• APAC stocks traded mixed with an initial positive bias after last Friday’s gains on Wall St, although the upside was capped in the region after quiet macro newsflow from the weekend and ahead of this week’s key events.
• DXY was marginally positive in otherwise quiet trade, 10-year UST futures mildly pulled back although held to most of Friday's spoils, and crude futures were subdued.
• Spot gold initially surged by more than 3% shortly after the open as prices breached record highs to above the USD 2,100/oz level but then spent the rest of the session giving back the majority of the gains.
• Bitcoin rallied after breaking above the USD 40,000 level for the first time in more than a year and gradually extended on gains to breach above USD 41,000.
• US Pentagon said it is aware of reports regarding an attack on USS Carney and several commercial vehicles in the Red Sea, while the US said that USS Carney engaged and shot down a drone launched from Houthi-controlled areas in Yemen.
• Looking ahead, highlights include German Trade, EZ Sentix Index, US Durable Goods, Factory Orders, Australian Services & Composite PMI, Japanese CPI, Speeches from ECB’s Lagarde & Elderson.

US TRADE

EQUITIES

• US stocks gained on Friday with the major indices boosted and notable outperformance was seen in the Russell 2k amid a bid in regional banks and cyclicals, while the Treasury curve saw massive bull-steepening in the wake of the soft ISM manufacturing survey and Fed Chair Powell's remarks that were deemed not hawkish enough to offset Waller's comments on Tuesday.
• SPX +0.59% at 4,594, NDX +0.31% at 15,997, DJIA +0.82% at 36,245, RUT +2.96% at 1,862.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed Chair Powell said on Friday that he has been surprised on the upside this year with inflation coming down 'meaningfully' but growth and jobs continuing, while he added that inflation is still 'well above target' but moving in the right direction. Powell also there is a path to getting inflation down to 2% without large job losses and that they are on that path, as well as noted that the Fed has to restore price stability as the bedrock of the economy.

APAC TRADE

EQUITIES

• APAC stocks traded mixed with an initial positive bias after last Friday’s gains on Wall St owing to a decline in yields amid increased Fed rate cut bets for next year despite the pushback from Fed Chair Powell, although the upside was capped in the region after quiet macro newsflow from the weekend and ahead of this week’s key events including central bank rate decisions and a slew of data releases.
• ASX 200 was higher with gains led by the yield-sensitive sectors such as tech and real estate, while gold miners were boosted after the precious metal initially surged above USD 2,100/oz and printed a fresh record high before fading the majority of the early spike.
• Nikkei 225 lagged and briefly approached the 33,000 level to the downside with pressure from recent currency strength.
• Hang Seng and Shanghai Comp traded indecisively as PBoC Governor Pan’s repeated support pledges were offset by a substantial net liquidity drain and geopolitical frictions in the South China Sea, while attention was also on Evergrande’s windup hearing which the Hong Kong court adjourned to January 29th to give the Co. some breathing space to work on its restructuring proposal.
• US equity futures traded rangebound after a quiet weekend of newsflow from the US and amid the mixed performance in Asia.
• European equity futures are indicative of a slightly higher open with Euro Stoxx 50 future +0.1% after the cash market closed up 0.8% on Friday.

FX

• DXY was marginally positive in otherwise quiet trade with a narrow range of 103.12-103.34 amid the lack of fresh drivers from the US and with the Fed on a blackout period, while there were comments on Friday from Fed Chair Powell who pushed back against talk of rate cuts and said more hikes could happen, although markets weren’t buying it and are currently leaning towards the first cut in Q1.
• EUR/USD EUR/USD was lacklustre beneath the 1.0900 level with the single currency largely ignoring weekend comments from ECB’s Nagel that it is too early to declare victory over inflation which will continue declining in the months ahead at a slower pace.
• GBP/USD was slightly pressured after failing to hold on to the 1.2700 handle and amid the absence of any pertinent catalysts.
• USD/JPY languished at a sub-147.00 level following last week’s narrowing of US-Japan yield differentials.
• Antipodeans were choppy alongside the similar risk tone and mixed data releases from Australia, while participants look ahead to tomorrow's RBA meeting where many are anticipating a hawkish pause by the central bank.
• PBoC set USD/CNY mid-point at 7.1011 vs exp. 7.1271 (prev. 7.1104).

