• APAC stocks eventually traded mixed as the earlier positivity gradually waned despite a lack of major newsflow.
• DXY traded in a tight range but briefly breached 102.50 to the upside, USD/JPY inched closer towards 145 before waning, and EUR/USD was subdued after falling under 1.0950.
• Crude futures were firmer whilst Politico sources suggested the US is drafting plans to hit back at Iran-backed Houthi militants.
• South Korea ordered an evacuation on Yeonpyeong Island near the North Korean border "due to the situation related to North Korea's provocation", according to Yonhap.
• European equity futures are indicative of a softer open with Euro Stoxx 50 future -0.5% after cash closed +0.6% on Thursday.
• Looking ahead, highlights include German Retail Sales, UK Halifax House Prices, EZ Flash CPI, Producer Prices, Canadian Leading Index, US NFP, Durable Goods, ISM Services Employment Index, Canadian Ivey PMI, and Speech from Fed's Barkin.

US TRADE

EQUITIES

• US stocks were choppy in a session where yields and central bank rate paths moved decisively higher with key data and positioning factors aligned. Stocks initially attempted to bounce on the cash open but that faded into the NY afternoon, closing in the red amid a chunky sell-side imbalance.
• SPX -0.3% at 4,689, NDX -0.5% at 16,282, DJI +0.03% at 37,440, RUT -0.08% at 1,958.
• Click here for a detailed summary.

NOTABLE HEADLINES

• St. Louis Fed names former Tudor executive Alberto Musalem as President to replace Bullard, effective April 2nd, according to Reuters.
• McDonald's (MCD) CEO noted that the Middle East war is causing a 'meaningful' impact, according to LinkedIn.
• ExxonMobil (XOM) sees the change in gas prices to positively impact Q4 upstream earnings by USD 0.4-0.8bln vs Q3, and sees the change in industry margins to negatively impact Q4 energy products earnings by USD 1.7-1.5bln vs Q3.

APAC TRADE

EQUITIES

• APAC stocks eventually traded mixed as the earlier positivity gradually waned despite a lack of major newsflow but in the run-up to the US NFP and ISM Services PMI.
• ASX 200 was initially supported by gold-related names alongside the Financials and Healthcare sectors, but gains were later countered by losses in Tech.
• Nikkei 225 outperformed and briefly topped 33,500 with the weak JPY providing tailwinds, although the index closed under the level.
• KOSPI fell into the red after South Korea ordered an evacuation on Yeonpyeong Island near the North Korean border "due to the situation related to North Korea's provocation".
• Hang Seng and Shanghai Comp moved between gains and losses but held a downside bias towards the end of the session, whilst the PBoC drained a net CNY 2.423tln through open market operations this week, marking the biggest weekly cash withdrawal on record, according to Reuters calculations.
• US equity futures held a modest upward bias for most of the session but price action was contained ahead of the US jobs report; ES Unch.
• European equity futures are indicative of a softer open with Euro Stoxx 50 future -0.5% after cash closed +0.6% on Thursday.

FX

• DXY traded in a tight range but briefly breached 102.50 to eventually match yesterday's high of 102.53, with participants awaiting today's tier 1 US data.
• EUR/USD was subdued after it fell under its 21 DMA (1.0951) and the psychological 1.0950 mark, with traders awaiting Flash EZ CPI before the US jobs report.
• GBP/USD met resistance just under 1.2700 at 1.2696 in quiet trade before printing a low of 1.2680, with potential support seen at the 21 DMA (1.2674).
• USD/JPY held an upward bias throughout the session and inched closer to 145.00 to the upside after topping yesterday's high (144.85) before hitting resistance at 144.95 and trimming earlier gains.
• Antipodeans initially outperformed before trading flat as risk sentiment turned from lukewarm to cautious in the run-up to US data.
• PBoC set USD/CNY mid-point at 7.1029 vs exp. 7.1593 (prev. 7.0997)

FIXED INCOME

• 10-year UST futures saw minimal action overnight after the steep sell-off on Thursday after strong US jobs data added to pick-ups in German inflation and PMI data.
• Bund futures remained modestly subdued and traded on either side of 136.00 overnight following the German inflation data on Thursday ahead of the EZ Flash CPI data on Friday.
• 10-year JGB futures saw price action contained as traders were cautious ahead of the US jobs report, whilst newsflow from Japan was also light.

