• European indices began the session on the front-foot, before consolidating off highs, Euro Stoxx 50 +0.7%, ES +0.4%; while the FTSE MIB & BTPs outperform on Draghi's potential Italian mandate
• Tech giants Google and Amazon saw earnings beat on top and bottom lines; with Google outperforming in the pre-market +7.0%
• President Biden Advisor speculates the final stimulus size could be USD 1.3trln, Politico
• The mornings UK/EZ PMIs saw modest revisions while the Chinese Caixin figures missed expectations and EZ Flash CPI for January came in well-above consensus
• The DXY continues to make ground but remains contained below yesterday's high with losses modest but broad-based in major peers ex-antipodeans which have been choppy
• Looking ahead, highlights include US Markit PMIs (final), US ADP, ISM services, DoEs, OPEC+ JMMC, Fed's Kashkari, Bullard, Harker, Mester, Evans, Kaplan, US quarterly refunding announcement
• Earnings from AbbVie, Qualcomm, eBay, GSK

CORONAVIRUS UPDATE

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)

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 (+1.0%) 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 (+0.2%) and Shanghai Comp. (-0.5%) 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)

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)

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)

US

*President Biden Advisor speculates the final stimulus size could be USD 1.3trln, Politico reports. *

The White House was reportedly open to narrowing who qualifies for stimulus checks but will be keeping payments at USD 1,400 per person (Newswires)

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)

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)

Senior politician in Italy's 5 Star Movement later said they will not support a government led by Draghi. (Newswires)

EU HICP Flash YY (Jan) 0.9% vs. Exp. 0.5% (Prev. -0.3%)

• X Food & Energy Flash YY (Jan) 1.4% vs. Exp. 0.5% (Prev. 0.4%)
• X Food, Energy, Alcohol & Tobacco Flash YY (Jan) 1.4% vs. Exp. 0.9% (Prev. 0.2%)

EU Markit Comp Final PMI (Jan) 47.8 vs. Exp. 47.5 (Prev. 47.5); Services Final PMI (Jan) 45.4 vs. Exp. 45.0 (Prev. 45.0)

• German Markit Comp Final PMI (Jan) 50.8 vs. Exp. 50.8 (Prev. 50.8); Services PMI (Jan) 46.7 vs. Exp. 46.8 (Prev. 46.8)

UK Markit/CIPS Services PMI Final (Jan) 39.5 vs. Exp. 38.8 (Prev. 38.8); Composite PMI Final (Jan) 41.2 vs. Exp. 40.6 (Prev. 40.6)

GEOPOLITICAL

Iranian President Rouhani says we will not change one of the terms of the nuclear agreement and the agreement will not include other parties and this is our final position and will not change. (Newswires)

Mining company USA Rare Earth is said to be mulling a stock-market listing this year targeting a valuation of over USD 1bln, WSJ sources say, targeting a sector dominated by China. (WSJ)

EQUITIES

European equities kicked off the mid-week session higher across the board, but the momentum has since abated (Euro Stoxx 50 +0.7%), albeit the region holds onto gains despite a somewhat mixed APAC lead. US equity futures meanwhile see mixed trade thus far, with the NQ (+0.7%) narrowly outpacing peers whilst the RTY (-0.2%) struggled to stay positive – with the former aided by Alphabet (+7%) post-earnings after it reported a strong Q4 with Cloud and YouTube ads revenues rising Y/Y. Back to Europe, Italy markedly outperforms the region as the FTSE MIB (+2.6%) cheers reports that former ECB President Draghi has been tapped to take the Prime Minister position in a bid to end the political limbo and enhance the economic recovery. As such Italian banks populate the top of the index with favourable BTP price action also underpinning that domestic lenders. The DAX (+0.6%) is reinforced by one of its largest members Siemens (+2%) following stellar earnings. Siemens has a 9% weighting in the German bourse. Sectors in Europe are mostly higher but fail to provide a clean risk profile. Energy underperforms as crude prices hover in a tight range, whilst Telecoms reside on the other end of the spectrum – with Vodafone (+4%) propping up the sector despite lacklustre earnings as sources suggested the group could IPO its EUR 3bln Vantage Towers in March this year. Elsewhere, Healthcare is supported by one of its largest constituents AstraZeneca (+0.7%) as a medical paper noted that the Oxford/AstraZeneca vaccine shows sustained protection of 76% during 3-month interval until 2nd dose. In terms of individual movers, Daimler (+2.5%) gains impetus from source reports that the Co. is approaching a decision on the potential IPO of its truck unit and a minority stake IPO could occur as soon as H2 2021, which could be worth around EUR 29bln if valued along the same lines as Volvo AB according to Deutsche Bank.

Amazon (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. Online stores: 66.45bln (exp. 62.1bln). Third party seller services: 27.33bln (exp. 25.7bln). AWS: 12.74bln (exp. 12.7bln) Subscriptions: 7.06bln (exp. 6.86bln). Q1 Sales view 100-106bln (exp. 95.7bln). (Newswires) +0.2% in pre-market trade

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). Other (inc YouTube/non-advertising): 6.9bln (exp. 6.5bln). (Newswires) +7.3% in pre-market trade

Siemens (SIE GY) - Q1 revenue EUR 14.07bln vs exp. EUR 13.42bln. Industrial EBIT EUR 2.13bln vs exp. EUR 1.67bln. Shareholders' net income EUR 1.37bln vs exp. EUR 0.864bln. Co. says revenue was up in all four industrial businesses on a comparable basis. Co. sees FY outlook higher after seeing improving conditions during Q1 2021. Co. now sees mid-to-high single digit growth for FY vs prev. growth of 3-5%. Co. expects digital industries to grow clearly above 2020 levels. Co. raises net income outlook to range between EUR 5-5.5bln, well above prior expectation of moderate growth. (Newswires) Co. has a 9% weighting in the DAX