FIXED INCOME

• 10-year UST futures mildly pulled back although held to most of Friday's spoils which were spurred by soft ISM Manufacturing data and as markets began pricing in rate cuts for Q1 next year.
• Bund futures took a breather following recent advances but with the downside stemmed by near-term support at 133.50.
• 10-year JGB futures spent most of the session fading last week's late gains after hitting resistance near the 147.00 level.

COMMODITIES

• Crude futures were subdued in which Brent and WTI languished beneath USD 79/bbl and USD 74/bbl, respectively, with demand hampered alongside the mixed risk appetite, while the various geopolitical headlines from over the weekend had little effect on prices.
• US Department of Energy said on Friday that oil companies will return 4mln barrels of oil to the US SPR by February from the previous exchange and the US seeks to buy up to 3mln more barrels of oil for SPR for February delivery.
• US, UK and EU are to tighten compliance and increase leverage for buyers to keep getting discounted oil, while they jointly reached out to Liberia, the Marshall Islands and Panama to warn of increased circumvention of the Russian oil price cap.
• Kuwait Oil Company said several were injured after a limited fire broke out at an oil line although production was unaffected.
• Spot gold initially surged by more than 3% shortly after the open as prices breached record highs to above the USD 2,100/oz level and amid speculation the Fed could be done hiking rates, but then spent the rest of the session giving back the majority of the gains.
• Copper futures trickled lower to below USD 3.90/lb amid the cautious mood in its largest purchaser China.
• Canada’s First Quantum notified buyers that the Co. will not be able to meet agreements due to a force majeure.

CRYPTO

• Bitcoin rallied after breaking above the USD 40,000 level for the first time in more than a year and gradually extended on gains to breach above USD 41,000.

NOTABLE ASIA-PAC HEADLINES

• Chinese Center for Disease Control and Prevention requested that the elderly and patients with underlying diseases and children avoid public gatherings, while it advised the public to wear masks in crowded places such as public transportation. It also stated that some public cultural venues, museums and indoor attractions can implement measures to avoid high density of people.
• PBoC Governor Pan reiterated a pledge to defend the housing market's healthy operation and said China's financing structure needs to be improved, while he vowed to handle actions disrupting market order and vowed low-cost funding aid to affordable home projects.
• BoJ’s Noguchi said Japan has yet to achieve a wage-driven rise in inflation and said they must see price rises backed by sustained wage increases to achieve the 2% price target, according to Reuters.
• A bombing attack killed four people and wounded several others in the Philippines’ southern city of Marawi City in Mindanao, while it was later reported that Islamic State claimed responsibility for the bombing.

DATA RECAP

• Australian Home Loans MM (Oct) 5.4% vs Exp. 1.1% (Prev. 0.6%, Rev. 1.5%)
• Australian Gross Company Profits (Q3) -1.3% vs. Exp. -0.3% (Prev. -13.1%)
• Australian Business Inventories (Q3) 1.2% vs. Exp. -0.6% (Prev. -1.9%)

