• Asian equity markets whipsawed as risk momentum gradually waned despite the region initially taking impetus from the rally on Wall St
• All major US indices notched substantial gains with the S&P 500 posting its best performance in almost nine months
• The US will examine how the Treasury, Commerce Department and USTR can work together to deter currency intervention for trade advantages
• In FX markets, the DXY extended on gains above 91.00, weighing on major counterparts
• RBA kept its Cash Rate Target and 3yr yield target unchanged at 0.10% and maintained QE at AUD 100bln, as expected
• Looking ahead, highlights include EZ CPI, Canadian GDP, OPEC JTC, ECB's Panetta, Fed's Brainard, Daly, supply from the UK and Germany

CORONAVIRUS UPDATE

US COVID-19 cases +50,505 (prev. 69,876), deaths +1,062 (prev. +1,828), vaccines administered 76.9mln (prev. 75.2mln). (Newswires)

WHO's Ryan said he is starting to see data which suggests vaccines are impacting the virus but added it is premature and unrealistic to assume we are going to be finished with the virus by the end of the year. (Newswires)

Brazil COVID-19 virus variant (P. 1) reportedly evades natural immunity and current vaccines could be less effective against the variant, according to reports citing an international study. (FT)

Johnson & Johnson (JNJ) said its next US COVID-19 vaccine shipments in March are to come from the new and larger plant after it is improved and that the FDA is looking at quality data from Catalent's (CTLT) plant and expects approval in the next few days. Furthermore, JNJ stated it expects delivery upon approval in the coming weeks and anticipates deals with new partners to expand vaccine manufacturing in the coming weeks, while it is working to bring a plant in India "with a very high capacity" on board later this year. (Newswires)

Canada's National Advisory council on immunisation did not recommend the AstraZeneca (AZN LN) vaccine in people aged 65 years and over due to limited information on efficacy. (Newswires)

France has changed their usage of the AstraZeneca (AZN LN) COVID-19 vaccine following additional clinical data, now allowing the vaccine in those up to 74 years of age vs prev. 65. (FT)

EU reportedly plans digital vaccine passports to boost travel, while there were comments from the French Health Minister that the current curfew and other restrictive measures will remain in place for the next four to six weeks. (Newswires/FT)

ASIA

Asian equity markets whipsawed as risk momentum gradually waned despite the region initially taking impetus from the rally on Wall St, where all major indices notched substantial gains and the S&P 500 posted its best performance in almost nine months amid vaccine developments, impending stimulus, bond market rebound and strong US data. ASX 200 (-0.4%) reversed the early upside with the index dragged by weakness in the commodity-related sectors and after mixed data releases, while Nikkei 225 (-0.9%) also wiped out its opening spoils as participants digested soft data including a continued contraction in quarterly company profits, sales and capex in which the government cited uncertainty regarding the economic outlook for the decline in manufacturers’ business spending. KOSPI (+0.7%) outperformed as it played catch up to yesterday’s rally on return from an extended weekend and with South Korea to draft a KRW 15tln extra budget to support small businesses, protect jobs and purchase vaccines. Hang Seng (-1.8%) and Shanghai Comp. (-1.6%) were pressured after China's banking regulator stated that China will reduce the level of leveraging, as well as curb reckless capital expansion and warned of large bubbles in the property sector, while Hong Kong Financial Secretary also refused to rule out additional duties on stock trades. Furthermore, it was reported that the US administration will engage with allies to combat forced labour including in China and will examine how the Treasury, Commerce Department and USTR can work together to deter currency intervention for trade advantage and is to pursue all available tools to address China's unfair trade practices from excess capacity to coercive technology transfers. Finally, 10yr JGBs were higher and reclaimed the 151.00 level as yields marginally eased and following recent source reports that the BoJ is prepared to defend its yield range prior to the upcoming review and could take action prior to yields attaining 0.2%, while weaker results at the 10yr JGB auction failed to derail the ongoing bond market rebound.