FX

NZD/AUD - More positives for the Kiwi to lean on and provide a buffer when overall risk sentiment and other external impulses are less favourable, as NZ Q4 labour data blitzed expectations in terms of the employment count and jobless rate. Indeed, Nzd/Usd is pivoting 0.7200 and Aud/Nzd has been under 1.5500 even though the Aussie has regained some poise post-RBA and grips on the 0.7600 handle vs its US counterpart irrespective of Governor Lowe reiterating dovish rate guidance overnight (cash rate to stay at 0.1% until 2024, and perhaps longer). Conversely, ANZ has now retracted its call for the RBNZ to ease by another 15 bp in May and all remaining rate cut bets for 2021 have been erased from money market pricing in NZ.

USD - Aside from the defiance down under, G10 rivals are struggling to stop the rot against the Buck as the DXY maintains its recovery momentum and seeks to extend beyond the 91.000 mark off a shallower base. The index retreated from 91.283 amidst knock-on gains across most APAC equity bourses overnight following a strong close on Wall Street, but quickly regrouped EU indices pared back and weakness in certain currencies due to specific factors resumed. However, Tuesday’s best has not quite been surpassed within a 91.263-90.988 range ahead of a much busier US agenda including ADP, final Markit services and composite PMIs, ISM non-manufacturing and an array of Fed speakers.

CHF/EUR/GBP/JPY - All hovering near recent lows vs the Dollar, with the Franc still on the cusp of 0.8900, Euro hovering midway between 1.2050-10 with little reaction broadly better than expected Eurozone PMIs or stronger than forecast inflation, and the Pound pivoting 1.3650 after upward tweaks to the final UK services and composite PMIs that still left both well below the key 50.0 level. Similarly, the Yen is floundering south of 105.00 and gleaned little in the way of traction via moderately less contractionary Japanese services and composite PMIs.

CAD/NOK - The Loonie and Norwegian Krona are holding up a tad better than others alongside oil prices around Usd 55/brl for WTI and Usd 58/brl in Brent, with Usd/Cad capped into 1.2900 and Eur/Nok straddling 10.3500.

SEK/EM - No sign of an acceleration in Sweden’s services PMI helping the Swedish Crown to capitalise on Euro underperformance elsewhere as the cross hovers near the top of a 10.1415-10.1025 band, but the Turkish Lira has been given another boost from stronger than consensus CPI that should resonate with the CBRT hot on the heels of hawkish commentary yesterday (underscoring intention to return inflation to target and front-load tightening if warranted). Hence, Usd/Try is back down from circa 7.2000 and probing towards 7.1250.

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)

Notable FX Expiries, NY Cut:

FIXED

Although the 5-Star party has already given him the thumbs down, debt and other Italian assets have responded favourably to the prospect of ex-ECB President Draghi taking on the challenge of forming a new Government after his pivotal if not single-handed role in the battle to save the Euro. Indeed, BTPs are looking to consolidate recovery gains above 152.00 and continue to keep Bunds depressed, albeit just shy of their own new rebound high of 176.70 (-5 ticks vs -37 ticks at one stage), as risk appetite in general fades. Meanwhile, Gilts are still below par, though also paring more losses between wider 133.69-46 following another decent DMO auction in contrast to US Treasuries that are closer to overnight session lows than highs with the curve steeper ahead of ADP, Markit PMIs, services ISM, Quarterly Refunding announcement and a raft of Fed orators.

COMMODITIES

WTI and Brent front month futures remain contained in early European hours as the complex piggy-backs on the risk tone across the markets, whilst the JMMC later today is expected to be uneventful - but, the lack of hawkish language out of yesterday’s JTC could be acting as an underlying force keeping prices elevated alongside another surprise drawdown in private inventories (-4.3mln bbl vs exp. +0.4mln). Traders will now be eyeing the weekly EIA data as the next scheduled catalyst - which is also expected to show a build of some 0.44mln bbls in spite of the recent streak of surprise drawdowns . WTI probes USD 55/bbl (vs low 54.80/bbl) whilst its Brent counterpart paused after eclipsing USD 58/bbl to the upside (vs low USD 57/50/bbl). Analysts and ING expect further upside in oil prices over H2 2021, “there are still plenty of demand risks floating around, while on the supply side, there is the issue of Iran, and when we will see Iranian supply growing”, the bank caveats. Elsewhere precious metals are relatively flat amid a lack of fresh catalysts and with upside hampered by a firmer Buck – with spot gold contained sub-1850/oz and spot silver caged on either side of USD 27/oz, whilst the US Mint yesterday stated it cannot meet the rising demand for the precious metals as plant capacity issues poses problems. Elsewhere, LME copper nursed earlier losses after Shanghai copper fell as much as 1.3% at one point to an eight-week low amid a dampened demand outlook heading into the Chinese Spring Festival. Meanwhile, Dalian iron ore futures were pressured to a similar extend as the base metal also tackles with the rising shipments of the base metal from Brazil.

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).

New Zealand Unemployment Rate (Q4) 4.9% vs. Exp. 5.6% (Prev. 5.3%)

New Zealand Employment Change (Q4) Q/Q 0.6% vs. Exp. 0.0% (Prev. -0.8%)

EUR/USD: 1.1990-1.2000 (747M), 1.2070-80 (1.2BLN), 1.2100-15 (1BLN)