GEOPOLITICS

ISRAEL-HAMAS

• Israel’s military chief said the operation in southern Gaza will match the operation in northern Gaza where they fought strongly and thoroughly, while an Israeli military spokesman said forces are operating on the ground against Hamas centres in all of Gaza, according to Reuters.
• Hamas deputy chief said Israeli hostages will not be freed unless there is a ceasefire, and all Palestinian detainees are released, while the Hamas armed wing said they bombarded Tel Aviv with a barrage of missiles.
• A Mossad team was in Doha on Saturday for discussions with Qatari mediators on restarting the Gaza truce in which talks focused on the potential release of new categories of Israeli hostages and new truce parameters. However, it was later reported that Israeli PM Netanyahu’s office said the Mossad team was recalled from Qatar due to deadlock in negotiations over Gaza and that Hamas did not meet its obligation to free all children and women hostages on the list it approved.
• Israeli military spokesperson said several humanitarian trucks entered Gaza after being security cleared on the Israeli side of the border, while the spokesperson added that this will be a long war and not bound by time, according to Reuters.
• Israel’s army said a launch was identified from Syria towards Israeli territory and the army responded by targeting the launch site, while it was also reported that Iran said two Revolutionary Guards were killed in an Israeli attack in Syria, according to Reuters.
• US Pentagon said it is aware of reports regarding an attack on USS Carney and several commercial vehicles in the Red Sea, while the US said that USS Carney engaged and shot down a drone launched from Houthi-controlled areas in Yemen. It was separately reported that the Yemeni Houthi group said its navy targeted two Israeli ships although Israel’s military said the ships targeted had no connection to the state of Israel, while AFP reported that a UK-owned ship passing through the Red Sea was hit by rocket fire.
• US carried out a self-defence strike in Iraq against an imminent threat at a drone staging site, according to a US military official.
• US Vice President Harris said international humanitarian law must be respected in the Gaza war and too many innocent Palestinians have been killed, while she added that Israel has a legitimate military objective against Hamas but must do more to protect civilians. There were also comments from Secretary of Defense Austin who said protecting civilians in Gaza is a strategic imperative for Israel, as well as noted that the US will remain Israel’s closest friend and won’t let Hamas win.
• UK Foreign Secretary Cameron will travel to Washington D.C. on Wednesday and will conduct bilateral meetings with US Secretary of State Blinken, as well as meet congressional figures, while the focus of discussions will be support for Ukraine and to work to de-escalate tensions in the Middle East, according to Reuters.
• Islamic Jihad said Britain announced the participation of its air force in intelligence missions in Gaza as an effective participation in the aggression, according to AJA Breaking via social media platform X.
• Turkish President Erdogan said the chance for peace in the conflict is lost for now due to Israel’s uncompromising approach, while he added that Hamas is not a terrorist organisation and nobody should expect him to define them otherwise. Furthermore, Erdogan said a contact group of Muslim countries is ready to prepare a roadmap for the resolution of conflict in Gaza after talks with Western powers.

OTHER

• NATO Secretary General Stoltenberg said NATO should be ready for bad news from the Ukrainian front as Kyiv continues to defend against Russia’s invasion, while he added that they have to support Ukraine in both good and bad times, according to an ARD interview cited by Politico.
• China's military said a US combat ship illegally entered waters adjacent to the Second Thomas Shoal and that the US deliberately disrupted the South China Sea, while it added the US seriously violated China's sovereignty and undermined regional peace and stability.
• Philippines Coast Guard said it is to conduct patrols in the vicinity of the Whitsun Reef and it is monitoring the illegal presence of more than 135 Chinese maritime militia vessels at a reef in the South China Sea.
• North Korea said interference with its satellite operation would be considered a declaration of war and that North Korea would respond to any US interference in space by eliminating the viability of US spy satellites. North Korea also stated that its laws stipulate mobilisation of war deterrence if an attack against its strategic assets becomes imminent, according to KCNA.
• North Korea said US sanctions violate international law and that it will retaliate against the US, Japan and Australia for sanctions against its satellite launch, while it said it will take countermeasures against individuals and organisations that impose and enforce sanctions, according to KCNA. Furthermore, North Korea warned a “physical clash and war” have become a matter of time after the scrapping of a key military pact designed to reduce tensions with South Korea, according to The Telegraph.
• Venezuela on Sunday approved a referendum called by the government of President Maduro to claim sovereignty over an oil- and mineral-rich area of Guyana, according to AP News.

EU/UK

NOTABLE HEADLINES

• ECB’s Nagel said it is way too early to declare victory over inflation and noted that inflation in the Eurozone will carry on declining in the months ahead but at a slower pace, according to Kathimerini.
• German Economic Minister Habeck cancelled his COP28 trip to focus on budget talks.
• French Interior Minister said one person died and two were injured from an attack by a suspect on tourists, while the suspect was said to be motivated by the Gaza situation and was on the French security services watch list, as well as known for psychiatric disorders.
• S&P affirmed France at AA; Outlook Negative and affirmed Poland at A-; Outlook Stable, while Fitch affirmed the UK at AA-; Outlook Stable, affirmed Ireland at AA-: Outlook Positive and raised Greece from BB+ to investment grade status of BBB-; Outlook Stable.