• European bourses are contained with US futures equally uninspiring, ES +0.1%; in Europe, sectors has Tech, +1.1%, notably outperforming given TSMC read-across
• DXY remains subdued moving further below 95.00 to the benefit of peers across the board; conversely, core debt is relatively calm before more key US events
• Russian Kremlin says talks with the West were "unsuccessful", sanctioning Putin would be comparable to severing relations
• Some Senate Republicans are reportedly open to voting on Brainard for Vice Chair but have sounded more wary regarding Raskin as Fed's top bank regulator, Axios
• Looking ahead, highlights include US IJC, PPI, ECB's Elderson, Fed's Harker, Brainard, Barkin, Evans, supply from the US. Earning: Delta Airlines

CORONAVIRUS UPDATE

Tokyo government confirmed that it is increasing its coronavirus alert level to the second-highest level, while it was also reported that Tokyo is to seek COVID measures if hospitalisations reach 20%, according to NHK. (Newswires/NHK)

• Tokyo daily COVID cases 3124 (vs yesterday's 2198)

China's Dalian city detected one Omicron infection in a person that arrived from Tianjin. (Newswires)

French Government Minister Lemoyne unveils a further easing of France-UK COVID travel restrictions. (Newswires) As expected

ASIA

Asia-Pac stocks traded mixed following the choppy session in the US where major indices eked mild gains as markets digested CPI data in which headline annual inflation printed at 7.0%. ASX 200 (+0.5%) was underpinned as the energy and mining related sectors continued to benefit from the recent upside in underlying commodity prices, while Crown Resorts shares outperformed after Blackstone raised its cash proposal for Crown Resorts following due diligence inquiries. Nikkei 225 (-1.0%) declined with the index hampered by unfavourable currency flows and with Tokyo raising its COVID-19 alert to the second-highest level. Hang Seng (+0.1%) and Shanghai Comp. (-1.1%) were initially subdued, but did diverge later, after the slight miss on loans and aggregate financing data, while there is a slew of upcoming key releases from China in the days ahead including trade figures tomorrow, as well as GDP and activity data on Monday. In addition, the biggest movers were headline driven including developer Sunac China which dropped by a double-digit percentage after it priced a 452mln-share sale at a 15% discount to repay loans and cruise operator Genting Hong Kong wiped out around half its value on resumption of trade after it warned of defaults due to insolvency of its German shipbuilding business. Finally, 10yr JGBs traded rangebound and were stuck near the 151.00 level following the indecisive mood in T-notes which was not helped by an uninspiring 10yr auction stateside, while the lack of BoJ purchases in the market also added to the humdrum tone.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.3542 vs exp. 6.3465 (prev. 6.3658)

Shipping congestion is increasing at the world's largest shipping port in Shanghai due to ships re-routing from Ningbo to avoid delays after some trucking services were suspended due to the COVID-19 outbreak. (Newswires)

China's Commerce Ministry, on the China-US Phase One deal, hopes the US creates favourable conditions for both sides to broaden trade, teams are maintaining normal communications. (Newswires)

CENTRAL BANKS

Fed's Brainard (voter) in prepared remarks at her Vice-Chair hearing, said inflation is too high and that policy is focused on getting inflation back down while sustaining a recovery that includes everyone which is their most important task. Brainard also stated the economy is making "welcome progress" and the pandemic continues to pose challenges, while she added priority is to protect the gains they've made and support a full recovery. Furthermore, she is committed to pursuing the Fed's dual mandate of price stability and maximum employment. (Newswires)

• Some Senate Republicans are reportedly open to voting on Brainard for Vice Chair but have sounded more wary regarding Raskin as Fed's top bank regulator. (Axios)

Fed's Daly (2024 voter) said inflation is uncomfortably high and it is time to begin removing some accommodation, while she expects prices to moderate as they get past COVID and the Fed withdraws accommodation, according to a PBS NewsHour interview. Daly added that she doesn't want to get too far ahead on calling the number of rate hikes but is very bullish about the economy and definitely sees rate increases as early as March. Furthermore, she stated policy is in a good place and they are not behind or ahead of the curve, as well as noted that it will take most of 2022 to get supply and demand back in balance. (Newswires)

Fed's Harker (2023 voter) says he currently sees three hikes this year and is open to beginning in March, while he is open to more than three hikes if that is required and would support further tightening if "very bad" inflation worsens. (FT)

BoE's Mann 2022 will bring divergence on inflation action. (Newswires)

ECB's de Guindos says the economy is becoming use to COVID. Perhaps inflation will not be as transitory as recently forecast. Is in broad agreement with Schnabel on the energy transition and in general. (Newswires) Referring to Schnabel saying that the green transition poses upside risks to medium-term inflation and suggested that rising energy prices could require the ECB to act on policy

