• European bourses are mixed but becoming increasingly upbeat as the pressure from the APAC/US handovers dissipates, Euro Stoxx 50 +0.6%; ES +0.3%, NQ +0.4%
• The DXY remains above, but within touching distance of, 95.50 with G10 peers firmer and antipodeans leading after ANZ's RBNZ OCR call
• Some UK Conservatives expect the no-confidence vote threshold for PM Johnson to be met today, today's PMQs and the expected Gray report in focus
• Kiruk-Ceyhan pipeline has resumed operation following an earlier explosion that bolstered crude prices; explosion was not due to an attack or similar
• Looking ahead, highlights include Canadian CPI, US Building Permits, Housing Starts, supply from the US. Earnings from Bank of America, Morgan Stanley

CORONAVIRUS UPDATE

UK health officials are preparing to begin charging for free COVID-19 tests at the end of June, while it was separately reported that PM Johnson is to announce the lifting of 'Plan B' COVID restrictions on Wednesday with the Cabinet to agree to end working from home and COVID restrictions as the PM faces a plot from rebel MPs. (Newswires/Daily Telegraph)

ASIA

Asian stocks followed suit to the losses on Wall St where all major indices declined led by tech and growth as US yields climbed to two-year highs and with financials also hit following earning releases in which Goldman Sachs and Charles Schwab both missed on their bottom lines. ASX 200 (-1.0%) traded lower in which tech mirrored the underperformance of the sector stateside as Nasdaq 100 futures dipped into correction territory after shedding 10% from its November peak and with BHP failing to benefit from an increase in its quarterly iron ore and petroleum output as the mining giant also reported a decline in coal production and warned of short-term disruptions from next month’s proposed easing of Western Australia border restrictions. However, the energy sector was buoyed by continued advances in oil prices due to the geopolitical risk premium and after an explosion in Turkey forced the shutdown of the Iraq-Turkey crude oil pipeline which is Iraq’s largest crude oil export line. Nikkei 225 (-2.8%) was heavily pressured by recent currency strength and with Japan set for tighter COVID-19 restrictions in key areas including Tokyo, while Toyota and Sony were the notable laggards after the automaker flagged a miss to its output targets due to chip shortages and with Sony impacted by news that rival Microsoft is to acquire video game publisher Activision. Hang Seng (U/C) and Shanghai Comp. (-0.4%) were choppy and initially fared better than their regional peers after the PBoC continued with its liquidity efforts and recently hinted of more easing, but with upside restricted amid reports of further scrutiny by the US on Chinese businesses including an examination into Alibaba's cloud unit to determine if it poses a risk to US national security. Finally, 10yr JGBs were kept afloat amid the broad risk aversion in Tokyo although gains in JGBs were gradual as T-note futures remained pressured by a further rise in yields and following slightly weaker demand at the enhanced liquidity auction for 2yr-20yr JGBs.

PBoC injected CNY 100bln via 7-day reverse repos with the rate at 2.10% for a CNY 90bln net injection. (Newswires) PBoC set USD/CNY mid-point at 6.3624 vs exp. 6.3606 (prev. 6.3521)

China local governments released their economic development plans for this year in which most set targets of above 6%. (Securities Times)

US

Korean Air (003490 KS) said that Boeing (BA) 777 and 747-8 planes are affected by the 5G rollout in US and it has switched to other models on routes to US airports of concern to avoid cancellations and Cathay Pacific (293 HK) also said it is deploying different aircraft when flying to the US due to 5G issue and it sees no impact to passenger flights (Newswires/Twitter)

UK/EU

11 members of the UK Conservative party 2019 intake have submitted letters of no-confidence in PM Johnson to the 1922 Committee, via The Telegraph. Prior to this, a senior Conservative backbencher said they are confident of getting to 54 letters Wednesday to try and oust the PM, according to ITV's Paul Brand. (Twitter) This comes after over 20 Conservative MPs who were elected in 2019 met yesterday to discuss concerns over Johnson's premiership. (Times) If 54 letters are sent into the 1922 Committee, this will trigger a confidence vote against the PM. If the vote is unsuccessful, no new vote can be triggered for 12 months - link to newsquawk analysis here. Most recently, a Tory MP has stated that the 54 letters will be submitted by 17:00GMT, adding "it is over", according to Mail's Hodges.

