• Equity futures remain in positive-territory, ES +0.3%, but off highs after a mixed/firmer APAC handover with focus on COVID-19 developments and the reflation narrative
• According to a study (due to be published today), the AstraZeneca COVID vaccine does not appear to offer protection against mild and moderate disease caused by the South Africa variant
• Treasury Secretary Yellen leaned back against concerns about stoking inflation pressures, arguing that the benefits to the economy outweighed inflation risks
• US 30yr yield has surpassed 2.0% and the 10yr yield pivots 1.20% amid further bear-steepening; with core EZ debt performing similarly and the BTP-Bund yield spread at multi-year lows
• Senate voted to pass budget measures and fast-track the Biden stimulus plan which starts the reconciliation process
• US President Biden doesn’t think his proposal for raising the minimum wage to USD 15 will survive negotiations
• Looking ahead, highlights include ECB's Lagarde, Fed's Mester

CORONAVIRUS UPDATE

US CDC reported COVID-19 cases increased to 26.76mln from 26.65mln the day before and total deaths rose to 460.6k from 457.6k the day before, while a major newswire tally stated US cases increased by at least 87,344 to 27.07mln and deaths rose by at least 1,347 to 463.9k. (Newswires)

AstraZeneca (AZN LN) COVID-19 vaccine is beginning to arrive in the European Union countries as the bloc tries to speed up its inoculation campaign and put a crisis-ridden period behind it. It was separately reported that the Oxford University/AstraZeneca COVID-19 vaccine reportedly does not appear to offer protection against mild and moderate disease caused by the South Africa variant according to a study due to be published on Monday, while South Africa halted its planned rollout of the AstraZeneca vaccine following trial which found weak efficacy against the new strain. Furthermore, Oxford said that work is already underway to produce a 2nd generation of vaccines which is adapted to target variants of strains similar to the South Africa variant. (Newswires/FT/Sky News)

BioNTech (BNTX) and Pfizer (PFE) have published data from in vitro studies in nature medicine that demonstrates its COVID-19 vaccine elicits antibodies that neutralise SARS-COV-2 with mutations seen in the SA and UK variants. (Newswires)

UK pubs and restaurants could reopen as early as April if they agree not to sell alcohol under options being discussed to relax restrictions after Easter. There were also reports that most UK adults would have received the COVID-19 vaccine by end-May and a senior UK government source said that the end of June was a more likely expectation for all adults to be vaccinated. (Newswires/Times)

UK ministers are mulling a "targeted" COVID-19 vaccine passport scheme to permit those that have been vaccinated to return to a more normal daily life, according to the Telegraph. However, there were also reports citing comments from vaccine deployment minister Zahawi that they are not looking to introduce vaccine passports as part of the vaccine deployment programme, while he also stated that Cabinet Office Minister Gove will meet with the European Commission in the week ahead on resolving Northern Ireland issues. (Telegraph/Sky News)

Israel, which the highest proportion of citizens vaccinated against COVID-19 in the world, found that it took 3 weeks for the Pfizer (PFE)-BioNTech (BNTX) shot to start curbing new cases and hospitalizations. (Newswires)

Sinovac Phase 3 results on COVID-19 vaccine showed efficacy rate of 50.65% for all cases, 83.7% for cases requiring medical treatment, in which the trial included 25k patients across four countries which were Brazil, Turkey, Indonesia and Chile. There were later reports the Co.’s CoronaVac vaccine received conditional market approval from China. (Newswires/Global Times)

South Korea relaxed curfew restrictions on more than 500k restaurants and other businesses outside the capital Seoul, which would permit them to remain open an hour later. (Newswires)

Japan Transportation Minister said there is an option to revive the Go To Travel campaign for a limited area, while other reports stated that Japan is mulling lifting state of emergency in some areas amid an incoming law which allows fining those that violate social distancing rules. (Newswires/Nikkei)

