• European equities mixed with underperformance in the FTSE100 hampered by Basic Resources and Energy; Stateside, futures trade on the backfoot
• Dollar is firmer with clear underperformance in the Swiss Franc post-CPI; Yen trades marginally firmer attributed to narrowing yield differentials
• Core fixed benchmarks are around unchanged; Bunds were briefly lifted in the wake of weaker German Trade data
• WTI and Brent lose further ground in a continuation of last week’s action
• Spot Gold surged at the open to record levels, surpassing USD 2,100/oz before waning back to levels under USD 2,075/oz; whilst base metals are mainly in the red
• Looking ahead, US Durable Goods, Factory Orders, Australian Services & Composite PMI, Japanese CPI, Speeches from ECB’s Lagarde & Elderson.

EUROPEAN TRADE

EQUITIES

• European equities are mixed, Eurostoxx50 -0.2%, with trade ultimately choppy throughout the session. The FTSE 100, -0.5%, underperforms, largely hampered by losses in Basic Resources and Energy.
• European sectors are mixed with Retail and Media to the upside, though the overall breadth of the market is narrow; Basic Resources and Energy are the main underperformers, largely a factor of losses in base metals and lower oil prices respectively.
• Stateside futures are trading on the backfoot, ES -0.3%, amid a mixed risk tone in European trade; with the RTY, +0.3%, outperforming.
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FX

• The Dollar index has kicked off the week on a firmer footing as yields eased off Friday’s highs and risk gradually soured overnight and into early European hours.
• EUR/USD is slightly more cushioned vs G10 peers (ex-USD) following last week’s decline on dovish ECB commentary coupled with the softer-than-forecast regional CPI data across the bloc.
• Japanese Yen is now flat intraday following the notable rise on Friday on the back of narrowing rate differentials – dipping from a 148.34 high towards a 146.65 low against the Dollar.
• Swissy is the G10 laggard this morning following the region's CPI metrics which printed sub-forecast across the board in the release before the SNB’s quarterly decision later this month.
• Aussie, Loonie and Kiwi are hit by the broader risk mood, with the AUD and CAD narrowly lagging amid their commodity links.
• PBoC set USD/CNY mid-point at 7.1011 vs exp. 7.1271 (prev. 7.1104).
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FIXED INCOME

• Core benchmarks are essentially unchanged at the time of writing, and reside towards the mid-point of circa. 40 tick parameters in EGBs.
• Bunds were lifted to the 133.44 session peak in the wake of domestic Import/Export data, though the move proved fleeting.
• USTs are just over 10 ticks shy of Friday’s peak and a touch softer on the session as yields, particularly at the short-end, lift and pause for breath during the Fed blackout & pre-data.
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COMMODITIES

• Crude futures, WTI, -0.6%, lose further ground in a continuation of the price action seen since last week’s OPEC+ meeting which ultimately underwhelmed markets as voluntary supply cuts by OPEC+ members have raised doubts about their implementation; the complex has bounced off lows though very much within ranges.
• Spot gold surged at the open to record levels, surpassing USD 2,100/oz before waning back to levels under USD 2,075/oz, with the rally primarily driven by traders betting on the Federal Reserve cutting interest rates early next year.
• 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.
• Canada’s First Quantum notified buyers that the Co. will not be able to meet agreements due to a force majeure.
• UBS forecasts Gold at USD 2250/oz by end-2024
• Kazakhstan daily oil output recovered to 230.5k tons on Dec 3rd after falling amid CPC shipping disruptions, according to data cited by Reuters.
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NOTABLE EUROPEAN 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.
• ECB's de Guindos says recent inflation data is good news and it has been a "positive surprise"; too early to declare victory.
• Riksbank Minutes: monetary policy has reduced demand in the Swedish economy and contributed to an easing of inflationary pressures; monetary policy needs to remain contractionary, however, it is now appropriate to leave the policy rate unchanged. Bremen says In my overall monetary policy assessment, the prospects for inflation and economic activity weigh more heavily than the continued weak krona.
• 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.

DATA RECAP

• German Trade Balance, EUR, SA (Oct) 17.8B vs. Exp. 17.1B (Prev. 16.5B, Rev. 16.7B); Exports -0.2% vs. Exp. 1.1% (Prev. -2.4%, Rev. -2.5%); Imports -1.2% vs. Exp. 0.8% (Prev. -1.7%, Rev. -1.9%)
• Swiss CPI YY (Nov) 1.4% vs. Exp. 1.7% (Prev. 1.7%); Core 1.4%; MM -0.2% vs. Exp. -0.1% (Prev. 0.1%)
• EU Sentix Index (Dec) -16.8 vs. Exp. -16.4 (Prev. -18.6)
• Turkish CPI YY (Nov) 61.98% vs. Exp. 63.0% (Prev. 61.36%); MM 3.28% vs. Exp. 3.9% (Prev. 3.43%)

NOTABLE US HEADLINES

• Nvidia (NVDA) CEO says the semiconductor industry that Japan is developing will be able to manufacture GPUs. Adds, demand is very high but told Japanese PM Kishida would prioritise Japan
• Spotify (SPOT) to reduce total headcount by around 17%
• Click here for the US Early Morning Note.

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.
• Israel General says ground forces have almost completed their mission in Northern Gaza strip

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.
• Ukrainian drone attacked an oil depot within Russian-controlled Luhansk, via Ria

CRYPTO

• Bitcoin jumped above the USD 40k level for the first time in more than a year and gradually extended on gains to breach above USD 41.5k.

APAC TRADE

• 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.

NOTABLE 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.
• China’s internet companies including Didi (DIDIY), Tencent (700 HK/ TCEHY) and Alibaba (9988 HK/ BABA) are reportedly drawing complaints amid growing system failures; industry experts call for strengthened oversight, according to Global Times

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%)