• European bourses and US Futures extend modest gains, though the Russell outperforms paring back the prior day’s hefty losses
• Dollar is softer and the Pound gains post-final PMI revisions, EUR bid on PMIs with German inflation due; Yen continues its losing streak
• Bonds weaken as attention turns to US data; hawkish reaction after Final PMI revisions
• Crude benchmarks are firmer as Middle East tensions continue alongside USD downside, XAU also benefits
• Looking ahead, US Services & Composite PMI (Final), German Nationwide CPI, US Initial Jobless Claims. Earnings from Walgreens Boots, Lamb Weston Holdings

EUROPEAN TRADE

EQUITIES

• European bourses, Eurostoxx50 (+0.3%), are modestly firmer with clear outperformance in the IBEX (+0.7%) benefitting from several broker upgrades; Grifols (+2.3%), Endesa (+2.2%).
• European sectors have a positive tilt; Energy is propped up by higher Crude prices, whilst Retail lags, hampered by losses in JD Sports (-21.2%).
• US Equity Futures are marginally firmer ES (+0.1%), though the Russell (+0.6%), outperforms seemingly attempting to pare back some of Wednesday's hefty losses.
• Click here and here for the sessions European pre-market equity newsflow, including earnings.
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FX

• DXY is softer amid a slight reversal of recent risk moves and as attention turns to US ADP/IJC later today; index at the low-end of a 102.14-52 range.
• EUR attempts to claw back recent losses against the Dollar with upward PMI revisions providing support allowing the Single-Currency to climb above yesterday's high of 1.0968.
• The Yen continues its losing streak against the Dollar making a high just above 144.00; Large clips due to roll off at 143.80-85 and 144.00.
• The Pound is the best performing G10 currency and back on a 1.27 handle, a breach driven post final-PMI revisions.
• Morgan Stanley has turned neutral on USD after previously being bullish; pivots short EUR/USD trade recommendation to short EUR/JPY. "We turn neutral on the USD as our conviction about USD strength has waned meaningfully. Investors appear to be adopting an 'early cycle' mentality where peak Fed hawkishness is sufficient to 'paper over' other risks". "JPY should continue to gain as long as US rates are falling, regardless of the risk outlook".
• PBoC set USD/CNY mid-point at 7.0997 vs exp. 7.1504 (prev. 7.1002)
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• Click here for the Option Expires for the NY Cut.

FIXED INCOME

• USTs modestly bear steepen and hold around a 112.07 trough, largely taking cues from EBGs; attention turns to US IJC, ADP and Final PMIs.
• Bunds initially caught a bid on NRW CPI though gradually pared the move as more states released figures which by in-large chimed mainland expectations for an increase in inflation; currently residing around the 136.58 low.
• Gilts were initially firmer though succumbed to selling pressure, in-fitting with peers; the benchmark extended losses to a 101.05 trough before lifting from lows following a strong auction.
• Spain sells EUR 6.3bln vs exp. EUR 5.5-6.5bln 2.50% 2027, 3.50% 2029, 1.90% 2052 Bono and EUR 0.599bln vs. Exp. EUR 0.25-0.75bln 0.65% 2027 I/L.
• France sells EUR 11.975bln vs exp. EUR 10.5-12.0bln 3.50% 2033, 1.25% 2038, 3.00% 2054 OAT.
• UK sells GBP 3bln 3.75% 2038 Gilt: b/c 3.36x (prev. 2.97x), average yield 4.067% (prev. 4.871%) & tail 0.2bps (prev. 0.4bps).
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COMMODITIES

• Crude benchmarks are firmer on the session with WTI extending gains to an incremental fresh WTD high of USD 74.00; action occurring without fresh fundamental driver and seemingly taking impetus from the general European tone and USD downside.
• Spot Gold has continued to edge higher throughout the APAC and European session as the Dollar continues to weaken; Base metals are modestly firmer having traded cautiously overnight.
• Morgan Stanley says growth in world oil demand is set to slow as post-COVID recovery tailwinds abate. See 2024 oil demand growth of 1.2mln BPD (vs. 2.2mln BPD in 2023)
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NOTABLE EUROPEAN HEADLINES

• BoE Monthly Decision Maker Panel data - December 2023: One-year ahead CPI inflation expectations 4.0% vs. prev. 4.4%. Three-year ahead CPI inflation expectations 3.1% vs. 3.2%. Expected year-ahead wage growth increased marginally to 5.2% on a three-month moving average basis.

