• European bourses are firmer across the board, Euro Stoxx 50 +0.8%, with an easing in yields seemingly spurring a modest extension of opening gains.
• US FAA has reported a system equipment outage, all flights nationwide have been grounded, according to a source familiar via NBC
• DXY has consolidated above 103.00 to the modest detriment of peers, ex-antipodeans and Euro.
• The initial rally in fixed income has run out of steam and pulled back from best amid sub-par German supply ahead of a USD 10yr
• Crude benchmarks are posting modest gains while LME Copper has eclipsed USD 9k and spot-gold prints a fresh multi-month high
• Looking ahead, highlights include EIA Inventories & supply from the US.

EUROPEAN TRADE

EQUITIES

• European bourses are firmer across the board, Euro Stoxx 50 +0.8%, with an easing in yields seemingly spurring a modest extension of opening gains.
• Sectors are primarily in the green, though Insurance names are pressured in sympathy with Direct Line while Retail-related stocks are supported after updates from the likes of JD Sports.
• US futures posting marginal gains, ES +0.2%, with the US docket particularly thin ex-supply ahead of Thursday's CPI.
• US FAA has reported a system equipment outage, all flights nationwide have been grounded, according to a source familiar with the situation, cited by NBC Washington reporter.
• Click here for more detail.

FX

• DXY forms a foothold on 103.000 handle within a tight band post-Powell and pre-US CPI.
• Aussie outperforms on perky inflation metrics, strong retail sales data and gains in iron ore prices, AUD/USD holds near 0.6900 and AUD/NZD rebounds from around 1.0800 to top 1.0850.
• Euro retains grasp of 1.0700 handle, but Sterling sags around 1.2150 axis and Yen weakens after closing below a Fib to circa 132.75 and away from decent option expiries at 132.50.
• PBoC set USD/CNY mid-point at 6.7756 vs exp. 6.7776 (prev. 6.7611)
• Click here for more detail.

FIXED INCOME

• Core benchmarks continued to gain momentum throughout the morning with little clear sign of concession pre-supply and perhaps deriving some support from ECB remarks.
• However, the rally has run out of steam with a sub-par German outing aiding the pullback, with Bunds and Gilts now sub 137.00 and 103.00 respectively.
• Stateside, USTs have been following suit and it remains to be seen if the looming 10yr supply will influence broader action, an auction which follows Tuesday's strong 3yr.
• UK DMO is to launch a new conventional Gilt maturing October 2053 in the week commencing January 23rd.
• Click here for more detail.

COMMODITIES

• WTI and Brent have experienced a firmer start to the mid-week session, with the benchmarks posting upside of around USD 0.30/bbl within relatively narrow ranges that keeps the complex within WTD and recent parameters
• US and allies are reportedly preparing the next round of sanctions on Russian oil, via WSJ; intending to cap the sales price of Russian exports of refined petroleum products.
• Russian Kremlin, on possible losses from oil price caps, says there have been hardly any cases of the caps yet.
• Chinese Commerce Ministry will continue to impose anti-subsidy tariffs on dried distillers grains with solubles (DDGS) imported from the US.
• Standout mover has been LME Copper which eclipsed the USD 9k mark in an extension of yesterday’s price action after fairly contained/rangebound APAC trade for base metals.
• Spot gold is modestly firmer and resides towards the top-end of a USD 1872-1886/oz range, which is a fresh multi-month high leaving the figure itself as resistance before the May 2022 USD 1909/oz peak.
• Click here for more detail.

NOTABLE HEADLINES

• ECB's Villeroy says they will need to be pragmatic on speed of hikes, will have to raise rates more in the coming months. Should aim to reach the terminal rate by the summer. Domestic inflation is likely to peak in H1, will avoid hard landing scenario.
• ECB's Holzmann says rates will need to rise significantly further to reach levels that are sufficiently restrictive to ensure a timely return of inflation to target. Inflation is expected to subside but risks remain to the upside. There are no signs of de-anchored market expectations.

NOTABLE DATA

• German VDMA engineering orders (Nov) -14% Y/Y; domestic -7%, foreign -17%.
• German autos association VDA sees 2% growth in German passenger car market in 2023, to 2.7mln (Still a quarter below 2019 levels).

NOTABLE US HEADLINES

• US Treasury Secretary Yellen told President Biden that she planned to stay on as Treasury Secretary and Biden welcomed the decision, according to WSJ citing White House officials.
• US, Canada and Mexico are to explore standards to develop hydrogen as a regional clean energy source, while they will forge regional supply chains and promote targeted investment in key industries of the future including semiconductors and EV batteries.
• Click here for the US Early Morning note.

GEOPOLITICS

• Russia's ambassador to the US commented that the US training of Ukrainian troops on Patriot systems confirms Washington's de facto participation in the conflict and that the US administration's goal is to inflict the most damage on Russia on the battlefield by the hands of Ukrainians, according to Reuters.
• Russian Kremlin says there is a positive dynamic in the military situation around Ukrainian town of Soledar Putin is open to discussions on Ukraine.
• Russian Rights Commissioner says important ceasefire proposals have been made during her meeting with Turkish and Ukrainian colleagues in Turkey, via Reuters.
• Russia and Iran are working on a new shipping corridor to bypass sanctions and are looking to work with India, according to Nikkei. ]

CRYPTO

• Bitcoin is under modest pressure and has slipped below the USD 17.5k mark, though the magnitude of the move is limited within tight parameters for the session.

APAC TRADE

• APAC stocks initially tracked the advances on Wall Street after Fed Chair Powell refrained from any major policy rhetoric and as participants looked ahead to upcoming US CPI data with hopes of softening price growth.
• ASX 200 tested the 7,200 level to the upside with the index led by outperformance in the mining and materials sectors, while participants also digested better-than-expected Retail Sales and a pickup in monthly inflation metrics.
• Nikkei 225 gained as earnings trickled in with outperformance in Yaskawa Electric after growth in its top and bottom lines, while there was encouragement from news that Fast Retailing will boost wages by as much as 40%.
• Hang Seng and Shanghai Comp were firmer for a bulk of the session after the PBoC pledged support measures including for the property sector and boosted its short-term liquidity efforts ahead of next week’s Lunar New Year celebrations, although gains were capped in the mainland after the recent mixed loans and aggregate financing data.

NOTABLE ASIA-PAC HEADLINES

• PBoC injected CNY 65bln via 7-day reverse repos with the rate kept at 2.00% and it injected CNY 22bln via 14-day reverse repos with the rate kept at 2.15% for a CNY 71bln net daily injection.
• Analysts noted there is room for China to cut RRR and interest rates this year, while analysts also see room for a rate cut in the property sector, according to China Securities Journal.
• BoJ offered to buy JPY 100bln in 1-3yr JGBs, JPY 100bln in 3-5yr JGBs, JPY 300bln in 5yr-10yr JGBs, JPY 200bln in 10yr-25yr JGBs and JPY 50bln in 25yr+ JGBs, while it also offered to buy an unlimited amount of JGBs at a fixed rate with maturities of 1yr-3yr and 3yr-5yr in an unscheduled announcement.

DATA RECAP

• Australian CPI YY (Nov) 7.3% vs Exp. 7.3% (Prev. 6.9%); Trimmed Mean CPI YY (Nov) 5.6% vs Exp. 5.5% (Prev. 5.3%)
• Australian Retail Sales MM Final (Nov) 1.4% vs. Exp. 0.6% (Prev. -0.2%, Rev. 0.4%)