ASIA

Asian equity markets were mostly higher and US equity futures resumed last Friday’s advances on Wall St where the S&P 500 and Nasdaq extended on record levels on stimulus momentum and despite the slight miss in NFP jobs data. ASX 200 (+0.6%) was lifted from the open in which the mining sector spearheaded the gains after recent reprieve in metal prices and as M&A news also contributed to the risk mood after Macquarie Infrastructure made an approach for Vocus Communications which boosted the latter’s shares by around 15%. Nikkei 225 (+2.1%) surged with upside exacerbated after the index broke through the 29,000 level for the first time since 1990 with a deluge of earnings results and corporate updates in focus including SoftBank which announced total dividend from SoftBank Group Capital Limited of USD 4bln. There were also reports that Japan is mulling lifting the state of emergency in some areas amid an incoming law that would permit fines for those in violation of social distancing rules, while KOSPI (-0.9%) severely lagged with heavy losses in Hyundai Motor and Kia Motors after the automakers stated there was no ongoing cooperation talks with Apple regarding electric vehicles. Hang Seng (+0.1%) and Shanghai Comp. (+1%) conformed to the positive tone in the region but with upside limited after the PBoC continued with its reserved liquidity efforts heading into this week’s Lunar New Year holidays and opted for a net CNY 10bln injection through 7-day reverse repos although it did conduct CNY 50bln of 14-day reverse repo operations on Sunday, while large tech names were tentative after China issued new anti-monopoly rules targeting its tech giants. Finally, 10yr JGBs were weaker amid a surge in Japanese stocks with the Nikkei 225 at its highest in over 3 decades, while the subdued mood for bonds also coincided with weaker demand at the 10yr inflation-indexed JGB auction and downside in USTs which lifted the US 30yr yield towards 2.00% and the US 10yr yield to its highest since March.

PBoC injected CNY 110bln via 7-day reverse repos at rate of 2.20% for a net daily injection of CNY 10bln. (Newswires) PBoC set USD/CNY mid-point at 6.4678 vs exp. 6.4691 (prev. 6.4710)

US Secretary of State Blinken told top Chinese diplomat Yang Jiechi in a phone call on Friday that the US will stand up for human rights and democratic values in Xinjiang, Tibet and Hong Kong. Furthermore, China’s Global Times suggested that the Biden administration should bring the US policy on China back down to pragmatic ground and that if the Biden administration really wants to handle the US' domestic affairs well first, maybe their only option is to reduce the current tension and ease conflicts between China and the US. (Newswires/Global Times)

US, Japan, Australia and India are working to set up the first meeting of their leaders under the Quad framework amid China's growing influence in the region. (Nikkei)

China issued new anti-monopoly rules targeting its tech giants which will not permit companies to use data or algorithms to abuse market dominance. The new guidelines are expected to put pressure on the country's leading internet services such as Alibaba's Taobao and Tmall marketplaces or JD.com, while they will also cover payment services like Ant Group's Alipay or Tencent Holding's WeChat Pay. (Newswires)

China started to receive hundreds of thousands of tons of coal and a full shipload of iron ore from Sierra Leone, which reportedly demonstrates how easy it is for China to replace Australia with alternative import sources. It was later reported that China will unload some stranded Australian coal although the import ban remains in place. (Newswires/Global Times)

Fitch affirmed Japan at A; Outlook Negative and said sees the Japanese economy to have contracted 5.3% for 2020, while it retained a negative outlook due to continued downside risks to the macroeconomic and fiscal outlook from the pandemic shock. (Newswires)

India placed many northern districts on high alert due to risk of flooding after part of a Himalayan glacier broke and swept away a hydroelectric dam, while 14 have been confirmed dead and over 120 are said to be missing. (Newswires)

US

US Senate voted (51 vs 50) to pass the budget measures to adopt the fast-track Biden stimulus plan and which starts the reconciliation process, while the House voted (219 vs 209) to pass the budget resolution as expected. (Newswires)

US President Biden doesn’t think his proposal for raising the minimum wage to USD 15 will survive negotiations to pass his broader coronavirus-relief bill. In other news, it was reported that US Democrats are to unveil child benefits of USD 3,000 per child as part of the USD 1.9tln stimulus package on Monday. (Newswires/Washington Post)

