• US Equities post losses but to a lesser magnitude than their European counterparts, as attention turns to US NFP
• Dollar is firmer and Yen continues its losing run; Antipodeans lower amid a subdued risk tone
• Bunds initially lifted on softer German Retail Sales, though entirely pared the move ahead of key US data; unreactive to Flash EZ HICP
• WTI and Brent are firmer on reports that the US is drafting plans to respond to Houthi militants
• Maersk announces all vessels through Red Sea/Gulf of Aden to be diverted south for the foreseeable future
• Looking ahead, Canadian Leading Index, US NFP, Durable Goods, ISM Services Employment Index, Canadian Ivey PMI, Speech from Fed's Barkin.

EUROPEAN TRADE

EQUITIES

• European equities, Eurostoxx50 (-0.9%), extended losses throughout the session following a negative APAC handover with newsflow light and data having little equity follow through.
• European sectors are entirely in the red; Retail slumps following dire German Retail Sales, whilst Energy fares best amid higher Crude prices.
• US Equity Futures are lower, though not the same magnitude as their European peers, with the tone a touch more cautious stateside into NFP; ES -0.3%.
• Click here and here for the sessions European pre-market equity newsflow, including earnings.
• Click here for more details.

FX

• DXY is firmer, peaking at 102.80 thus far, in a seemingly safe-haven play as participants position ahead of US NFP later today, also deriving strength from pressure in the EUR.
• EUR was initially weighed on by broader Dollar strength before then being dragged lower post softer German Retail Sales, testing but not losing 1.09. Unreactive to Flash EZ HICP.
• The Yen continues its horror run as the USD/JPY jumps above the 145.00 mark; 145.99 marks the 13th Dec high before the round 146 level.
• Antipodeans continue to sink as risk sentiment remains subdued.
• PBoC set USD/CNY mid-point at 7.1029 vs exp. 7.1593 (prev. 7.0997)
• China's major state-owned banks have been seen active in USD/CNY swaps and selling USDs for Yuan in the spot-FX market during the week, via Reuters citing sources; seen curtailing Yuan lending in offshore FX on Friday
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• Click here for the Option Expires for the NY Cut.

FIXED INCOME

• USTs are directionally led by EGBs, but with magnitudes slightly more contained ahead of December Payrolls and ISM services thereafter; yields firmer across the curve and slightly steeper.
• Bunds began with a dovish reaction on soft Retail Sales, lifting the benchmark to a 136.13 peak; though entirely pared the move and continue to move lower, currently pivoting the 135.52 trough.
• Gilts conformed with broader price action alongside peers; action slightly more pronounced with specifics light but perhaps some influence from Halifax House Prices, though this is caveated by being supply rather than demand driven.
• Click here for more details.

COMMODITIES

• WTI and Brent are firmer but well within Thursday's boundaries amid reports that the US is drafting plans to respond to Houthi militants.
• As such, benchmarks are shy of their respective USD 74.00/bbl and USD 79/42/bbl WTD peaks.
• Spot Gold is marginally weaker amid the recent strength in the Dollar but struggling for direction somewhat into payrolls; Base Metals hold a negative bias in-fitting with the broader risk tone.
• China's oil trade talks with Iran has stalled after Tehran sought higher prices, via Reuters citing sources; seeks to narrow discounts on Crude sales to China by USD 4-5/bbl
• Click here for more details.

NOTABLE EUROPEAN HEADLINES

• Maersk (MAERSKB DC) says all of its vessels travelling through Red Sea and Gulf of Aden are to be diverted South around the Cape of Good Hope for the foreseeable future; situation is constantly evolving, remains highly volatile, security risks still elevated.
• China's Commerce Ministry is launching an anti-dumping investigation on brandy imported from the EU; Remy Cointreau (-9.9%), Pernod Ricard (-5.5%)

DATA RECAP

• EU HICP Flash YY (Dec) 2.9% vs. Exp. 3.0% (Prev. 2.4%); HICP-X F&E Flash YY 3.9% vs. Exp. 3.9% (Prev. 4.2%); HICP-X F,E,A&T Flash YY 3.40% vs. Exp. 3.50% (Prev. 3.60%); EU HICP-X F, E, A, T Flash MM 0.40% (Prev. -0.60%).
• EU Producer Prices MM (Nov) -0.3% vs. Exp. -0.1% (Prev. 0.2%, Rev. 0.3%); YY -8.8% vs. Exp. -8.7% (Prev. -9.4%)
• Italian CPI (EU Norm) Prelim MM (Dec) 0.2% vs. Exp. 0.1% (Prev. -0.6%)
• German Retail Sales YY Real (Nov) -2.4% vs. Exp. -0.5% (Prev. -0.1%); Nominal +0.1%; MM Real (Nov) -2.5% vs. Exp. -0.1% (Prev. 1.1%); Nominal -2.6%
• UK Halifax House Prices MM (Dec) 1.1% (Prev. 0.5%); House prices predicted to fall by between -2% and -4% in 2024; YY (Dec) 1.7% (Prev. -0.95%, Rev. -0.80%)
• EU HCOB Construction PMI (Dec) 43.6 (Prev. 43.4)
• UK S&P Global/CIPS Construction PMI (Dec) 46.8 vs. Exp. 46 (Prev. 45.5)
• German HCOB Construction PMI (Dec) 37.0 (Prev. 36.2)
• French HCOB Construction PMI (Dec) 42.6 (Prev. 44.6)
• Italian HCOB Construction PMI (Dec) 55.2 (Prev. 52.9)

NOTABLE US HEADLINES

• Tesla (TSLA) recalls a total of 1.62mln vehicles, including models S, X, 3 & Y, via China's Market Regulator.
• Tesla (TSLA) Model Y range estimate reduced by 6%, via electrek.
• Netflix (NFLX) is eyeing way to make money from videogames in a potential pivot; ideas include charging extra for some games and incorporating ads and in-game purchases, via WSJ.
• Indian antitrust is investigating global delivery firms for alleged price collusion, via Reuters citing documents; DHL (DHL GY), UPS (UPS) & FedEx (FDX) are co-operating.
• Click here for the US Early Morning Note.

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."
• 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.
• Residents of a second South Korean island asked to evacuate, according to AFP citing a local official.

CRYPTO

• Bitcoin weakened below USD 44k in overnight trade, and has since stabilised just shy of the aforementioned level.

APAC TRADE

• 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.

NOTABLE 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.
• Foxconn (2317 TT) December Sales -26.89%; overall operations in Q1-2024 gradually entering the traditional off-peak season. Outlook for Q1 expected to decrease Y/Y.
• China shadow bank Zhongzhi files for bankruptcy; Beijing court says application was on the grounds that it could not pay off its due debts and its assets were insufficient to pay off all its debt.

DATA RECAP

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