• APAC stocks gradually deteriorated following a muted start and last Friday’s post-data whipsawing stateside.
• US House Speaker Johnson said congressional leaders reached a spending level deal in which the topline figure for FY24 is USD 1.6tln.
• European equity futures are indicative of a slightly lower open with Euro Stoxx 50 futures -0.2% after the cash market closed down by 0.2% on Friday.
• DXY contained sub-102.50, JPY the marginal G10 outperformer, EUR/USD has traded on either side of 1.0950.
• Looking ahead, highlights include German Industrial Orders &Trade Balance, Swiss CPI, EZ Sentix Index, Retail Sales, US Employment Trends, Consumer Credit, Japanese All Household Spending & Tokyo CPI, Speech from Fed’s Bostic

US TRADE

EQUITIES

• US stocks were little changed following a choppy session on Friday as markets digested the conflicting NFP and ISM Services reports and whipsawing yields. There was an initial hawkish reaction to the December NFP report after headline jobs and earnings topped estimates which saw Fed cuts priced through 2024 fall from around 135bps to just above 125bps although the moves soon faded with attention on the downward revisions and decline in private payrolls growth, while a tumble in the December ISM Services data, particularly the employment sub-index, saw stocks and bonds rally to session highs and Fed 2024 cut pricing moving back higher towards around 145bps. However, stocks and USTs then reversed course again to return to relatively flat territory as Europe closed up shop for the week.
• SPX +0.18% at 4,697, NDX +0.15% at 16,305, DJI +0.07% at 37,466, RUT -0.34% at 1,951.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Barkin (2024 voter) said on Friday that there is no problem "toggling" the rate to more normal levels as you build confidence inflation is falling and that the Fed should normalise rates as the economy gets back to normal. Barkin said consumer demand remains healthy, though slowing and reacceleration at this point seems less likely, while he added there is more uncertainty around the path of inflation given that progress over the last six months has been so reliant on goods.
• Fed’s Logan (non-voter) said the Fed should slow the pace of the asset runoff as the overnight reverse repurchase balances approach a low level, while they need to maintain sufficiently restrictive financial conditions. Logan said a premature easing of financial conditions could allow demand to pick back up and shouldn’t rule out another rate increase given the recent easing in financial conditions.
• US House Speaker Johnson said congressional leaders reached a spending level deal in which the topline figure for FY24 is USD 1.6tln, while President Biden said the deal moves the US a step closer to preventing a government shutdown and reflects funding levels that he negotiated with both parties, according to Reuters.
• US President Biden stated via X that he looks forward to delivering the State of the Union speech on March 7th.
• Former President Trump plans to keep the 21% corporate tax rate if he is elected which is a shift from a previous desire to lower it to 15% and wants to make permanent the 2017 individual tax cuts that he enacted, according to Bloomberg.
• Alaska Air (ALK) temporarily grounded all of its Boeing (BA) 737-9 aircraft following the mid-air window blowout on Friday, while the FAA ordered a temporary grounding and inspection of certain Boeing 737 MAX 9 aircraft operated by US airlines which affects 171 aircraft worldwide and said the planes will remain grounded until it is satisfied that they are safe. Furthermore, it was also reported that Spirit AeroSystems (SPR) had manufactured and installed the plug door involved in the incident.

APAC TRADE

EQUITIES

• APAC stocks gradually deteriorated following a muted start and last Friday’s post-data whipsawing stateside with Japanese participants absent for Respect for the Aged Day and markets awaiting this week's key inflation data releases.
• ASX 200 declined as initial gains in energy, resources and financials were overshadowed by losses in miners and tech.
• KOSPI was initially underpinned by strength in Samsung Electronics after its unit showcased a line-up of various foldable displays, although the gains were later faded amid geopolitical tensions after North Korea conducted a third day of artillery firing on Sunday.
• Hang Seng and Shanghai Comp were pressured amid shadow banking woes and geopolitical frictions, with the losses in Hong Kong exacerbated by tech selling and as China Evergrande New Energy Vehicle shares slumped following the arrest of its vice chairman.
• US equity futures lacked firm direction after Friday's choppy performance and with earnings season approaching.
• European equity futures are indicative of a slightly lower open with Euro Stoxx 50 futures -0.2% after the cash market closed down by 0.2% on Friday.