DATA RECAP

• German North Rhine-Westphalia State CPI YY (Dec) 3.5% (Prev. 3.0%); Core 3.4% (prev. 3.7%) - click here for reaction & analysis.
• Overall, the German state CPIs conform around consensus for the mainland figure at 13:00GMT/08:00EST, Y/Y is seen at 3.7% (prev. 3.2%) and M/M at 0.1% (prev. -0.4%), initial dovish reaction on the NRW figure given a continued core downtick and pronounced energy base effects. Though, as mentioned, this faded in EGBs with a hawkish narrative taking over post-PMIs (price pressures re. services) and as subsequent state CPIs printed around mainland consensus - with heavy influence from energy base effects.
• French CPI (EU Norm) Prelim YY (Dec) 4.1% vs. Exp. 4.1% (Prev. 3.9%); YY NSA (Dec) 3.7% vs. Exp. 3.80% (Prev. 3.50%)
• Spanish Services PMI (Dec) 51.5 vs. Exp. 51.2 (Prev. 51)
• Italian HCOB Services PMI (Dec) 49.8 vs. Exp. 49.8 (Prev. 49.5); Composite PMI (Dec) 48.6 (Prev. 48.1)
• French S&P Global Services PMI (Dec) 45.7 vs. Exp. 44.3 (Prev. 44.3); Composite PMI (Dec) 44.8 vs. Exp. 43.7 (Prev. 43.7)
• German HCOB Services PMI (Dec) 49.3 vs. Exp. 48.4 (Prev. 48.4); Composite Final PMI (Dec) 47.4 vs. Exp. 46.7 (Prev. 46.7)
• EU HCOB Services Final PMI (Dec) 48.8 vs. Exp. 48.1 (Prev. 48.1); Comp Final PMI (Dec) 47.6 vs. Exp. 47 (Prev. 47)
• UK BOE Consumer Credit (Nov) 2.005B GB vs. Exp. 1.4B GB (Prev. 1.289B GB, Rev. 1.411B GB); UK Mortgage Lending (Nov) -0.039B GB (Prev. -0.05B GB, Rev. -0.083B GB)
• UK Mortgage Approvals (Nov) 50.067k vs. Exp. 48.5k (Prev. 47.383k, Rev. 47.888k); UK M4 Money Supply (Nov) -0.1% (Prev. 0.3%)

NOTABLE US HEADLINES

• Click here for the US Early Morning Note.

GEOPOLITICS

• Members of Biden's national security team convened a White House meeting on Wednesday to review possible options against the Houthis, including strikes against Houthi targets in Yemen, according to officials cited by NBC. "The meeting on Wednesday afternoon was aimed at fleshing out details of various options that are more robust than those the White House has previously considered and that could include responding alongside other nations, the officials said". "White House has not approved any of the options for strikes on the Yemen-based rebels that have been prepared by the US military, current and former officials said."

CRYPTO

• Bitcoin meanders around the USD 43k level, consolidating after yesterday's sell-off.
• US SEC and stock exchange officials meet ahead of potential Spot Bitcoin (BTC) ETF approval; "The meetings are seen as a positive sign that the SEC is nearing approval of some or all of the dozen applications", FBN sources said.

APAC TRADE

• APAC stocks traded lower across the board as the risk aversion continued to seep from Wall Street despite the lack of a clear catalyst.
• ASX 200 was the relative outperformer, with losses cushioned by the energy sector following the rise in crude prices
• Nikkei 225 returned from its long break and caught up with the losses in the region seen yesterday, although the downside was limited amid the recent weakening in the JPY.
• Hang Seng and Shanghai Comp were both lower but the former saw shallower losses due to gains in oil majors, whilst the latter failed to benefit from the improvement in Chinese Caixin Services PMI, although the release suggested domestic and foreign demand remain insufficient.

NOTABLE HEADLINES

• Fitch downgraded four Chinese National asset management companies by one notch; three on rating watch Negative - "reflecting reduced government support expectations."
• PBoC injected CNY 15bln through 7-day reverse repos at a maintained rate of 1.80% for a net drain of CNY 585bln.
• Japanese PM Kishida said he plans to carry out cabinet approval on January 9th to use reserve funds to cover damages caused by the earthquake, according to Reuters.
• BoJ Governor Ueda said he hopes for Japan's economy to achieve balanced rises in wages and inflation; he added if wages and inflation rise in a balanced manner, it can encourage firms to invest in equipment, research, and development, according to Reuters.
• South Korean Finance Ministry sees 2024 growth at 2.2% (vs prev. 2.4%) and 2024 inflation at 2.6% (vs prev. 2.3%), according to Reuters.

DATA RECAP

• Chinese Caixin Services PMI (Dec) 52.9 (Prev. 51.5); Composite 52.6 (Prev. 51.6) - "It is also crucial to note that domestic and external demand is still insufficient", according to Caixin
• Australian Judo Bank Services PMI Final (Dec) 47.1 (Prev. 47.6); Composite PMI Final (Dec) 46.9 (Prev. 47.4)
• Japanese JibunBK Manufacturing PMI Final SA (Dec) 47.9 (Prev. 47.7)