CNB Governor Rusnok said the main interest rate must increase further but should not exceed 5% and noted that CZK could mildly appreciate further, according to a magazine interview conducted on January 7th. (Ekonom Weekly)

US

US NEC Director Deese said forecasters expect prices to moderate of the year which is consistent with their view and that they are working closely with Congressional leaders to finalise additional Fed nominees. Furthermore, he said supply chain difficulties manifested themselves more than anticipated and that they will take additional action this month on ports. (Newswires)

US Congressional Democrats are moving to pave the way for a Senate debate on voting-rights bill over GOP objections, according to a memo. In relevant news, CNN's Manu Raju tweeted that a source stated there have been "intense" discussions with Manchin and Sinema over changing filibuster rules and passing the voting bill, while Sinema has reiterated to her colleagues she wants to maintain the 60-vote threshold and Manchin opposes going nuclear. (Newswires/Twitter)

US Deputy Trade Representative White expressed concern about Canada's proposed digital service tax and stressed the importance of Canada meeting its USMCA trade deal commitments including dairy tariff rates during talks with his Canadian counterpart. (Newswires)

UK/EU

UK Foreign Secretary Truss is set to resume talks with the EU over the Northern Ireland protocol today. Elsewhere, the UK is set to launch negotiations with India today for a post-Brexit trade deal. (CityAM)

• India's Trade Minister says discussions with the UK will cover restrictions beyond tariff issues, anticipates significant progress in market access issues.

A date for a virtual meeting on the US-UK steel tariff issue has reportedly been set and will take place later this month, according to Politico's Casalicchio. (Politico) A "u-turn" to earlier reports that Washington rejected the UK's offer for a meeting

UK House of Lords lawmakers said a digital GBP for retail use could harm financial stability, increase credit costs and erode privacy, while they added that central bank digital currency for wholesale use should be examined in further detail. (Newswires)

GEOPOLITICAL

Russian Kremlin says that it is absurd to link Russia-European security issues with Nord Stream 2 as it is a commercial project. Talks with the West were "unsuccessful"; for the US to impose sanctions on Russian President Putin will be comparable to severing relations. (Newswires)

Russian Deputy Foreign Minister says the US and NATO are not prepared to meet Russia's demand for security guarantees, via Ifax; Moscow will take "other measures and techniques" if the US and NATO fail to address Russia's demands. (Newswires)

US is reportedly piling the pressure in the South China Sea as it sent an aircraft carrier strike group and a landing helicopter dock group to the region where they are expected to conduct joint drills. (SCMP)

US Secretary of State Blinken earlier announced that the US is sanctioning individuals and entities that support North Korea's weapons programs and the US is committed to preventing North Korea from accessing tech and resources that advance these destabilizing programs. It was also reported that the US proposed more UN Security Council sanctions on North Korea regarding missile launches, according to US Ambassador to the UN. (Newswires/Twitter)

EQUITIES

Bourses in Europe now see a mixed picture with the breadth of the price action also narrow (Euro Stoxx 50 Unch; Stoxx 600 -0.10%). The region initially opened with a modest downside bias following on from a mostly negative APAC handover after Wall Street eked mild gains. US equity futures have since been choppy within a tight range and exhibit a relatively broad-based performance with no real standout performers. Back in Europe, sectors are mixed and lack an overarching theme. Tech remains the outperformer since the morning with some follow-through seen from contract-chip manufacturer TSMC (ADR +4.3% pre-market), who beat on net and revenue whilst upping its 2022 Capex to USD 40bln-44bln from around USD 30bln the prior year, whilst the CEO expects capacity to remain tight throughout 2022. Tech is closely followed by Autos and Parts and Travel & Leisure, whilst the other end of the spectrum sees Healthcare, Oil & Gas, Retail and Personal & Household goods among the straddlers – with Tesco (-1.5%) and Marks & Spencer (-5.3%) weighing on the latter two following trading updates. In terms of other individual movers, BT (+0.5%) trades in the green amid reports DAZN is nearing a deal to buy BT Sport for around USD 800mln, a could be reached as soon as this month but has not been finalized. Turning to analyst commentary: Morgan Stanley’s clients have aligned themselves to the view that European equities will likely perform better than US counterparts. 45% of respondents see Financials as the top-performing sector this year, 14% preferred Tech which would be the lowest score in over six years.

