• European bourses are firmer, Euro Stoxx 600 +0.8%, amid minimal fresh newsflow; ES +0.4%
• Asia-Pac stocks traded mixed; Mainland China and Hong Kong underperformed
• DXY was supported as USD/JPY took out its 2021 high and nears 116.00; though, the DXY did briefly dip on GBP upside given associated yield catch-up action
• China is requiring security checks before domestic tech firms list overseas from Feb 15th
• Sarah Bloom Raskin has emerged as the leading candidate for Vice Chair of supervision at the Federal Reserve, Axios reported
• Looking ahead, highlights include US ISM Manufacturing PMI, US JOLTS, OPEC+ meeting

[RECAP] UK BANK HOLIDAY (3rd January 2022)

• Eurozone and US equity markets kicked off 2022 on the front foot in which the Stoxx 600 saw gains of 0.5% whilst Stateside majors saw more pronounced gains. The debt complex was under heavy pressure with the US underperforming the EZ and in turn yields spiked higher. DXY was propelled higher by the surge in bond yields with G10 peers lower across the board. JPY was the most resilient G10. WTI and Brent front-month futures both settled higher after a choppy day, with the latter outperforming the former. Spot gold was pressured by the USD throughout the session and briefly dipped USD 1,800/oz.

Click here for a detailed recap of the session and Bank Holiday headlines.

CORONAVIRUS UPDATE

China's Zhengzhou in the Henan province has declared a partial lockdown amid COVID cases. (Newswires) Hong Kong is to start a wider vaccine mandate on Feb 24th. (Newswires)

US set a global daily record of over 1mln new COVID cases. (Newswires)

A scientist behind Oxford/AstraZeneca vaccine said the worst of the pandemic is 'absolutely behind us'. (Sky News)

Japanese PM Kishida said Japan must consider flexibly the chance of further curbs on activity if the COVID resurgence leads to a shortage of hospital beds. (Newswires)

ASIA

Asia-Pac stocks eventually traded mixed on the first trading session of the year for most bourses, with the region catching some tailwinds from the positive Eurozone and US sessions on Monday. On Wall Street, the Nasdaq outpaced with gains of 1.2% as Apple became the first-ever public company to reach USD 3tln in market value, whilst Tesla shares were catapulted 13.5% after beating Q4 delivery expectations despite the chip shortage and in spite of last week's mass recall. US equity futures overnight resumed trade with a mild positive bias and thereafter drifted higher - with the US ISM Manufacturing PMI, FOMC Minutes, US labour market report and Fed speakers all on this week’s docket. The ASX 200 (+2.0%) saw gains across its Energy, Mining, Tech and Financial sectors. The Nikkei 225 (+1.8%) briefly dipped under 29k before rising to session highs – with Autos among the top gainers amid a similar performance Stateside, whilst the softer JPY underpinned the index. The KOSPI (U/C) was flat in early trade but thereafter swung between gains and losses. In China, the Shanghai Comp (-0.2%) gave up early gains on its first trading day of 2022 following a CNY 260bln daily liquidity drain by the PBoC, whilst reports also suggested that China is facing USD 708mln cash demand this month, +18% Y/Y according to calculations, amid maturing debt and seasonal demand for cash ahead of the Lunar New Year on 1st February. The Hang Seng (+0.1%) kicked off its second day of trade the year in the green after Monday’s losses. China Evergrande shares resumed trade with gains of 5% after it yesterday suspended its Hong Kong shares in a bid to raise cash and following the order to demolish 39 buildings. Meanwhile, Hong Kong-listed and US-blacklisted AI firm SenseTime shares rose another 20% to almost triple its IPO price. In fixed income, US 10yr Mar'22 futures saw some light buying in early trade, with some suggested regional Asia demand following the heavy cheapening on Monday, albeit this early mild upside faded.

• PBoC set USD/CNY mid-point at 6.3794 vs exp. 6. 3805 (prev. 6. 3757).
• PBoC injected CNY 10bln via 7-day reverse repo at maintained rates of 2.20% for a net daily drain of CNY 260bln.

China is facing USD 708mln cash demand this month, +18% Y/Y according to Bloomberg calculations, amid maturing debt and seasonal demand for cash ahead of the Lunar New Year on 1st Feb, according to a BNN piece. (Newswires)

China is requiring security checks before domestic tech firms list overseas from Feb 15th. Online platform operators who hold the personal information of more than 1mln users must conduct a cybersecurity review. (Newswires/Global Times)

PBoC said it will adjust the financial credit-scoring legal framework if needed, via state media. (Newswires)

• Chinese Caixin Manufacturing PMI (Dec) 50.9 vs Exp. 50.0 (Prev. 49.9) *"Panel members indicated that lower prices for some raw materials, such as steel, helped to dampen cost inflation. Prices charged meanwhile fell for the first time since April 2020, albeit marginally."*