US Treasury Secretary Yellen said that the US could return to full employment in 2022 if Congress passed President Biden's USD 1.9trln stimulus plan; Yellen also leaned back against concerns about stoking inflation pressures, arguing that the benefits to the economy outweighed inflation risks, and added that policymakers have the toolkit to respond to these pressures if necessary (FT)

US Treasury Secretary Yellen said it is too early to say if fresh regulations are required to address recent volatility and that a decision can be made once the facts behind the market moves are known. (Newswires)

House Democrat lawmaker said that the COVID-19 relief bill will not provide relief to airlines but will provide relief for airline workers. (Newswires)

Fed's Kaplan (Non Voter) says "I'm trained to understand the past, be aware of it, but make decisions based on the future", via Macro Musings; does not see the Fed's new framework as a 'makeup policy' in the context of making up for past inflation misses. Not a fan of negative rates; I haven't seen the offsetting benefits to my satisfaction to offset those risks. On inflation, "when I say moderately above 2%, I mean moderate. So what does that mean to me? There's no exact science, two and a quarter, two and a half, for me means moderate.". (Macro Musings)

UK/EU

UK Chancellor Sunak is to extend the furlough and business support measures in the March 3rd Budget, while it was also reported that Amazon and other companies that have flourished in the pandemic are facing a double tax raid under plans being drawn up by the UK government to bolster Britain’s finances. (Sunday Times)

The volume of exports passing through British ports to the EU fell by 68% Y/Y in January, which was mostly as a result of problems caused by Brexit. Irish Foreign Minister Coveney stated that Ireland is open to modest extensions of waivers on the movement of certain goods from Britain to Northern Ireland or grace periods where appropriate. (Newswires/The Observer)

BoE Governor Bailey suggested that the central bank could move away from purchasing bonds of fossil fuel companies as it seeks to make its balance sheet greener. (Observer)

ECB President Lagarde suggested that the recovery in the euro zone was delayed but anticipates the economic recovery will pick up in the summer and stressed that public authorities will have a difficult job weaning the economy off from emergency support. (Newswires)

ECB's Visco said they see an increase in economic output in the Spring despite fears of COVID-19 infections weighing on a recovery in consumer spending. (Newswires)

Italy's League and 5SM, signalled over the weekend that they could support former ECB chief Mario Draghi as the head of a new government. Draghi will begin a second round of talks with parties today and is expected to meet trade unions and business lobbies. (Politico/Newswires) Italian PM-designate Draghi is set to report to President Mattarella in the coming days to inform him that he no longer has any reservations about accepting the mandate in order for the new government to be sworn in by Friday, according to sources. (ANSA)

Moody’s affirmed Czech Republic at Aa3; Outlook Stable, while Fitch affirmed Russia at BBB; Outlook Stable. (Newswires)

GEOPOLITICAL

US President Biden said the US won't lift sanctions to bring Iran to talks and an official noted that President Biden had previously meant to convey that Iran must halt enriching uranium beyond the deal’s limits. There were also separate comments from Iranian Foreign Minister Zarif that compensation was never a pre-condition to revive the 2015 nuclear deal and called for US to show some tough love to Saudi Arabia and tell them to stop the war in Yemen, while Iran denied any knowledge about a cargo of oil the US is attempting to seize amid claims it was exported covertly by Iran. (Newswires)

Russian-Chinese-Iranian naval exercises are to begin in the middle of this month in the northern Indian Ocean, according to the Russian Ambassador in Tehran. (Twitter)