TSMC (2330 TT/TSM) reported Q4 net TWD 166.2bln vs exp. TWD 161.6bln. Revenue TWD 438.2bln vs prev. TWD 361.5bln Y/Y. Co. sees 2022 Capex at USD 40bln-44bln. CEO expects capacity to remain tight throughout 2022. (Newswires) TSM +4.1% in the pre-market

Google (GOOG), Microsoft (MSFT), Oracle (ORCL), Amazon (AMZN), Apple (AAPL), Facebook (FB), other tech co’s meeting with White House today; agenda includes log4j and cybersecurity, according to Bloomberg reporter Jacobs. (Twitter)

FX

DXY - The Dollar has weakened further in wake of Wednesday’s US inflation data as ‘buy rumour sell fact’ dynamics are compounded by more position paring and increasingly bearish technical impulses to outweigh fundamental factors that seem supportive, on paper or in theory. Indeed, the index only mustered enough recovery momentum to reach 95.022 on the back of hawkish Fed commentary and some short covering before retreating through the psychological level, then yesterday’s 94.903 low and another trough from late 2021 at 94.824 (November 11 base) to 94.710, thus far and leaving little bar the 100 DMA, at 94.675 today, in terms of support ahead of 94.500. However, the flagging Greenback could get a fillip via PPI and/or IJC, if not the next round of Fed speakers and final leg of this week’s auction remit in the form of Usd 22 bn long bonds.

NZD/AUD - A change in the running order down under where the Kiwi has overtaken the Aussie irrespective of bullish calls on the Aud/Nzd cross from MS, with Nzd/Usd breaching the 50 DMA around 0.6860 on the way to 0.6884 and Aud/Usd scaling the 100 DMA at 0.7288 then 0.7300 before fading at 0.7314.

GBP/EUR/CHF/CAD/JPY - Also extracting more impetus at the expense of the Buck, but to varying degrees as Sterling continues to shrug aside ongoing Tory party turmoil to attain 1.3700+ status and surpass the 200 DMA that stands at 1.3737, while the Euro has overcome Fib resistance around 1.1440, plus any semi-psychological reticence at 1.1450 to reach 1.1478 and the Franc is now closer to 0.9100 than 0.9150. Elsewhere, crude is still providing the Loonie with an incentive to climb and Usd/Cad has recoiled even further from early 2022 peaks beneath 1.2500 as a result, and the Yen is around 114.50 with scope for a stronger retracement to test the 55 DMA, at 114.22.

SCANDI/EM - Some signs of fatigue as the Nok stalls on the edge of 9.9000 against the Eur in tandem with Brent just a few cents over Usd 85/brl, but the Czk has recorded fresh decade-plus highs vs the single currency following remarks from CNB chief Rusnok on the need to keep tightening and acknowledging that this may culminate in Koruna appreciation. The Cnh and Cny are firmer vs the Usd pre-Chinese trade and GDP data either side of the weekend, but the Rub is lagging again as the Kremlin concludes that there was no progress in talks between Russia and the West, but the Try is underperforming again with headwinds from elevated oil prices and regardless of a marked pick up in Turkish ip.

Major FX Expiries, NY Cut:

• USD/JPY: 112.95-00 (434M), 115.00 (652M), 115.50 (1.3BLN), 116.00 (960M)

FIXED

Bonds have seen further range extension and deviation, but on balance trading conditions remain relatively sedate and price action is still less volatile than it was yesterday in the lead up to US CPI, and especially after. Bunds came under a bit more selling pressure and hit a new 169.86 Eurex low before staging another recovery to 170.19 (just 3 ticks below par), while Gilts have rebounded from 123.15 to 123.41 vs their 123.35 prior Liffe close to leave US Treasuries lagging in negative territory and the curve a tad steeper ahead of PPI, claims, long bond issuance and another batch of Fed speakers.

COMMODITIES

WTI and Brent front-month contracts have conformed to the indecisive mood across the markets, although the benchmarks received a mild uplift as the Dollar receded in early European hours. As it stands, the WTI Feb and Brent Mar contract both reside within USD 0.80/bbl ranges near USD 82.50/bbl and USD 84.50/bbl respectively. News flow for the complex has been quiet and participants are on the lookout for the next catalyst, potentially in the form of US jobless claims/PPI amid multiple speakers, although the rise in APAC COVID cases remains a continuous headwind on demand for now – particularly in China. On the geopolitical front, Russian-backed troops have reportedly begun pulling out of the 1.6mln BPD Kazakh territory, but Moscow’s tensions with the West do not seem to abate. Russia's Kremlin suggested talks with the West were "unsuccessful" – which comes after NATO’s Secretary-General yesterday suggested there is a real risk of a new armed conflict in Europe. Elsewhere, spot gold has drifted off best levels as the DXY found a floor, for now – with the closest support yesterday’s USD 1,813/oz low ahead of the 50 and 21 DMAs at USD 1,807/oz and USD 1,806.50/oz respectively. LME copper has also pulled back from yesterday’s best levels to levels under USD 10,000/t as the mood remains cautious, although, copper prices in Shanghai rose to over a two-month high as it played catch-up to LME yesterday.