US and UK are to announce the intent to launch formal talks on steel and aluminium tariffs with the announcement to be made on Wednesday as part of virtual meeting between US Commerce Secretary Raimondo and UK Trade Secretary Trevelyan, according to sources. (Newswires)

UK government is facing increasing pressure for the FCA to strengthen it policing of rules that restrict banks from charging higher borrowing costs than advertised. (FT)

UK CPI YY (Dec) 5.4% vs. Exp. 5.2% (Prev. 5.1%); MM (Dec) 0.5% vs. Exp. 0.3% (Prev. 0.7%)

• Core CPI YY (Dec) 4.2% vs. Exp. 3.9% (Prev. 4.0%); MM (Dec) 0.5% vs. Exp. 0.2% (Prev. 0.5%)

Germany's Bundesbank reportedly warned German lenders of becoming too complacent about risks of borrower defaults and noted that credit risks have been underestimated amid surging house prices. (FT)

German FDP Fiscal Policy Expert says with yields increasing on federal bonds, budget buffer will fall away and have a stronger effect over the course of the year. (Newswires)

GEOPOLITICAL

US Secretary of State Blinken says that the Russian troop build-up near the Ukraine border provides Russian President Putin capacity to take further aggressive action against Ukraine at short notice. (Newswires)

EQUITIES

Major bourses in Europe are now mostly in positive territory (Euro Stoxx 50 +0.5%; Stoxx 600 +0.3%) as the region recovered from the losses seen at the cash open – which saw the Euro Stoxx 50 and DAX 40 open lower by 0.5% and 0.8% respectively. US equity futures have also nursed earlier losses and now reside in positive territory, with the NQ recuperating from losses of over 1.0% at one stage as the US 10yr cash yield eclipsed 1.90% and the German 10yr yield turned positive for the first time in over three years. Back to cash equities, the CAC (+0.6%) and IBEX (+0.6%) outperform amid their large retail exposure, with the sector bolstered after stellar updates from Richemont (+9.1%) and Burberry (+6.0%) coupled with a broker upgrade for Inditex (+3.5%) at Goldman Sachs; in turn lifting the likes of LVMH (+3.0%) and Kering (+3.3%). Delving deeper into the sectors, the earlier defensive bias has evolved into a more cyclical one, with Basic Resources, Travel & Leisure and Retail at the top of the bunch, whilst Healthcare and Food & Beverages make their way down the ranks. Tech has recovered from its earlier yield-induced underperformance with the aid of a post-earnings ASML (+1.1%) which missed on net sales expectations, but the group announced a 100% Y/Y increase in its dividend, whilst the CEO suggests their production capacity cannot accommodate higher demand. For reference, ASML accounts for around 7.5% of the Euro Stoxx 50. In terms of other individual movers, Leoni (-14.0%) slumped as Co. sites were searched by the German Federal Cartel Office as part of an investigation into various cable manufacturers and other industry-related companies.

UnitedHealth Group Inc (UNH) Q4 2021 (USD): EPS 4.48 (exp. 4.31), Revenue 73.7bln (exp. 72.75bln)

• CEO “Our strong 2021 performance and confident growth outlook for 2022 and beyond reflect the accelerating innovation and expanding capabilities across Optum and UnitedHealthcare,”

FX

GBP/DXY - Sterling remains somewhat caught between stalls after stronger than forecast UK CPI readings that add more weight to expectations and pricing for further BoE policy normalisation, but cautious about carrying too much rate hike premium given the growing prospect of change at the highest level in Government and the rising rebellion against Tory Party leader Boris Johnson. Hence, the post-data pop above 1.3600 in Cable was relatively limited and short-lived, while Eur/Gbp only dipped marginally within a tight 0.8342-23 range before stabilising. However, the Pound is holding off Tuesday’s lows vs the Dollar by virtue of the fact that the Greenback has faded generally and topped a key Fib retracement level at 1.3610 as the index slips back a bit further towards 95.500 having reached 95.832 at best yesterday and consolidating between 95.792-549 ahead of US housing data and the 20 year auction.

NZD/AUD - In contrast to Sterling, the Kiwi has no political inhibitions on the domestic front inhibitions and is outperforming amidst hawkish RBNZ calls from ANZ Bank, as Nzd/Usd bounces from overnight lows towards the psychological 0.6800 mark and the Aud/Nzd cross retreats through 1.0600 again. To recap, ANZ expects a 25 bp hike at every meeting from February to April 2023 that would push the OCR up to 3% from the current 75 bp. Meanwhile, the Aussie is lagging in wake of a fall in Westpac consumer sentiment and in advance of more pivotal jobs data tomorrow, albeit with Aud/Usd also off worst levels within a 0.7177-0.7214 band following a strong rise in iron ore prices.

