that they need to keep monetary support going until people get jobs and wages increase. (Newswires)

• New Zealand Employment Change (Q4) Q/Q 0.6% vs. Exp. 0.0% (Prev. -0.8%)
• New Zealand Unemployment Rate (Q4) 4.9% vs. Exp. 5.6% (Prev. 5.3%)

COMMODITIES

WTI crude futures were kept afloat near the USD 55.00/bbl level amid the positive risk tone and following the surprise draw to headline crude stockpiles in the latest private sector report, with focus for the complex shifting to today's EIA inventories and JMMC where no recommendations are expected to the current output pact. Gold was uneventful and languished after yesterday's USD-induced pressure and although the USD has since eased from recent advances, the lack of demand for havens has restricted the precious metal, while copper prices failed to benefit from the constructive risk tone with prices eyeing the USD 3.50/lb level to the downside as China moved closer towards the Lunar New Year holidays where activity tends to slow down.

US Private Inventories (bbls): Crude -4.3mln (exp. +0.4mln), Cushing -1.9mln, Gasoline -0.2mln (exp. +1.1mln), Distillate -1.6mln (exp. -0.4mln). (Newswires)

GEOPOLITICAL

US State Department spokesperson said if Iran could come back into full compliance with the JCPOA, the US would do the same but noted there has been no contact between the two sides since Biden's inauguration and that they are a long way from entertaining any proposals from the Iranians. (Newswires)

Russian Kremlin critic Navalny was sentenced to 3.5 years in prison which was reduced to 2 years and 8 months to account for time spent in house arrest. US Secretary of State Blinken later said the US is deeply concerned by the decision to sentence Navalny to prison and that the US will coordinate with allies to hold Russia accountable, while Russia's Foreign Ministry said that the West should not meddle in its sovereign affairs. (Newswires)

US

Treasuries bear-steepened as stocks continued to move higher on Tuesday, with stimulus hopes/uncertainties and the impending refunding announcement in the backdrop. By settlement, 2s +0.5bps at 11.7bps, 10s +2.4bps at 110.1bps; 30s +2.7bps at 187.3bps; TYH volumes were lacklustre; real yields were lower at the front-end, little change at the back. The move higher in yields roughly traced the stock rally out of Europe. Reports suggested real money was a buyer today although dealers were said to be happy to sell into those bids. And as stocks lost their upwards momentum into the latter part of trade, so did yields, chopping sideways into the settlement. Participants now look to Wednesday's ISM Services and Treasury refunding announcement. T-note (H1) futures settled 8 ticks lower at 136-30.

US President Biden will reportedly issue an executive order requiring the government to review critical supply chains, in an effort to ensure the US is not too reliant on other countries such as China for its materials and technology. (FT)

US Senate Democrat Leader Schumer said that President Biden told Democrats the GOP's USD 600bln proposal is way too small. It was also reported that President Biden urged Senate Democrats to go big on the stimulus plan in an internal conference call, while Senate Democrats said Biden did not discuss reducing the USD 1.9tln relief plan during their virtual meeting and signalled he won't allow discussions with the GOP to drag on. Furthermore, other reports stated the White House was open to narrowing who qualifies for stimulus checks but will be keeping payments at USD 1,400 per person and there were separate comments from Republican Senator Collins that she would back a minimum wage increase but not to USD 15/hr and that minimum wage is not relevant to COVID relief talks. (Newswires/Washington Post/CNN)

US Senate voted 50-49 to proceed with a budget resolution which sets up the debate and is the first step to passing the COVID-19 relief bill through budget reconciliation. (Newswires)

US Treasury Secretary Yellen said that CBO forecasts shows we desperately need Congress to act on the relief package and CBO forecasts suggest it will be years before the US reverts to full employment again. (Newswires)

US Treasury Secretary Yellen is to call a meeting with the SEC, Fed, NY Fed and CFTC to discuss GameStop (GME) related market volatility which may take place as early as Wednesday, while reports added that Yellen seeks an update on whether recent activities are consistent with investor protection, as well as fair and efficient markets. (Newswires)

Amazon.com (AMZN) Q4 2020 (USD): EPS 14.09 (exp. 7.23); Revenue 125.6bln (exp. 119.7bln). Bezos to move to role of Executive Chair, and Andy Jassy to become CEO. (Newswires) Co. shares were up 0.3% after-market.

Google (GOOG) Q4 2020 (USD): EPS 22.30 (exp. 15.90/15.95 reported); Revenue 56.9bln (exp. 53.13bln). Traffic acquisition cost: 10.47bln (exp. 9.35bln), Advertising: 46.20bln (exp. 42.65bln), Cloud rev: 3.8bln (exp. 3.8bln). (Newswires) Co. shares were up 6.9% after-market.