• Asia-Pac lacked firm direction as risk appetite was sapped by holiday closures for many key markets in the region and following an uninspired handover from the US
• Fed Chair Powell reiterated recent rhetoric and highlighted the labour market is a long-way from 'strong'; emphasising that we will probably see an increase in inflation readings that won't mean much
• President Biden and China's Xi spoke for the first time since Biden came into office
• White House said it expects a delay in the release of President Biden's first budget proposal
• US President Biden’s administration is considering whether to impose domestic travel restrictions
• DXY remained subdued below 90.50 to the modest benefit of major peers while USTs stabilised overnight and commodities were uneventful
• Looking ahead highlights include US initial/continued jobless claims, OPEC & IEA MOMR, Banxico rate decision, ECB's de Guindos and supply from Italy & the US; earnings include UniCredit, ArcelorMittal, AstraZeneca

CORONAVIRUS UPDATE

US COVID-19 cases +91,034 (prev. +86,706), deaths +2,806 (prev. +1,622) and vaccines administered 44.8mln (prev. 43.2mln), while a major newswire tally stated US cases increased by at least 107,378 to 27.37mln and deaths rose by at least 3,356 to 471.9k. (Newswires)

US President Biden’s administration is considering whether to impose domestic travel restrictions, including in Florida amid fears that coronavirus mutations are threatening to reverse hard-fought progress on the pandemic. (Miami Herald)

New York State will allow large stadiums and arenas like the Citi Field and Madison Square Garden to reopen for sports and concerts later this month but with limited capacity and other measures to prevent the spread of COVID-19. (Newswires)

Germany is to extend its lockdown until March 7th from the end of February, while Chancellor Merkel said hairdressers will open on March 1st and that she will meet state leaders again on March 3rd. (Newswires)

ASIA

Asia-Pac lacked firm direction as risk appetite was sapped by holiday closures for many key markets in the region and following an uninspired handover from the US where the major indices finished flat after having mostly recovered from an initial sell-programme slump. ASX 200 (-0.1%) was choppy as advances in miners were offset by underperformance in tech and a subdued financials sector, with earnings results the main catalysts for today’s biggest movers including Newcrest Mining which was the best performer following a jump in H1 net, while AMP shares were at the other end of the spectrum with double-digit percentage losses due to weaker FY results and news that Ares Management abandoned its pursuit for the financial services company. Hang Seng (+0.5%) was indecisive in half-day trade for Lunar New Year’s Eve and amid a lack of Stock Connect flows with mainland bourses already shut for a week, while losses in index heavyweight Tencent added to the initial downbeat mood after an executive was reported to be under investigation related to a corruption case in China. However, losses in the index were later pared amid dialogue between US President Biden and Chinese President Xi which was the first call between the leaders since Biden took office and in which Biden noted the US priority was to preserve a free and open Indo-Pacific and wants to ensure they have an opportunity for an open line of communication, while Chinese President Xi also suggested that cooperation is the only correct choice between the two countries. As a reminder, Japan, China, South Korea, Taiwan and Vietnam were all closed for holidays.

US President Biden is expected to announce a Pentagon review of the national security aspects of the administration’s China strategy as part of a broader administration effort to determine its approach to countering Beijing. US President Biden later stated there is a need to meet increasing challenges posed by China and that his task force will provide recommendations on key China-related priorities in the upcoming few months. (Newswires/WSJ)

White House announced that President Biden spoke with Chinese President Xi on Wednesday and said the US priority was to preserve a free and open Indo-Pacific, while President Biden told Chinese President Xi that the US will work with China when it is beneficial for the American people and noted concerns about China's crackdown in Hong Kong, human rights abuses in Xinjiang and assertive moves against Taiwan. Furthermore, a US senior administration official said the US wants to create positions of strength in dealing with China and needs to play the long game to prevail over time, while the official added that President Biden will be practical, hard-headed and clear-eyed in dealing with China's President and that the US is unlikely to reduce military presence in Asia-Pacific under the Biden administration. (Newswires)