PBoC injected CNY 10bln through 7-day reverse repos at rate of 2.20% for a net daily neutral position. (Newswires) PBoC set USD/CNY reference rate at 6.4625 vs exp. 6.4600 (prev. 6.4754)

US President Biden's administration will engage with allies to combat forced labour including in China and will consider all options, while they will examine how the Treasury, Commerce Department and USTR can work together to deter currency intervention for trade advantage and is to pursue all available tools to address China's unfair trade practices from excess capacity to coercive technology transfers, according to reports citing the USTR. (Newswires)

USTR nominee Tai said the status should not be abused by major trading powers when asked about China's WTO status as a developing country, while she will make it a priority to address fill range of "unfair" Chinese practices on farmers and workers. Furthermore, she will fight to ensure US cloud service providers are not disadvantaged in China and will not hesitate to use US-China trade deal mechanisms for consultations and redress if China falls short of agreements on intellectual property. (Newswires)

China's CBIRC Chairman said China will reduce the level of leveraging and curb reckless capital expansion, while focus will remain on preventing financial risks and he noted large bubbles in the property sector. (Newswires)

Hong Kong Financial Secretary Chan said there is no plan for a dividend tax at this stage and suggested that the increase in stock trading tax is a fraction of costs for high frequency traders, while he noted they are not ruling out additional duty on equity trades. (Newswires)

• Japanese Company Profits (Q4) Y/Y -4.7% (Prev. -28.4%)
• Japanese Company Sales (Q4) Y/Y -4.5 (Prev. -11.5%)
• Japanese Business Capital Expenditure (Q4) -4.8% (Prev. -10.6%)
• Japanese Unemployment Rate (Jan) 2.9% vs. Exp. 3.0% (Prev. 2.9%)

UK/EU

UK Chancellor Sunak is to use the Budget to launch efforts to make the City of London more attractive in competition for IPOs and increase focus on SPACs to compete with other financial hubs. (FT)

Germany rejected potential US sanctions on Nord Stream 2 as an encroachment on European sovereignty. (Sputnik)

FX

In FX markets, the DXY extended on the prior day’s gains above the 91.00 level with the greenback unfazed by the recent stock market rally on Wall St and pullback in yields, as the currency found support from vaccine developments and impending stimulus with the Senate to take up the COVID-19 relief bill this week, while data releases were also encouraging in which US ISM Manufacturing PMI and Construction Spending both topped estimates. EUR/USD weakened and slipped beneath its 100DMA of 1.2033, as the latest rhetoric from central bankers remained dovish with ECB’s Lagarde wanting to ensure confidence that financing conditions will not tighten prematurely and ECB's Villeroy noted that the ECB stands ready to adjust all instruments whereby its options include a deposit rate cut if needed. GBP/USD trickled lower to breach 1.3900 due to the USD strength. USD/JPY stalled and JPY-crosses pulled back as the risk momentum dwindled overnight which slightly pressured antipodeans, while participants also digested a slew of mixed data from Australia and the RBA policy announcement in which the central bank maintained its key rates at the record low 0.10% and QE at AUD 100bln. Furthermore, the RBA stated it is committed to the 3yr yield target and will continue bond purchases to support its target as needed, although this wasn't much of a surprise given the central bank's recent efforts to contain yields nor did it suggest much urgency for firmer measures, which eventually saw AUD/USD pare some of its losses.

RBA kept its Cash Rate Target and 3yr yield target unchanged at 0.10% and maintained QE at AUD 100bln, as expected. RBA stated that it does not expect a tight labour market and high wage growth until 2024 at the earliest and that significant gains in employment, as well as a return to a tight labour market is needed to reach its goals. RBA reiterated that the domestic economic recovery is well underway and stronger than earlier expected, while it remains committed to maintaining highly supportive monetary conditions until goals are reached and that it will not increase the Cash Rate until inflation is sustainably at 2%-3% target. Furthermore, it is committed to the 3yr yield target and recently purchased bonds to support the target which it will continue to do so as needed and is prepared to make further adjustments to its buying in response to market conditions, with bond purchases brought forward this week to assist with a smooth functioning of the market. (Newswires)

RBNZ Assistant Governor Hawkesby said the central bank will be more patient on policy changes and its least regrets strategy is to keep stimulus in place for too long instead of removing it quickly, while he added the economy may require more stimulus and that there is less space ahead of us regarding LSAP. (Newswires)

