• Asian equity markets were mostly lower following a flat lead from the US where focus centred on earnings and stimulus plans
• 5SM's Di Maio said Italy needs an alternative to a Draghi government, while the Brothers of Italy party Chief favours abstaining
• In FX, the DXY extended on gains above 91.00, EUR/USD remains in the low 1.20's and GBP/USD hovers around 1.36
• President Biden is open to having the discussion on the income level of Americans who would receive relief checks
• Looking ahead, highlights include EZ & UK construction PMI, BoE rate decision & MPR, US IJC, factory orders, Fed's Kaplan, Daly, supply from Spain & France
• Earnings from Philip Morris, Merck, Bristol Myers Squibb, Shell, Infineon, ABB, Deutsche Bank, Danske Bank, Nokia

CORONAVIRUS UPDATE

US COVID-19 cases +116,915 (prev. +125,735), deaths +3,433 (prev. +1,876), vaccines administered 33.9mln (prev. 32.8mln). (Newswires)

UK PM Johnson said it feels to us at the moment as though we'll be easing restrictions nationally and reaffirmed that on February 22nd, he hopes to be able to set out more dates and possibilities for the year ahead. There were also separate comments from UK Chief Medical Officer Whitty that the number of deaths is beginning to come down but the numbers are still extremely high. (Newswires)

Oxford University will begin trial combining COVID-19 vaccines from AstraZeneca (AZN LN) and Pfizer (PFE) which could enable more flexibility in their use amid scarce global supplies. (Newswires)

Australian PM Morrison said they will purchase an additional 10mln doses of COVID-19 vaccines from Pfizer (PFE), while it was separately reported that Novavax (NVAX) and Switzerland agreed in principle for supply of 6mln doses of the Novavax COVID-19 vaccine candidate and that the sides will negotiate on a final deal. (Newswires)

Russia filed for Sputnik COVID-19 vaccine approval in the EU. (TASS)

ASIA

Asian equity markets were mostly lower following a flat lead from the US where participants were tentative amid mixed earnings and as focus remained on stimulus plans with some expectations tempered regarding the stimulus amount after President Biden suggested he is willing to limit the eligibility for stimulus checks but won't budge on the size of payments at USD 1,400 and there were also comments from a Biden adviser who speculated that the final stimulus size could be USD 1.3tln. ASX 200 (-0.9%) was dragged lower by underperformance in defensive sectors and with the mood also soured after fresh COVID-19 measures were announced in Victoria state following 3 new infection cases, while mixed trade data showed a decline in Imports which suggested weaker domestic demand. Nikkei 225 (-1.0%) succumbed to negative mood which overshadowed encouraging blue-chip earnings that lifted Hitachi, Nomura Holdings and Sony shares after they all registered profit growth. Hang Seng (-1.7%) and Shanghai Comp. (-1.2%) were choppy after the PBoC opted for 14-day reverse repos in its open market operation for the first time this year ahead of next week’s Lunar New Year holidays, although this still amounted to a net neutral position on the day. Tensions between US and China also lingered after the US State Department noted it is deeply disturbed by allegations of rape and sexual abuse against women at the Uighur camps in Xinjiang and called for China to allow independent investigations, while there were also comments from Commerce Secretary nominee Raimondo that she sees no reason why Chinese companies including Huawei and ZTE should not remain on the blacklist. Nonetheless, there were a few bright spots with Ping An Insurance the biggest gainer in Hong Kong after it topped earnings forecasts and with Alibaba kept afloat after Ant Financial Services reached an agreement with Chinese regulators on a restructuring plan to become a financial holding company, and large oil names were also boosted following recent upside in the underlying commodity price. Finally, 10yr JGBs were subdued after the continued bear-steepening in USTs but with downside stemmed amid losses in stocks, with JGBs also not helped by mixed results at the MOF 30yr auction which registered a larger b/c due to a decline in accepted prices.

