• APAC stocks were indecisive and failed to sustain the momentum from Wall St where US indices eventually closed at session highs post-Powell.
• Fed Chair Powell noted that the disinflationary process has begun but also warned that the Fed will have to do more than what is priced in if jobs data continues to come in hot.
• European equity futures are indicative of a higher open with the Euro Stoxx 50 +1.1% after the cash market closed up 0.1% yesterday.
• DXY was steady overnight, EUR/USD is back on a 1.07 handle, AUD marginally outperforms.
• Looking ahead, highlights include BoC Minutes, Speeches from Fed's Williams, Cook, Barr, Bostic, Kashkari & Waller, ECB's Knot & Elderson, Supply from UK, Germany & US, Earnings from ABN AMRO, Credit Agricole, Equinor, Pandora, Societe Generale, AP Moeller-Maersk, CVS Health, Disney and Uber

US TRADE

• US stocks finished higher although whipsawed as the focus centred on comments from Fed Chair Powell who provided a message for both hawks and doves in which he noted that the disinflationary process has begun but also warned that the Fed will have to do more than what is priced in if jobs data continues to come in hot and we see higher inflation reports. This spurred two-way price action in stocks before the major indices then returned to session highs given that the rhetoric from the Fed chair was less hawkish than some had feared.
• SPX +1.29% at 4,164, NDX +2.12% at 12,728, DJIA +0.78% at 34,156, RUT +0.76% at 1,972.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed Chair Powell said the message from last week's FOMC was that the disinflationary process has begun and they are at the very early stages, while he said the labour market was very strong and didn't expect it to be that strong. Powell added if they continue to get strong labour market reports or higher inflation reports, they may need to hike rates more than what is priced in and said Friday’s jobs report underscores the message that the Fed has a significant road ahead to lower inflation.
• US President Biden said he is announcing new standards to require all construction materials used in federal infrastructure projects to be made in America and said the tax system is unfair, while he called for Congress to pass a minimum billionaire tax and proposed to quadruple the tax on corporate stock buybacks. President Biden noted he is committed to working with China where it can advance American interests and benefit the world but if China threatens US sovereignty, the US will act to protect the country and also said the US is in the strongest position in decades to compete.

APAC TRADE

EQUITIES

• APAC stocks were indecisive and failed to sustain the momentum from Wall St where markets whipsawed as attention centred on Fed Chair Powell before the major US indices eventually closed at session highs as Powell’s two-sided comments proved not to be as hawkish as some feared.
• ASX 200 was underpinned by strength in financials and with the mining-related industries benefitting from the rebound in underlying commodity prices.
• Nikkei 225 underperformed with sentiment in Japan pressured by weak earnings reports from the likes of SoftBank, Sharp and Nintendo.
• Hang Seng and Shanghai Comp. were indecisive amid lingering tensions from the spy balloon incident and after China denied a US request for a phone call between defence officials.
• US equity futures (ES unch.) traded sideways as focus turned to President Biden’s State of the Union Address which did little to excite markets amid a divided Congress and with several excerpts flagged beforehand.
• European equity futures are indicative of a higher open with the Euro Stoxx 50 +1.1% after the cash market closed up 0.1% yesterday.

FX

• DXY was rangebound after the recent fluctuations owing to the mixed commentary from Fed Chair Powell; traded within a 103.25-41 range overnight.
• EUR/USD was lacklustre but off lows after bouncing back from a brief slip beneath 1.0700, while there were further comments from ECB officials regarding the inflationary environment in which ECB's Schnabel noted inflation momentum is still elevated and they cannot yet give the all clear.
• GBP/USD was flat with price action stuck around the 1.2050 level.
• USD/JPY retraced some of its recent losses with price action somewhat jittery as participants await the BoJ pick which could be announced as early as next week.
• Antipodeans were contained amid the moderate risk mood and absence of pertinent data releases.
• PBoC set USD/CNY mid-point at 6.7752 vs exp. 6.7758 (prev. 6.7967)
• BoC Governor Macklem flagged the debt load in explaining the early rate pause and said that rate hikes have hit homeowners hard, while the BoC needs time to gauge how households and businesses adapt to higher rates before making further moves. Macklem also commented that they cannot put it on a calendar and do not know how long the duration of the rate pause will be, according to Bloomberg.