Chinese President Xi told US President Biden that confrontation between US and China would be a disaster for both nations and hopes the US cautiously handles matters related to Taiwan, Hong Kong and Xinjiang, according to State TV. Furthermore, Chinese President Xi told US President Biden that the 2 countries should re-establish various dialogue mechanisms to understand each other's political intentions and avoid misunderstandings and misjudgements, while Xi added that cooperation is the only correct choice between the two countries and that China and US should respect each other, as well as manage disputes in a constructive manner. (Newswires)

US senior administration official said the US will examine new targeted restrictions on sensitive tech exports to China and will not act hastily to remove China tariffs although there will be changes to trade policy, while tariffs on China will remain in place while the US reviews its trade policy and trade policy will be based on the assumption that the US will be better off working with allies instead of unilaterally. (Newswires)

White House said it is not accurate to suggest there is a new proactive step by the Biden administration but stated that there is a "rigorous" CFIUS review ongoing and no timetable on the review of a forced sale of TikTok's US operations. Furthermore, White House sources told FBN's Gasparino that the decision on TikTok/Oracle (ORCL) deal is to come after DOJ and Treasury political appointments are made. (Twitter/Fox Business News)

UK/EU

European Commission’s Sefcovic told UK Cabinet Minister Gove that sweeping changes to the Protocol will not be possible and that any flexibilities require the UK for its part to implement the terms of last December's NI Protocol. (RTE)

BoE Governor Bailey said there are signs the EU plans to cut the UK off from its financial markets, whilst calling EU demands for City banks to comply with Brussels regulations unacceptable. (BBC)

UK RICS Housing Survey (Jan) 50 vs. Exp. 60.0 (Prev. 65.0, Rev. 63). RICS said other measures of UK housing market also weakened last month. (Newswires)

British Retail Consortium said 3 national lockdowns had around GBP 22bln impact to retailers and that 2020 was the worst year on record. (Newswires)

USTR office said they look forward to working with European allies to find a solution that levels the playing field in Airbus (AIR FP)/Boeing (BA) dispute once the USTR nominee is confirmed. This followed earlier source reports that French PM Macron suggested to US President Biden that the two look for a negotiated settlement in the Airbus / Boeing dispute. (Newswires/CNBC)

FX

In FX markets, the DXY remained lacklustre beneath the 90.50 level following the indecisive risk tone stateside and softer than expected inflation data, while focus was also on comments from Fed Chair Powell who stuck to his dovish script and stated that the US is a long way from a strong labour market. Furthermore, Powell added that policies to bring the pandemic to end as soon as possible are paramount, with policy aiming to achieve inflation moderately above 2% for some time and that risk seems to be to the downside which we need to guard against. EUR/USD was relatively unchanged and languished near yesterday’s lows, while GBP/USD edged marginal gains but with upside capped by resistance around the 1.3850 level; amid EU-UK commentary. USD/JPY and JPY-crosses were uneventful with Japanese participants away for National Day and antipodeans were contained for most the session amid the indecisive risk tone and holiday-thinned conditions, although eventually benefitted from a subdued greenback.

Australian Treasury Secretary Kennedy said Australia's economy is recovering faster than anticipated and is surprised that labour participation is back at record levels, while he added public investment is high which is expected to increase. (Newswires)

COMMODITIES

Commodities were uneventful overnight amid a non-committal risk tone as several key Asian markets remained closed for holidays which kept WTI crude futures rangebound back beneath the USD 58.50/bbl after briefly reversing all the support seen from the surprise draw in yesterday's headline EIA crude inventories. Furthermore, there were recent comments from the Iraqi Oil Minister who expects OPEC+ to keep output unchanged at the next meeting and does not anticipate Saudi Arabia to continue with its additional 1mln bpd voluntary cut beyond February and March, while Kuwait was also reported to have maintained its official selling prices to Asia for March. Elsewhere, gold was subdued with prices consolidating after the recent inflation-triggered whipsawing and copper also conformed to the uninspired picture across the commodities complex with its largest purchaser China on a week-long holiday.