PBoC injected CNY 100bln via 14-day reverse repos at a rate of 2.35% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.4605 vs exp. 6.4569 (prev. 6.4669)

US State Department said it is deeply disturbed by reports including first-hand testimony of systemic rape and sexual abuse against women in camps for Uighurs and other Muslims in China's Xinjiang, while it added that China should allow independent investigations. (Newswires)

US State Department spokesman responded “yes, our policy has not changed" when asked if US supports One-China policy, while it was also reported that President Biden will speak broadly about foreign policy on Thursday but will not offer specifics and believes the US needs to work closely with allies on China issues. (Newswires)

US President Biden's nominee for Commerce Secretary Gina Raimondo said she sees no reason why Chinese companies including Huawei and ZTE (763 HK) should not remain on the entity blacklist. (Newswires)

UK/EU

UK Cabinet Minister Gove is to hold a meeting with EU's Sefcovic on Northern Ireland next week and EU sources are said to have expressed concern regarding Gove's letter to the EU regarding demand for changes to NI protocol. However, Gove said that Britain and EU reiterated full commitment to proper implementation of the protocol and will work intensively to find a solution to issues. (Newswires/RTE)

UK Chancellor Sunak has been warned by leaders of Britain’s most influential business groups and the trade union movement that he could trigger a period of mass unemployment unless he extends the furlough scheme. (Guardian)

Italian 5SM's Di Maio said Italy needs an alternative to a Draghi government, while the right-wing Brothers of Italy party Chief said she has proposed to right-leaning allies to abstain over the Draghi government. (Newswires)

Spain is reportedly to consider debt relief on state-backed loans. (Newswires)

FX

In FX markets, the DXY was eventually supported overnight from the risk-aversion to extend on yesterday's gains above the 91.00 level. On the stimulus front, the US House voted to pass the budget plan which fast-tracks President Biden's stimulus proposal as expected, although there are some expectations of a moderation in the final stimulus size. EUR/USD was pressured by the USD strength and amid political uncertainty in Italy where former ECB President Draghi accepted the mandate to form a government, although ‘Super Mario’ does face a difficult challenge to secure majority support in Parliament. GBP/USD also declined to test 1.3600 to the downside with participants now looking ahead to the BoE meeting where the Bank is expected to maintain its policy settings of a Base Rate at 0.10% and APF at GBP 895bln, although focus will likely centre on any rhetoric regarding feasibility of negative rates. USD/JPY was driven by the greenback with the pair lifted from a platform at 105.00 and antipodeans were mixed with AUD/USD slightly outperforming as it continued to retrace the downside from the RBA’s QE extension and after mixed data.

• Australian NAB Quarterly Business Confidence (Q4) 14 (Prev. -10, Rev. -8)
• Australian Trade Balance (AUD)(Dec) 6.8B vs exp. 8.8B (Prev. 5.0B)
• Australian Exports (Dec) M/M 3% (Prev. 3.0%)
• Australian Imports (Dec) M/M -2% (Prev. 10.0%)
• New Zealand ANZ Business Confidence (Dec F) 11.8 (Prev. 9.4)
• New Zealand ANZ Activity Outlook (Dec F) 22.3 (Prev. 21.7)

COMMODITIES

Oil prices were kept afloat after this week's supportive inventory data which showed surprise draws to both the private sector and EIA headline crude stockpiles to lift WTI crude futures briefly above the USD 56.00/bbl level, while attention was also on the JMMC with OPEC+ delegates noting that the group's December compliance was at 101% and which ended with no recommendations to output policy. Elsewhere, gold prices retreated as the greenback held firm and copper was subdued in tandem with the broad risk-aversion.

