31st January 2022

• European equities kicked off the week with gains across the board before momentum waned
• US equity futures have eased off best levels to conform to a mostly downward bias; NQ outperforms
• In FX, Dollar drifts along into month-end whilst traditional havens lag; Aussie outperforms pre-RBA
• Fed’s Bostic (2024 voter) suggested that a rate increase of 50bps is possible if inflation remains stubbornly high
• US President Biden stated that the US will be moving troops to Eastern Europe and NATO countries in the near-term
• Russian Foreign Minister to speak with US Secretary of State Blinken over the phone on Tuesday, TASS reports
• Looking ahead, highlights include Australian Manufacturing PMI (Final), Japanese Unemployment, Speeches from Fed’s Daly & George

SNAPSHOT

LOOKING AHEAD

• Australian Manufacturing PMI (Final), Japanese Unemployment, Speeches from Fed’s Daly & George.

Click here for the Week Ahead preview

EUROPEAN TRADE

EQUITIES

• European equities kicked off the week with gains across the board before momentum waned (Euro Stoxx 50 +0.4%; Stoxx 600 +0.6%).
• European sectors have reconfigured to a more defensive bias since the European cash open; Tech outperforms and Basic Resource lag.
• US equity futures have eased off best levels to conform to a mostly downward bias; NQ (+0.5%) remains the outperformer.

Click here for a detailed summary.

FX

• Dollar drifts along with other safe haven currencies as risk appetite improves into month end, but rebalancing flows should help the Buck find a base.
• Aussie regains composure in time for RBA policy meeting and manufacturing PMIs, while Kiwi tags along in slipstream amidst calls for the RBNZ to lift OCR to 2.5% by November.
• Pound holds firm pending Gray report and Partygate statement from PM Johnson.
• Euro regroups as Italian President Matarella agrees to serve second term and Portuguese PM Costa wins snap election unexpectedly.
• Turkish President Erdogan said they will lower interest rates and that inflation will fall too, while he also commented that problems which stem from a volatile FX rate and inflation are temporary, according to Reuters.

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Notable Expiries, NY Cut:

• EUR/USD: 1.1100 (1.32BN), 1.1235-40 (400M), 1.1370-75 (580M), 1.1390-00 (900M), 1.1435 (430M), 1.1450 (610M), 1.1500 (260M), USD/JPY: 114.00 (1.1BN), 114.50 (235M), 115.00-05 (1.34BN), 115.80 (275M), 117.00 (1.15BN).
• EUR/CHF: 1.0250 (420M), 1.0300 (2.04BN), 1.0400 (748M)
• Click here for the full list.

FIXED INCOME

• Core bonds wane after early bounces in choppy month end trade
• BTPs off to a flyer after Italian President Matarella agrees to a second term in office, but hauled back by chat of a new syndication, potentially in the 15 year bucket
• Gilts tentative ahead of widely tipped 25 bp BoE hike later this week and a speech from PM Johnson about Partygate pending the Gray investigation findings

Click here for a detailed summary.

COMMODITIES

• WTI Mar’ and Brent Apr’ have been somewhat choppy with eyes on Russia and the upcoming OPEC+ meeting; NatGas holds onto overnight gains
• Spot gold trades sideways below USD 1,800/oz ahead of a risk-packed week
• LME copper meanwhile has seen a mild rebound from the USD 9,500/t with the red metal lacklustre overnight amid the absence of Chinese participants ahead of the Lunar New Year.
• German Nord Stream 2 approval is not expected during H1 this year, according to FAZ.
• IEA said Chinese gas demand growth forecast is to slow to 8% this year from 12% growth in 2021, while European gas demand forecast is to fall by 4.5% this year on higher coal consumption in the power sector, according to Reuters.

Click here for a detailed summary.

CRYPTO

• Crypto markets are subdued with Bitcoin briefly slipping back beneath the 37,000 level overnight.
• BoE's executive director for financial stability said cryptocurrency does not yet pose a risk to UK's financial stability, according to The Times.