Kuwait set March crude OSP for Asia at Oman/Dubai +USD 0.65/bbl which is unchanged from prior month, while Qatar set March marine crude OSP at Oman/Dubai + USD 0.65/bbl and land crude OSP at Oman/Dubai + USD 0.35/bbl. (Newswires)

GEOPOLITICAL

US President Biden said will never hesitate to use force if required to deter aggression but added that he will never take a decision on military force lightly. (Newswires)

US Secretary of State Blinken and Saudi Foreign Minister discussed joint efforts to bolster Saudi defences and outlined a diplomatic outreach to find a negotiated political settlement to the war in Yemen. (Newswires)

Iran has started producing uranium metal, a material that can be used to form the core of nuclear weapons, violating the 2015 Nuclear accord, according to an IAEA report. (WSJ)

US

USTs went bid after CPI came in softer than anticipated, accentuating a pull back from cycle highs. By settlement 2s -0.4bps at 0.113%, 10s -2.2bps at 1.135%, 30s -2.2bps at 1.925%; TYH1 volumes were decent; real yields lower by a bp across the curve. Sovereigns had been on the defensive out of Europe as participants prepared for the CPI data and duration supply. However, the 0% core M/M figure saw a wave of long-end buying with desks noting chunky buys across ZN and ZB contracts amid short-covering and algo buy programmes getting triggered. As inflationary expectations took a sharp knock, T-Notes went positive on the session. A bout of flow-driven selling in stocks managed to sustain the bid for duration through until the 10-year auction, which also went down well. Treasury sold USD 41bln of the new issue, stopping through the screws by 0.2bps, with Directs (a proxy for domestic demand) showing another strong turnout while Dealers took less than average. Yields drifted sideways along the lows through latter trade alongside Powell's speech at the NY Economic Club, which affirmed the Fed's dovish stance. Bond traders are now looking to Thursday, with Claims data, in addition to the 30-year refunding auction from the Treasury, which will be used to get a more complete picture on investor demand for duration following today's decent 10-year offering. T-note (H1) futures settled 6+ ticks higher at 136-29+.

Fed Chair Powell said we will not tighten monetary policy solely in response to a strong labour market and are strongly committed to doing all we can to promote this employment goal but added we are a long way from a strong labour market. Powell also stated that policies to bring the pandemic to end as soon as possible are paramount and policy will aim to achieve inflation moderately above 2% for some time. Powell reiterated that it is appropriate to maintain rates at current near-zero level until economy reaches max employment, and inflation has risen to 2% and on track to moderately exceed it for some time, while he added that the Fed monitors a very broad range of inflation indicators and in the coming months, we will probably see an increase in inflation readings that won't mean much. Furthermore, Powell stated the base case is fairly positive and we can expect second half growth but added that risk seems to be to the downside which we need to guard against. Correcting for misclassifications and adding those who have left the labour market the unemployment rate would be near 10%. (Newswires)

US President Biden is reportedly mulling considering nominating Lisa Cook for Federal Reserve seat. (Newswires)

White House said it expects a delay in the release of President Biden's first budget proposal, while other reports noted the White House has been reaching out to executives in several industries to rally support for the Biden administration USD 1.9trln COVID-19 relief plan, according to sources. (Newswires/CNBC)

US Treasury Secretary Yellen said the US is seeing an explosion of risk related to fraud, money laundering, terrorist financing and data privacy, while she noted that misuse of cryptocurrencies and virtual assets is increasing and cryptocurrencies have been used to launder profits of online drug traffickers and to finance terrorism. Yellen also commented the pandemic underscored the problem of 'broadband deserts' and that millions were lacking access to financial services, while she added that the Treasury can leverage financial sector innovation to address issues and promote financial inclusions, as well as improve competitiveness. (Newswires)

US President Biden's Budget Director pick Tanden stated the US should absolutely monitor interest rates as deficits increase but added this is the moment to ensure a strong economic recovery. (Newswires)

Dozens of former GOP officials that oppose former President Trump were reportedly in discussions to form a 3rd party that would focus on principled conservatism. (Newswires)