EIA energy outlook report projects US crude output is to top 12.25mln BPD (2019 record) in 2023. (Newswires)

GEOPOLITICAL

US State Department spokesman said Russia and US have extended the new START treaty for five years, while the White House noted that President Biden spoke to allies in Europe about Russia. (Newswires)

South Korean President Moon said that they pledged to further upgrade the alliance between South Korea and US in a call with President Biden, while the leaders also discussed preparing a comprehensive strategy regarding North Korea. (Newswires)

US

Treasuries continued to steepen on Wednesday as risk was buoyed around stimulus, vaccines, earnings, and positive data, while refunding was a non-event, as expected. By settlement, 2s unch. at 11.7bps, 10s +2.5bps at 113.2bps, 30s +3.6bps at 191.5bps (2s30s is now at 180bps for the first time since H1 2017, a way off the post-GFC high of 400bps in 2011); TYH1 volumes were average; short TIPS yields continued to decline. Yields had been rising into the NYSE open amid the continued rally in global equity markets. That move was exacerbated by the solid ADP print ahead of Friday's NFP print, and then further incremental selling pressure was seen on the back of the better-than-expected ISM Services print; not much fuss was made on the disappointing Markit PMI Employment sub-index. There was some pause, however, after the latest quarterly refunding (more below) confirmed there would be no raising of sizes for coupon auctions. Yields hovered near highs into latter trade, seeing the 30-year post new cycle highs above 1.90%, although 10s is still a few bps of its January peak of c. 1.18%. T-note (H1) futures settled 4+ ticks lower at 136-25+.

Fed's Evans (voter) said he is optimistic about the outlook although inflation is too low and will not be back to target until mid-2020s, while he sees inflation to increase temporarily this spring but finish the year around 1.50%-1.75% and noted it is vital to look through temporary price increases. Furthermore, he expects the Fed staying on course for a while and is not even thinking about adjusting policy, while he sees GDP growth of 5%-6% this year and 2-3% for 2022 and 2023. (Newswires)

Fed's Bullard (non-voter) expects very strong US GDP growth in 2021 and said that exceptionally high savings and other resources available to households will fuel consumption, while he sees the unemployment rate as low as 4.8% in coming months and stated a move higher in market-based inflation expectations is 'a welcome development' for the Fed but noted that a virus mutation that defeats a vaccine is 'a tangible risk' to the positive scenario. Furthermore, Bullard said bond buying is having a continued desirable effect on the economy and that there is "a way to go" before any discussion of changing it, while he added that yields are so low right now and there is no need for the Fed to consider yield curve control with policy in good shape. (Newswires)

Fed's Mester (non-voter) said we're currently in a good spot with monetary policy and that fiscal policy is tool needed to direct relief through this period until things come back. Mester also stated that structural issues in the Treasury market need to be addressed to make them more resilient, while she is not worried the Fed will be late to tighten policy if inflation picks up and said that a lot of structural pressures keep inflation down. (Newswires)

White House said they would welcome offers from the GOP on what aid for state and local government they would support and confirmed President Biden is open to having the discussion on income level of Americans who would receive relief checks. Furthermore, it was also reported that Democrats are looking at USD 50k as a new threshold for stimulus payments, according to Huffington Post, while Senate Democrat Leader Schumer commented that there was universal agreement to go big on COVID-19 aid after meeting with President Biden. (Newswires)

US House voted 218-212 to pass the budget plan which is a step forward in the budget reconciliation process and fast-tracks President Biden's stimulus proposal, as expected. (Newswires)

US Treasury Secretary Yellen underscored the need for a comprehensive USD 1.9trln rescue package that includes USD 350bln for state and local governments and said the benefits of acting now and big will far outweigh the costs over the long term. Yellen added that a failure of federal governments to provide enough aid to localities in the last recession led to a weaker labour market, undercutting the broader recovery. (Newswires)

US Treasury Secretary Yellen is to convene a meeting today with heads of SEC, Fed, NY Fed and CFTC to discuss market volatility, according to the Treasury Department. In related news, FBN's Gasparino noted Capitol Hill chatter on possible post-Robinhood and Reddit stock-trading frenzy legislation includes curbs on so-called payment for order flow and short selling. (Newswires/Fox Business)