CENTRAL BANKS

Sarah Bloom Raskin has emerged as the leading candidate for Vice Chair of supervision at the Federal Reserve. No final decision has been made and an announcement could come as early as this week, Axios sources stated. (Axios) Click here for background information

The White House is reportedly likely to nominate economist Philip Jefferson for a Fed board seat, according to sources cited by Bloomberg's Jacobs. (Newswires) Click here for background information

BoJ governor Kuroda said policy will be appropriately guided with a close eye on domestic and overseas developments; uncertainty is heightened amid inflation in Europe and US alongside Omicron. (Newswires)

UK/EU

UK Markit/CIPS Manufacturing PMI Final (Dec) 57.9 vs. Exp. 57.6 (Prev. 57.6)

German Unemployment Change SA (Dec) -23k vs. Exp. -15.0k (Prev. -34.0k); Unemployment Rate SA (Dec) 5.2% vs. Exp. 5.3% (Prev. 5.3%)

GEOPOLITICS

The Iranian Chief Negotiator met with the European Joint Commission coordinator Mora and the E3 Chief Negotiators on Monday, according to Journalist Aslani. (Twitter)

Saudi coalition intercepts five drones launched by Yemen's Houthis from Sana'a. (Sputnik)

US, Russia, China, the UK and France have agreed that “a nuclear war cannot be won and must never be fought” in a rare joint pledge. (The Guardian)

The head of NATO has convened a NATO-Russia council for January 12th, according to a statement. (Newswires)

EQUITIES

European equities trade on a firmer footing with the Stoxx 600 (+0.8%) once again at a record high. The FTSE 100 leads the charge within the region; however, this is largely on account of a catch-up play from yesterday’s bank holiday. Initially to the downside resided the SMI (+0.1%) as the only major bourse in the red amid losses in index-heavyweight Roche (-1.4%); however, this has abated modestly throughout the morning. The lead from the APAC region was a mixed one as the Nikkei 225 (+1.8%) benefited from a softer JPY, the ASX 200 (+1.95%) was lifted by gains in Energy, Mining, Tech and Financial sectors, whilst Chinese bourses (Hang Seng +0.1%, Shanghai Comp. -0.2%) were kept subdued by a PBoC liquidity drain and unable to benefit from an unexpected expansion in the December Chinese Caixin Manufacturing PMI. Stateside, futures are modestly firmer across the board (ES +0.4%, NQ +0.4%, RTY +0.5%) after yesterday’s session which was characterised by Nasdaq outperformance, +1.2%, as Apple became the first-ever public company to reach USD 3tln in market value, whilst Tesla shares were catapulted 13.5% after beating Q4 delivery expectations. In a recent note, analysts at JP Morgan stated they are of the view that there is further upside for stocks as the Omicron variant appears to be milder than previous strains and the impact on mobility is more manageable than previous ones. Furthermore, the bank suggests that there are signs that constraints in supply chains are passing their peak and power prices are easing. Sectors in Europe are mostly firmer with Travel & Leisure names clearly top of the pile UK as airline names benefit from ongoing optimism about the Omicron variant’s impact on mobility and a December passenger update from Wizz Air which has sent its shares higher by 10.1%. Of note for the European banks (which are also a notable gainer on the session), Citigroup is “overweight” on the sector for the upcoming year, citing profit growth, interest rate hikes and potential for capital returns. In terms of specific names, BNP Paribas, Lloyds and UBS were flagged as top picks. Elsewhere, other cyclically-led sectors such as Autos, Oil & Gas and Basic Resources are also trading on a firmer footing. To the downside, Healthcare names sit in the red amid aforementioned losses in Roche, whilst Sanofi (-0.7%) are also seen lower after flagging that Q4 2021 vaccine sales are expected to be lower on a Y/Y basis. Finally, Rolls-Royce (+3.6%) is seen higher on the session after concluding the sale of Bergen Engines.

FX

DXY - The Dollar index looks comfortable enough above 96.000 within a 96.336-146 range after eclipsing yesterday’s best (96.328) marginally, but the technical backdrop remains less constructive given its failure to end last week (and 2021) above a key chart level at 96.098. Nevertheless, the most recent spike in US Treasury yields has given the Greenback sufficient impetus to claw back losses, and in DXY terms fresh incentive to rebound firmly or extend gains against funding currencies in particular ahead of the manufacturing ISM and the remainder of a hectic first week of the new year that culminates in NFP and a trio of scheduled Fed speakers, but also comprises minutes of the December FOMC taper and more hawkishly aligned tightening policy meeting.

JPY/AUD - As noted above, low yielders are underperforming or lagging in the current environment, and the Yen is also succumbing to the increasingly divergent BoJ vs Fed trajectory that is exacerbating technical forces behind the rally in Usd/Jpy to new 5 year highs just shy of 115.90. Stops are said to have been triggered during the latest leg up and there is little of significance in terms of resistance ahead of 116.00, while option expiry interest is relatively light until 1.13 bn at the half round number above. Conversely, the Aussie has been boosted by higher coal prices overnight and an unexpected return to growth from contraction in China’s Caixin manufacturing PMI, with Aud/Usd trying to establish a base around 0.7200 in wake of an upward revision to the final manufacturing PMI.