EQUITIES

European stocks kicked off the session with modest gains across the board (Euro Stoxx 50 +0.5%) as the region sees some positive vibes emanating from a firm APAC session, with the prospect of a fast-tracked US stimulus package and vehement comments by US Treasury Secretary Yellen holding up sentiment. However, the reflationary playbook is not distinctly reflected across the US futures whereby the ES, NQ, YM and RTY see broad-based gains of 0.3-0.4% ahead of another busy week of corporate updates. Back to Europe, the gains across bourses are relatively broad-base with the exception of Italy’s FTSE MIB (+1.1%), which outperforms as Italy's League and 5SM, signalled over the weekend that they could support former ECB chief Mario Draghi as the head of a new government. Sectors are mostly higher and portray a cyclical bias, with Basic Resources leading the charge amid the inflation-induced gains across base metals (Anglo American +3.6%, BHP +2.6%, Glencore +2%). Banks follow a close second due to the higher yield environment as the US 30yr topped 2% for the first time since Feb 2020 and the 10yr is in proximity to 1.20%. The IT sector also resides as a gainer amid Monday M&A whereby Dialog Semiconductor (+16%) confirmed that Renesas is offering EUR 67.50/shr in cash for its buyout- representing a premium of some 20% to Dialog’s Friday closing price. Travel & Leisure also benefits from the ramp-up in inoculations, albeit the South African variant could hinder vaccine efficacy and may prompt the release of a third dose by some vaccine developers; with participants awaiting an update from AstraZeneca on this today. Turning to individual movers, Rolls-Royce (-2%) trades softer as the Co. is to shut down its jet engines factory this summer amid a lack of work and due to heavy pandemic-related losses. The measures will affect all 19,000 staff in Co’s international civil aerospace division, including 12,500 in the UK. On the flip side, Carlsberg (+2.1%) is firmer as the Co. is expecting a surge in demand this summer similar to that seen in the 1920’s. In terms of bank commentary, a note by Credit Suisse highlights some scenarios which could see an unwind in equity gains – 1) disappointing EZ GDP (medium risk and rising), 2) Fed turning less dovish (high risk in 2H21), 3) slowing Chinese economy (low to medium risk) and 4) profit margin squeeze (low risk). The bank also highlights virus resilience to vaccines as a low-risk event as re-calibrated vaccines can be rolled out in 3-6 months.

FX

DXY - The Greenback is grinding higher after extending its post-NFP retreat to 90.966 in index terms, and it seems like an even more pronounced reversal in US Treasuries and several more specific technical factors have helped the Buck to stop the rot. 10 year cash has touched 1.2% again, while the 30 yield is probing the psychological 2% level to lift the Dollar off lows and DXY back above 91.000 at 91.216, as certain Usd/G10 pairs test or breach key chart and significant levels. However, the Greenback also appears to be benefiting from waning risk appetite and signs that stocks are getting a bit twitchy about the rise in long term rates and bear steepening.

JPY - In keeping with the norm, higher UST yields and by inference wider divergence to JGBs, have undermined the Yen more than most, while Usd/Jpy is also eyeing the 200 DMA after what proved to be a false break above last Friday. To recap, the pair spiked to 105.77, but closed just shy of the aforementioned technical level, which incidentally remains at 105.57 today, and is currently back above within a 105.2-67 range following a mixed Japanese Economy Watchers survey and reports that the state of emergency may be lifted in some areas.

CHF/AUD/EUR/GBP/CAD/NZD - All weaker vs their US counterpart, as the Franc slips below 0.9000 and takes note of another rise in Swiss bank sight deposits rather than unemployment data showing an unchanged sa jobless rate vs uptick in the nsa measure, while the Aussie fades from around 0.7682 and Euro from circa 1.2054 amidst decent option expiry interest at 0.7650 and between 1.2050-35 (1 bn and 1.2 bn respectively). Note, however, Aud/Usd and Eur/Usd are both holding comfortably above further expiries near round numbers at 0.7600-05 and 1.2000-05 in 1.1 bn and 1.25 bn that look safe ahead of the NY cut. Elsewhere, the Pound has lost momentum into 1.3750 yet again, the Loonie just shy of 1.3750 in spite of further gains in oil prices after Friday’s disappointing Canadian labour report and the Kiwi has failed to retain 0.7200+ status even though the Aud/Nzd cross is drifting back down to through 1.0650 on NZ National Day.