NOTABLE EUROPEAN HEADLINES

• UK PM Johnson and Chancellor Sunak aim to finalise a package of measures to support millions of low income UK households amid an upcoming increase in energy bills, according to FT.
• UK devolved governments in Scotland and Wales slammed PM Johnson's post-Brexit plan and accused the PM of a power grab with legislation to remove legacy EU laws, according to FT.
• UK Foreign Secretary Truss said PM Johnson is the best person to lead the Tories into the next election and insisted there is no discussion about her running to replace PM Johnson, according to The Telegraph.
• Italian President Mattarella was formally re-elected and has agreed to serve a second term after PM Draghi persuaded him to stay on for the nation’s stability, according to BBC.
• Portugal’s ruling Socialists unexpectedly won an outright majority with 117 seats out of the 230-seat parliament after snap elections on Sunday, while the opposition PSD won 71 seats and the far-right party increased their seats to 12, according to France24.
• SGH Macro sources, in a note dated 28th January, suggest that the ECB is continuing with bond purchases to offset a decline in Eurozone fiscal stimulus.

DATA RECAP

• EU GDP Flash Prelim QQ (Q4) 0.3% vs. Exp. 0.3% (Prev. 2.2%, Rev. 2.3%); YY (Q4) 4.6% vs. Exp. 4.7% (Prev. 3.9%)
• UK Lloyds Business Barometer (Jan) 39 (Prev. 40)

US-SPECIFIC HEADLINES

• Fed’s Bostic (2024 voter) maintained his call for three 25bps hikes this year beginning in March but noted that a more aggressive approach is possible if warranted by the data which would mean rate increases at every remaining policy meeting this year, while he also suggested that a rate increase of 50bps is possible if inflation remains stubbornly high, according to FT.

APAC TRADE

• Asian stocks were mostly positive but with conditions thinned due to closures on Chinese New Year's Eve.
• ASX 200 (-0.2%) was subdued with mining names pressured by lower metal prices and weaker output updates.
• Nikkei 225 (+1.1%) reclaimed the 27,000 level with the index underpinned by a weaker currency.
• Hang Seng (+1.1%) finished the shortened trading day higher with the index unfazed by mixed Chinese PMI data, while there was also an absence of Stock Connect flows with participants in the mainland away for the Lunar New Year.

NOTABLE APAC HEADLINES

• PBoC injected CNY 100bln via 14-day reverse repos over the weekend with the rate at 2.25%, according to Reuters.
• US House Majority Leader Hoyer said the House will take up the bill on China competition and support for the semiconductor industry in the week ahead, according to Reuters.

DATA RECAP

• Chinese Manufacturing PMI (Jan) 50.1 vs Exp. 50.0 (Prev. 50.3)
• Chinese Non-Manufacturing PMI (Jan) 50.1 vs Exp. 50.5 (Prev. 52.7)
• Chinese Composite PMI (Jan) 51.0 (52.2)
• Chinese Caixin Manufacturing PMI (Jan) 49.1 vs Exp. 50.0 (Prev. 50.9), 23-month low.
• Japanese Industrial Production YY (Dec) 2.7% vs Exp. 2.9% (Prev. 5.1%)
• Japanese Retail Sales YY (Dec) 1.4% vs. Exp. 2.7% (Prev. 1.9%)

GEOPOLITICS

• US President Biden stated that the US will be moving troops to Eastern Europe and NATO countries in the near-term, according to Reuters.
• Russian Foreign Minister to speak with US Secretary of State Blinken over the phone on Tuesday, TASS reported
• US Senator Mendez said the Senate is nearing an agreement on legislation to sanction Russia and there is strong bipartisan resolve for severe consequences if Russia invades Ukraine, according to Reuters.
• Senior Biden official said individuals to be targeted for possible sanctions, in or near the Kremlin inner circle, or those complicit in destabilising behaviour.
• UK PM Johnson said the picture on Ukraine’s border is increasingly concerning, while UK Foreign Secretary Truss said they think it is highly likely Russian President Putin is seeking to invade Ukraine and it is very unlikely that British soldiers will be deployed to Ukraine to fight alongside Ukrainian troops, according to Reuters. Furthermore, Truss is to tell parliament that Russian oligarchs with links to President Putin who have investments in the UK will be hit by tough sanctions if Russia invades Ukraine, according to FT.
• North Korea fired what appeared to be its longest-range missile since 2017 which flew 800km to an altitude of 2,000km and was its seventh launch this month, according to Reuters.
• Yemeni Houthis' military spokesman said via Twitter that they are to disclose a new military operation against UAE, while it was also reported that UAE air defences engaged targets above Abu Dhabi in which they intercepted a ballistic missile launched towards the UAE.
• Syrian air defences intercepted an Israeli barrage targeting the vicinity of Damascus, according to Syrian state media citing a military source.
• Iranian Foreign Ministry, on the Nuclear Deal talks, says "When it comes to sanctions [lifting], there are still some cases/issues that have not yet been resolved, which the Western sides must decide on.", via Argus' Itayim.