GBP/NZD/EUR/CHF/CAD - The Pound is next best major, but mainly due to Gilts playing catch-up following Monday’s UK Bank Holiday and only in part on the back of an upgrade to the final manufacturing PMI allied to better than forecast BoE data including consumer credit, mortgage lending and approvals. Cable is probing 1.3500 and Eur/Gbp is edging towards 0.8360 even though the Euro has regained some poise against the Buck to retest 1.1300 with some traction gleaned from stronger than anticipated German retail sales and jobs metrics. Back down under, the Kiwi is trying to keep tabs on 0.6800 in the face of Aud/Nzd headwinds as the cross climbs over 1.0600, while the Franc is holding above 0.9200 post-Swiss CPI that was close to consensus and the Loonie is meandering between 1.2755-23 parameters pre-Canadian PPI and Markit’s manufacturing PMI against the backdrop of firmer crude prices.

SCANDI/EM - Brent oil continues to consolidate off recent highs circa Usd 80/brl and is helping the Nok incentive to stay near 10.0000 vs the Eur, but the Sek is lagging towards the lower end of a 10.2970-2550 band in keeping with the weaker tone in EM circles where the Try remains reliant on CBRT intervention via auction to contain further depreciation on the back of another acceleration in Turkish inflation. Conversely, the Cnh and Cny are keeping pace with the Usd after a fractionally firmer than anticipated PBoC onshore midpoint fix, the aforementioned encouraging Chinese PMI and the FX regulator launching a pilot scheme in cross-border trade and investment aimed at expanding both inbound and outbound QFLP and QDLP.

FIXED

A solid Schatz sale overall, even allowing for a decent concession and typically substantial rate of retention, has helped German bonds regain composure across the board with Bunds back up near their loftier 170.92 Eurex best, but Gilts remain some way below par having dipped to a marginal new Liffe low at 124.00 on corrective grounds and Italian BTPs are still making room for the possibility of long-end syndicated issuance within a 146.92-48 range. Meanwhile, US Treasuries remain in recovery mode after Monday’s rout, though the curve retains a steeper bias with a kink at 20 years in advance of the manufacturing ISM and JOLTS that will not have as much bearing as other proxies for Friday’s BLS report.

COMMODITIES

WTI and Brent are firmer this morning and have been grinding towards fresh highs throughout the European session after slightly choppy APAC trade; currently, the peaks are USD 76.82/bbl and USD 79.67/bbl respectively. Newsflow has been fairly slow throughout the morning with catch-up action occurring for participants. Today’s focal point for the space is very much the OPEC+ gathering; albeit, this is expected to result in a continuation of the existing quota adjustments of 400k BPD/month. Thus far, the JTC has reviewed market fundamentals and other developments determining that the Omicron variant’s impact is expected to be both mild and short-term. For reference, today’s timings are 12:00GMT/07:00EST for the JMMC and 13:00GMT/08:00EST for OPEC+ - though, as always with OPEC, these serve only as guidance. While the main decision is expected to be a straightforward one, there is the possibility that underproduction by certain members could cause some tension. Elsewhere, spot gold and silver are contained with a modest positive-bias but are yet to stray too far from the unchanged mark with spot gold, for instance, in a sub-USD 10/oz range just above USD 1800/oz. Separately, coal futures were notable bid in China following reports that Indonesia, a large supplier to China, has banned exports for the month, given domestic power concerns.

Tuesday's JMMC will start at 12:00GMT/07:00EST followed by the OPEC+ meeting at 13:00GMT/08:00EST. (Twitter) OPEC+ is expected to continue with its plan to increase its production quota 400k BPD at the meeting on Tuesday, according to Delegates. "Some opec plus states still can’t meet their production quotas, and opening up that subject at any of these meetings will stir a lot of trouble. No one wants to revise down their quota.", according to EnergyIntel's Bakr. (EnergyIntel/Twitter)

Due to the weather impacts in some areas, Delta Air Lines (DAL) is expecting to cancel around 500 flights for Jan 3rd with around 200 flights per day expected to be cancelled on Jan 4th and 5th. (Newswires)

Exxon (XOM) reports flaring and a unit upset at its (250k BPD) Joliet, Illinois refinery. (Newswires)

Over 20mln people are under winter storm alerts Monday, as a strong storm system works its way across the eastern US. (CNN) Federal offices in Washington DC closed on Monday amid winter storm warnings. (The Hill)

US President Biden is cracking down on large US meat producers. The Biden Admin highlighted vulnerabilities from excessive market concentration in meat. (FT)