CAD/CHF/EUR/JPY - All recouping some lost ground against the Buck, and the Loonie still getting a lift from crude as WTI extends its heady rise to probe Usd 87/brl, while the Franc is approaching 0.9150 from sub-0.9175 and remains above 1.0400 vs the Euro even though Eur/Usd has regained enough poise to retest offers/resistance into 1.1350, including the 21 DMA that comes in at 1.1347 today (and incidentally matches Tuesday’s 55 DMA). Elsewhere, the Yen is rather betwixt and between on respective UST/JGB yield and broad risk grounds, as Usd/Jpy pivots 114.50 before Japanese inflation on Thursday. Back to Usd/Cad, Canadian CPI looms and could either compound BoC tightening perceptions or undermine, while the near term technical backdrop is basically flanked by resistance around 1.2550 and support circa 1.2450 beyond the current 1.2525-1.2472 bounds.

SCANDI/EM - The Nok looks much more in sync with Brent on the eve of the Norges Bank, as it secures a firmer grip on the 9.0000 handle against the Eur, while the Rub and Mxn are also on a firmer footing in part thanks to the latest rise in oil benchmarks and the Zar has been boosted by SA CPI exceeding consensus. Conversely, the Try remains under pressure pre-CBRT on Thursday and following Turkish state pipeline operator Botas having to cut oil flow at the Kirkuk-Ceyhan pipeline due to an explosion, albeit with full capacity subsequently restored.

• Australian Westpac Consumer Sentiment Index (Jan) 102.2 (Prev. 104.3)
• Australian Consumer Sentiment M/M (Jan) -2.0% (Prev. -1.0%)

FIXED

Another tepid Bund auction in terms of the lack of demand and technically uncovered 2036 offering irrespective of a 20+ bp concession, but set against a much lower proportion retained this time. Hence, the core Eurozone bond is holding above Eurex lows (168.95) and the 10 year yield has eased off peaks in line with a partial recovery elsewhere after more concerted selling in futures and upside in cash. In fact, Gilts are hovering a few ticks below a new 122.33 Liffe recovery high (-44 ticks vs -84 ticks at one stage) and the 10 year T-note is meandering midway between 127-11+/127-02 overnight extremes, but the curve still tilted steeper for choice in the run up to US housing data and 20 year issuance.

Greece has received EUR 11bln in demand for its new 10yr offering with the spread set at +140bps (prev. 145bps) over mid-swaps. (Newswires)

COMMODITIES

WTI and Brent front month futures remain elevated following an initial blip lower in early European hours – which at the time emanated from reports that the Iraq-Turkey pipeline will resume oil flows after an explosion yesterday - said to have been an accident as opposed to an attack, which had been feared. The explosion was the cited driver behind yesterday’s rise in crude, with WTI Feb reaching a USD 86.41/bbl high and Brent March a peak of USD 89.05/bbl before waning off best levels. Nonetheless, prices see tailwinds in European trade as equities recovered off lows and following the IEA Monthly Oil Market report which raised its global demand growth forecast and suggested Omicron has had less of an impact than initially expected. Furthermore, the report suggested that OPEC+ effective spare capacity will be just 2.6mln BPD in H2-2022, "held primarily by Saudi Arabia and the UAE." Saudi Arabia has usually kept more than 1.5-2mln BPD of spare capacity on hand for market management, according to the EIA. Elsewhere, spot gold has been driving higher as the Dollar remains near lows, with the yellow metal finding some support around USD 1,810/oz. LME copper meanwhile is on the front-foot and prices have extended on their APAC gains as stocks trim earlier losses, whilst mining giant Antofagasta sees the demand picture for the red metal continuing. Elsewhere, Indonesia has not issued any export permits for tin for 2022, according to a commodity exchange official.

White House spokesperson said they still have tools on the table to address increases in oil prices and will engage OPEC as appropriate, while it was also reported that the DoE approved a fifth exchange of 400k bbls of crude oil for release to Atlantic Trading and Marketing from the SPR. (Newswires)

• Thus far, there has not been any discussion amongst OPEC officials on increasing prices, via Energy Intel's Bakr; as the price increase is not related to the demand/supply equation.

Turkish state pipeline operator Botas announced it cut oil flow at the Kirkuk-Ceyhan oil pipeline due to an explosion with the cause of the explosion unknown. Subsequently, the pipeline is reported to have resumed at full capacity of 150k BPD; albeit, there is some discrepancy as to its current output level. (Newswires)

IEA OMR: raises global demand estimates by 200k BPD in 2021 and 2022 due to softer COVID restrictions. Global oil demand to increase by 5.5mln BPD and 3.3mln BPD in 2021 and 2022 respectively. (Newswires)