COMMODITIES

• Crude futures traded modestly firmer in APAC hours following the rebound from lows seen after Thursday's European cash closed, whilst modest fleeting upticks were seen on reports the US is drafting a plan to respond to Iran-backed Houthis.
• Spot gold traded in tandem with the Dollar and posted modest gains under USD 2,050/oz, but price action remains minimal ahead of NFP.
• Copper futures traded between mild gains and losses amid the cautious risk tone, whilst 3M LME copper fell back under USD 8,500/t.

CRYPTO

• Bitcoin saw a sharp selloff from levels near USD 44,000 to lows under USD 42,500 despite a lack of news flow at the time. Bitcoin later trimmed losses and stabilised above USD 43,500.

NOTABLE ASIA-PAC HEADLINES

• PBoC drained a net CNY 2.423tln via open market operations this week, marking the biggest weekly cash withdrawal on record, according to Reuters calculations.
• PBoC injected CNY 75bln through 7-day reverse repos at a maintained rate of 1.80% for a net drain of CNY 411bln.
• Nikkei published an article titled "BoJ easing exit in the first half still on the table despite earthquake" citing market implied rates, and noted that if the Yen avoids a sharp upswing, "we can thoroughly gauge domestic wages and prices," according to a BoJ insider.

DATA RECAP

• Japanese JibunBK Services PMI Final SA (Dec) 51.5 (Prev. 52.0)
• Japanese JibunBK Composite Op Final SA (Dec) 50.0 (Prev. 50.4)

GEOPOLITICS

MIDDLE EAST

• The US military is drafting plans to hit back at Iran-backed Houthi militants who have been attacking commercial shipping in the Red Sea, according to Politico sources; plans also include striking Houthi targets in Yemen. "Biden administration officials are drawing up plans for the US to respond to what they’re increasingly concerned could expand from a war in Gaza to a wider, protracted regional conflict" "Four officials familiar with the matter, including a senior administration official, described internal conversations about scenarios that could potentially draw the US into another Middle East war."
• Maersk (MAERSKB DC) said it has rerouted four out of five container vessels that were stuck in the Red Sea back towards the Suez Canal and the long journey around Africa to avoid the risk of attack, according to Reuters.
• US State Department said Secretary of State Blinken will visit Turkey, Greece, Saudi, Israel, West Bank, and Egypt from Jan 4th-11th; Blinken to raise the need to take steps to deter the Houthis' attacks on shipping in the Red Sea.
• UK maritime security firm Ambrey received intelligence of missiles fired from Yemen's Taiz towards Bab Al Mandab, according to an advisory note.
• US Pentagon official said the US carried out a strike in Baghdad that killed a leader of an Iraqi faction loyal to Iran that was involved in attacks on US forces, according to Sky News Arabia.
• Iraqi armed factions announce the attack on a US base in the field of Omar in Syria with drones, according to Sky News Arabia.

KOREAN PENINSULA

• South Korea ordered an evacuation on Yeonpyeong Island near the North Korean border, according to Yonhap, "due to the situation related to North Korea's provocation".
• North Korean military fired over 200 coastal artillery shells between 9-11 am (local time) in the northern part of Baeknyeong Island and Yeonpyeong Island, no damage was reported from South Korea, and shells landed north of the northern limit line, according to Yonhap and Reuters.
• South Korea is preparing a show of force after North Korea fired artillery near Yeonpyeong Island; South Korea to carry out live-fire drills in response to North Korean artillery near Yeonpyeong Island, according to Yonhap.