SCANDI/EM - The Nok is deriving more traction from crude’s exploits to consolidate recovery gains beyond 10.3000 vs the Euro and has approached 10.2550 in contrast to the Sek that looks cautious in the run up to the Riksbank and has not been able to clear 10.1000 convincingly. Meanwhile, the broad trend in EMs is weakness vs the Usd, but a firmer PBoC midpoint fix for the Cny and net liquidity injection at the start of Chinese Lunar New Year has underpinned the Cnh either side of 6.4500. Conversely, the Zar has been undermined by news that Astra’s vaccine is not effective against mild and moderate symptoms caused by SA’s coronavirus strain, and us struggling to stay above 15.0000.

Major FX expiry options for today's NY cut:

• EUR/USD: 1.1900-10 (613M), 1.2000-05 (1.25BLN), 1.2035-50 (1.2BLN), 1.2090-00 (606M), 1.2150-65 (1BLN)
• AUD/USD: 0.7600-05 (1.1BLN), 0.7650 (1BLN), 0.7815-30 (1.1BLN)
• USD/CAD: 1.2700-10 (586M), 1.2790-00 (540M)

FIXED

It’s not clear cut or easy to determine, so the fact that core bonds have regained some poise is probably down to a combination of factors, including EU equities running out of steam, debt futures finding some support and yields peaking at or around psychological levels. Bunds have bounced off a 175.61 low and Gilts from 131.73 to post a marginal new Liffe high at 132.04 (-19 ticks vs -1/2 point at one stage), while 10 and 30 year Treasury yields have eased back from around 1.2% and 2% respectively ahead of a relatively thin US/pm data slate including employment trends before ECB President Lagarde, GC member Villeroy and Fed’s Mester in wake of comments from Kaplan downplaying FAIT as a means of making up for undershoots vs target in the past.

COMMODITIES

WTI and Brent front month futures kicked the week off in positive territory with the former topping USD 57.50 (vs low USD 56.95/bbl ) whilst the latter surpassed USD 60/bbl (vs low USD 59.50/bbl) in early European/late APAC trade as the benchmarks nurse their pandemic-related losses. The driving force behind the gains remains the supportive inflationary backdrop coupled with OPEC+ supply constraints, while US President Biden also suggested that the US will not lift sanctions on Iran to bring them to the negotiating table. Delving deeper into the fundamentals; US Senate voted to pass the budget measures to adopt the fast-track Biden stimulus plan and which starts the reconciliation process, whilst Treasury Secretary Yellen also noted that the US could reach full employment in 2022 under Biden’s stimulus package. Eyes also turn to OPEC+ amid the risk that higher oil prices could cause a rift among the oil producers, who could be tempted to call for output to be increased despite the clouded short term COVID outlook as the South African variant is seen dampening vaccine efficacy. Finally, markets have been flirting with expectations that the Biden admin could take a more sanguine approach to Iran over its sanctions and the nuclear deal, although President Biden responded with a firm “no” when he was asked if he will lift economic sanctions against Iran until it complies with the terms agreed under a 2015 nuclear deal. Precious metals meanwhile are little impacted by the rangebound Dollar, although gains in the yellow metal are hampered by rising real rates – with spot gold meandering around USD 1815/oz. Spot silver meanwhile sees marginally more pronounced gains as it trades on either side of USD 27/oz – BofA Global Research sees silver averaging USD 28.74/oz in 2021 and USD 31.00/oz in 2022. The reflationary backdrop has also propped up base metals ahead of the Chinese Lunar New Year, with LME copper rising some 1% in early trade and Dalian iron ore futures climbing almost 3%.

BofA Global Research says Platinum fundamentals are strong in the medium-term, but there is a possibility upside is limited during 2021. (Newswires)

Platts oil survey: OPEC+ boosted crude output for seventh straight month in January survey finds, as COVID oil cuts unwind; Compliance running at 101% with new quotas, OPEC pumps 24.70mln BPD (+270k BPD), Non-OPEC adds +170k BPD on Russia surge. (Twitter