• Australian Building Approvals (Jan) -19.4% vs. Exp. -3.0% (Prev. 10.9%, Rev. 12.0%)
• Australian Current Account Balance (AUD)(Q4) 14.5bln vs. Exp. 13.1bln (Prev. 10.0bln)
• Australian Net Exports Contribution to GDP (Q4) -0.1% vs. Exp. -0.3% (Prev. -1.9%)

COMMODITIES

Commodities remained subdued as the risk appetite in Asia proved to be flimsy and amid a firmer greenback which saw WTI crude futures birelfy decline back below the USD 60/bbl level. Participants look ahead to the latest stockpile data beginning with the private sector inventory report later today, as well as the upcoming JMMC/OPEC+ from Wednesday. Gold prices remained pressured by the stronger USD which dragged the precious metal approach closer to the USD 1700/oz level and copper weakened as sentiment gradually deteriorated overnight.

Lyondell Basel (LYB) Houston refinery (268k BPD) began a restart of its large crude and gasoline unit, while the Chevron (CVX) Pasadena, Texas refinery (110k BPD) said it has been systematically inspecting and repairing facility damage from the Texas freeze and is restarting units. (Newswires)

GEOPOLITICAL

US State Department said the US believes diplomacy is the most effective means to ensure that Iran is permanently and verifiably prevented from obtaining a nuclear weapon, while it added that the US offer to meet with Iranians on the nuclear deal remains on the table. (Newswires)

US Treasury Deputy Nominee Adeyemo said they will focus on any efforts by Iran to evade US sanctions and abuse the global banking system, while they are committed to rigorously enforcing sanctions targeting Russian actors and other threats to US national security. (Newswires)

US is expected to announce Navalny-related sanctions on Russian individuals as early as this Tuesday but is anticipated to maintain waivers allowing continued US foreign aid and export licenses for Russia, according to sources. (Newswires)

US Pentagon spokesman said one Iranian backed militia member was killed and two were injured in the Syria strike last week, while the spokesperson added that the US is to announce weapons are being sent to Ukraine. (Newswires)

US

Treasuries were mixed on Tuesday as the belly outperformed and long-end suffered as the market attempted to heal from the vicious bear-flattening seen last week. By settlement, 2s -1.8bps at 0.127%, 5s -7bps at 0.706%, 10s -1.5bps at 1.441%, 30s +3.1bps 2.213%; bid/ask spreads are still wider than average, particularly in duration. TYM1 volumes were solid at 1.7mln, but not as strong as the record 2/3mln prints seen last. In reals, 5yr TIPS -9bps with BEI at 2.36%, while 30yr BEI recovered to 2.11% from flirting beneath 2% last week. Swap spreads were wider with payer flows associated to rate-locking at play amid the expected ramp up of corporate issuance this week - estimates expect some USD 50bln worth - while there is no Treasury coupon supply. There were several moving parts in Treasury land today and noticeable pick-up in buying as Fed's Brainard spoke, talking about the potential need for a standing repo facility amongst other measures to shore up the strength of the UST market following last March, although given the events over the past few days (which to some extent echo the liquidity problems of last year), buyers emerged, despite the measures already been touted by the Fed beforehand. Whether the bullish flow was a reaction or merely a coincidence to coincide with Brainard remains to be seem, although note that there had been a bid building a few minutes before the Fed Governor's comments. Nonetheless, the bid was ultimately fleeting for duration as a strong ISM mfg. print and busy corporate supply schedule saw T-Notes pare into latter trade. T-note futures (M1) settled 15 ticks higher at 133-06.

Fed’s Barkin (voter) believes yields are reflecting improvement in vaccine optimism and said that it would be worrisome if the rise in yields reflected high inflation but added that rising inflation is not a problem and that drivers of the rise in long-term yields so far seems to be an adjustment to stronger growth and inflation outlook. Furthermore, Barkin added that it is not impacting investment at this point and has not seen anything to indicate a tightening of financial conditions. (Newswires)

Fed's Daly (voter) said a K-shaped recovery is not acceptable and we must ensure we do not leave anyone behind in the recovery. (Newswires)

US Senate Democrat Leader Schumer said Senate will take up stimulus bill this week. There also were separate comments from US Senator Manchin that possible changes to the House relief bill were under discussions, while Senator Wyden later stated that Cobra premium provisions and the pension package will remain in the stimulus bill. (Newswires)