FIXED INCOME

• 10yr UST futures recovered from yesterday’s losses after the volatile mood seen during Fed Chair Powell’s remarks and with headwinds from large corporate supply and following a weak 3yr auction.
• Bund futures moved off lows with support around 136.00 although the rebound was only marginal compared to the declines in the prior session where there was further pressure after the ECB announced a new ceiling on government deposits which aims to encourage a gradual reduction of such deposits.
• 10yr JGB futures were rangebound despite the recent losses across global counterparts with prices kept afloat amid the BoJ’s presence in the market for JPY 1.9tln of JGBs on top of its fixed-rate operations.

COMMODITIES

• Crude futures were steady and held on to the spoils from the prior day's strong rally owing to the recovering China demand narrative and after the EIA raised its world oil demand growth forecast, as well as expressed that the increased global demand growth will primarily come from China.
• US Energy Inventory Data (bbls): Crude -2.2mln (exp. +2.5mln), Gasoline +5.3mln (exp. +1.3mln), Distillate +1.1mln (exp. +0.1mln), Cushing +0.2mln.
• EIA STEO stated 2023 world oil demand forecast was raised by 60k BPD to a 1.11mln BPD Y/Y increase and the 2024 forecast was raised by 70k BPD to a 1.79mln BPD Y/Y increase.
• Iraqi crude oil pipeline to Turkey's Ceyhan port resumed flows after the earthquake, according to an Iraqi oil source cited by Reuters.
• UK's Unite union announced that a 48-hour strike is underway at BP (BP/ LN) Petrofac installations involving around 80 workers, according to Reuters.
• Spot gold traded rangebound following the recent Powell-induced turbulence.
• Copper futures were uneventful alongside the mixed risk appetite and indecision in China.
• Glencore's (GLEN LN) Antapaccay copper mine in Peru reopened after closing on January 20th amid attacks by protesters, while it reopened on January 31st with raised security and is now operating at normal production levels.

CRYPTO

• Bitcoin was contained and took a breather after its recent ascent north of the 23,000 level.

NOTABLE ASIA-PAC HEADLINES

• Japan is arranging to relax border control measures for visitors from China as soon as this month and will end blanket testing for all travellers from China upon arrival, but will continue requiring a COVID test before departure from China, according to FNN.
• New Zealand PM Hipkins said policy is to be focused on the cost of living and announced that the minimum wage will increase in line with CPI from April.
• RBI hiked the Repurchase Rate by 25bps to 6.50% as expected through a 4-2 vote (prev. 5-1) and the MPC kept the policy stance of remaining focused on the withdrawal of accommodation through a 4-2 vote (prev. 4-2). RBI Governor Das stated further calibrated monetary policy action is warranted and that the situation remains fluid and uncertain, while he added that the stickiness of core inflation is a matter of concern and they need to see a decisive fall in inflation.

GEOPOLITICS

• US Pentagon said China declined a US request for a phone call between the Pentagon chief and China's defence minister, according to Reuters.
• Head of Ukraine's defence council said a new Russian offensive could include Kharkiv or Zaporizhzhia regions and said if there is a facility inside Russia causing destruction to Ukraine, we have to destroy it, according to Reuters.
• US State Department confirmed approval of the sale of HIMARS launchers, ATACMS and GMLRS rockets for up to USD 10bln to Poland.

EU/UK

• NIESR cut 2023 UK GDP growth forecast to 0.2% from 0.7% and 2024 GDP to 1.0% from 1.7%, while it sees CPI averaging 8.3% in 2023 and 4.2% in 2024 vs. prev. forecast of 8.0% and 3.9%, respectively.
• ECB said a new ceiling on government deposits will be set at ESTR minus 20bps as of May 1st and that the changes are to encourage the gradual reduction of government deposits.
• ECB's Schnabel said inflation momentum is still quite elevated and they cannot yet give the all clear. Schnabel added she is concerned that inflation will remain too high in the medium term and is keeping a particularly close eye on core inflation, while she reiterated the intention to hike by 50bps in March.