• APAC markets were mostly lower after the worst weekly performance on Wall St since the start of the pandemic
• US equity futures found some reprieve from Friday's losses; e-mini S&P +0.8%
• DXY heads into the European open on a firmer footing ahead of this week's FOMC meeting
• US Secretary of State Blinken warned a significant US response would be triggered if one more Russian force entered Ukraine in an aggressive way
• Looking ahead, highlights include EZ, UK & US Flash PMIs, Italian Presidential Elections

As of 06:26GMT/01:26EST

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APAC TRADE

EQUITIES

• APAC markets were mostly lower after the worst weekly performance on Wall St since the start of the pandemic.
• ASX 200 (-0.5%) was pressured by losses in mining names and following weaker production by South32.
• Nikkei 225 (+0.1%) initially fell as more areas sought virus measures but gradually recovered on JPY outflows.
• Hang Seng (-1.0%) and Shanghai Comp. (-0.1%) were somewhat varied with large tech selling in Hong Kong although the mainland was cushioned after a PBoC liquidity injection and 14-day reverse repo rate cut.
• US equity futures found some reprieve from Friday's losses; e-mini S&P +0.8%

FX

• DXY was mildly supported ahead of the FOMC midweek and after the 95.50 level provided support last Friday.
• EUR/USD retreated further beneath 1.1350 with comments from ECB's Rehn doing little to excite markets.
• GBP/USD traded rangebound amid political uncertainty as Tories continue to await the Sue Gray inquiry findings.
• USD/JPY rebounded although remained sub-114.00.
• Antipodeans were lacklustre on cautious mood and after Australian PMIs mostly fell into contraction territory.

FIXED INCOME

• 10-year USTs marginally declined due to slight gains in yields but with 128.00 providing support for T-note futures.
• 10-year JGBs were rangebound amid a lack of BoJ purchases.
• Bunds slightly softened although holds on to the 170.00 level.

COMMODITIES

• WTI and Brent crude front-month futures gained in which the former tested the USD 86/bbl level to the upside amid ongoing geopolitical tensions.
• Spot gold was contained beneath USD 1840/oz amid a rangebound USD ahead of the FOMC.
• Copper futures were pressured alongside the cautious mood with CME copper futures below USD 4.50/lb.
• Assistant to the Chairman of Iraq’s State Oil Marketing Organization stated that increases and fluctuations in oil prices will not continue and that OPEC is taking that into consideration, while it was also stated that freezing oil pipelines in European countries will lift the price of oil higher than planned and that it is too early to say if oil prices will exceed USD 100/bbl but OPEC will offer larger quantities to market if required. (Newswires)
• Kuwait’s KUFPEC announced it made a major gas discovery at its Anambas-2x well in Indonesia. (Newswires)

CRYPTO

• Crypto markets continued to decline over the weekend with Bitcoin beneath USD 35.5k.

NOTABLE APAC HEADLINES

• PBoC injected CNY 150bln via 14-day reverse repos with the rate lowered by 10bps to 2.25% for a net CNY 50bln injection and stated it will keep liquidity stable before the spring festival. (Newswires)
• China Environment Ministry said weather conditions ahead of Winter Olympics is very unfavourable for air quality, while it added that Beijing and Hebei authorised to take necessary action to curb operations of polluting companies with relatively small impact. (Newswires)
• Taiwan reported 39 Chinese warplanes entered its air defence identification zone which was the largest incursion since October. (Al Jazeera)
• Japan government is to place 16 additional areas under COVID-19 quasi-state of emergencies. (Newswires)

DATA RECAP

• Japanese Manufacturing PMI (Jan P) 54.6 (Prev. 54.3)
• Japanese Services PMI (Jan P) 46.6 (Prev. 52.1)
• Japanese Composite PMI (Jan P) 48.8 (Prev. 54.5)
• Australian Manufacturing PMI (Jan P) 55.3 (Prev. 57.7)
• Australian Services PMI (Jan P) 45.0 (Prev. 55.1)
• Australian Composite PMI (Jan P) 45.3 (Prev. 54.9)

EUROPE-SPECIFIC HEADLINES

• UK Downing Street aides admitted holding back information as part of the Sue Gray inquiry on lockdown parties. (LBC)
• Sue Gray has interviewed police who guard Downing Street. Their testimonies could form a key part of her report. (Telegraph)
• UK Tory MPs were warned that they risk undoing Brexit and putting the country in perpetual lockdowns if they attempt to oust UK PM Johnson in the week ahead. (Express)
• UK Foreign Secretary Truss said ahead of her meeting with EU VP Sefcovic that there is a deal to be made regarding the Northern Ireland protocol that protects peace, stability and works for all sides. (Newswires)
• ECB's Holzmann said there is a great deal of uncertainty regarding how long inflation will remain above the central bank's target of around 2%. (Newswires)
• ECB’s Rehn said inflation drivers will subside over the course of the year and expects euro zone inflation of around 2% in the next two years, while he added a rate hike in 2023 is logical in the case of no new disruptions. (Handelsblatt)
• Former Italian PM Berlusconi dropped his long-shot bid for the Italian presidency. (FT)
• WHO said the end of the pandemic in Europe is plausible after Omicron. In relevant news, Israel said a fourth dose of the COVID-19 vaccine for over-60s made them twice as resistant to infection and three times more resistant to serious illness compared with those in the same age group that are thrice-vaccinated. (Newswires)

GEOPOLITICS

• US Secretary of State Blinken warned a significant US response would be triggered if one more Russian force entered Ukraine in an aggressive way and stated that they are prepared to deal with a range of options Russia may take towards Ukraine. (CNN)
• US State Department authorised the voluntary departure of US direct hire employees and ordered the departure of eligible family members of diplomats from the Embassy in Kyiv, while it added there are reports Russia is planning significant military action against Ukraine. US State Department advised Americans do not travel to Ukraine due to increased threats of Russian military action and COVID-19, while it also advised not to travel to Russia due to ongoing tension along the border with Ukraine and noted potential for harassment against US citizens. (Newswires)
• UK Deputy PM Raab said there will be severe economic consequences if Russia installs a puppet regime in Ukraine and that they would readily look at financial sanctions but added that it is extremely unlikely UK would send troops to defend Ukraine, Ukrainian presidential office said Britain’s claims of Russia wanting to install a puppet government need to be considered seriously and that this confirms the west should act tough towards Russia now. (Newswires)
• US Special Envoy for Iran Malley said the US is unlikely to reach an agreement with Iran to save the 2015 Iran nuclear deal unless Iran releases four US citizens 'held hostage'. (Newswires)
• Twitter sources reported explosions in Abu Dhabi and the UAE later announced it thwarted two Houthi ballistic missiles targeting UAE which resulted in no casualties. (Newswires/Twitter)

US TRADE

• All major indices declined for the worst weekly performance in the S&P 500 and Nasdaq since March 2020.
• S&P 500 dropped 1.9% to beneath its 200DMA and the 4,400 level.
• Nasdaq Comp underperformed with losses of 2.7% and is on track for its worst January in history.
• Russell 2000 fell 1.3% and to below 2k.

NOTABLE US HEADLINES

• NIH’s Dr Fauci stated that the US Omicron outbreak is going in the right direction and that the trend looks good but uneven. It was also reported that the FDA took action to expand use of treatment for patients with mild-to-moderate COVID-19 including expanding the use of Remdesivir to some non-hospitalised adults and paediatric patients.(Newswires)
• Goldman Sachs sees the risk of Fed tightening at every meeting beginning in March. (Goldman Sachs)