FX

• DXY traded within a tight range between 102.32-102.52 after recent yield fluctuations and with participants awaiting this week's key inflation reports including from the US, while the dollar was unmoved by reports that congressional leaders reached a spending level deal and hawkish comments from Fed's Logan also had little impact.
• EUR/USD was uneventful and traded on both sides of 1.0950 following a lack of pertinent catalysts over the weekend.
• GBP/USD tested the 1.2700 level to the downside in humdrum trade.
• USD/JPY was contained near 144.50 amid the absence of Japanese participants for Respect for the Aged Day.
• Antipodeans were lacklustre amid the soured risk sentiment with AUD/USD struggling to hold on to the 0.6700 status.
• PBoC set USD/CNY mid-point at 7.1006 vs exp. 7.1499 (prev. 7.1029)
• Czech Central Bank Vice Governor Zamrazilova said interest rate cuts will continue in relation to the decline in inflation and that a faster decline could lead to larger than 25bps lowering steps, according to Reuters.

FIXED INCOME

• 10yr UST futures were subdued after Friday's data-induced fluctuations and with overnight cash Treasury trade shut due to the Tokyo holiday closure.
• Bund futures remained subdued after slipping beneath the 136.00 level late last week, while the attention now turns to German industrial orders and trade data.

COMMODITIES

• Crude futures were mildly pressured as risk sentiment soured and with Saudi Arabia lowering its OSPs.
• Saudi Arabia cut its February light crude OSP to Asia by USD 2/bbl from January to a premium of USD 1.50/bbl over Oman/Dubai quotes which is a 27-month low, while it set light crude OSP to NW Europe at a premium of USD 0.90/bbl over ICE Brent settlement and light crude OSP to the US at a premium of USD 5.15/bbl over ASCI, according to Reuters.
• Qatar set February marine crude OSP at Oman/Dubai minus USD 0.75/bbl and set land crude OSP at Oman/Dubai minus USD 0.75/bbl, according to Reuters.
• Libya’s NOC declared a force majeure in the Sharara oil field effective on Sunday due to its closure by protesters and said that negotiations are ongoing to resume production as soon as possible.
• Spot gold marginally extended on Friday's pullback after failing to sustain the USD 2,050/oz level.
• Copper futures attempted to nurse some of their recent losses after finding support at USD 3.80/lb but with the recovery limited by the deterioration in risk sentiment.

CRYPTO

• Bitcoin was lower after pulling back from above the USD 44,000 level over the weekend.

NOTABLE ASIA-PAC HEADLINES

• China’s State Council issued guidelines on improving operating budget systems for state-owned capital.
• US lawmakers reportedly push to defuse China's dominance of older-generation chips with House panel leaders reported to have sent a letter to the Commerce and Trade Secretaries urging action including possible tariffs, according to WSJ.
• China is to sanction five US defence manufacturers regarding US arms sales to Taiwan, according to Bloomberg.
• Taiwan's Defence Ministry said they detected three Chinese balloons flying over the Taiwan Strait on Sunday.
• US intelligence sees a less likelihood that Chinese President Xi will contemplate major military action in the coming years due to several examples of the impact of graft and corruption in China’s Rocket Forces, according to Bloomberg.

GEOPOLITICS

• Israel said it has destroyed Hamas as a fighting force in northern Gaza and that the war is moving into a fresh phase with a more targeted focus on the centre and south of the Palestinian enclave, according to FT. It was separately reported that Israel’s military chief of staff asserted there would be ongoing military operations in Gaza throughout the entire year, while PM Netanyahu instructed to prepare for a return of residents to the Gaza town of Sderot by February 4th, according to Al Arabiya.
• Hezbollah said it hit an Israeli observation post with 62 rockets as a preliminary response to the killing of Hamas’s deputy chief.
• Qatar’s PM said the killing of a senior Hamas official on Tuesday has affected Qatar’s efforts to negotiate between Hamas and Israel, but Qatar continues to negotiate.
• US Secretary of State Blinken said this is a moment of profound tension in the region and conflict could easily metastasize, while he added that they will continue to defend maritime security in the region after Houthi attacks on shipping in the Red Sea.
• Jordan’s King Abdullah warned US Secretary of State Blinken of the catastrophic repercussions of the continuation of the war in Gaza and said Washington should put pressure on Israel to agree to an immediate ceasefire in Gaza, according to a royal court statement.
• EU foreign policy chief Borrell said it is ‘absolutely necessary’ to avoid Lebanon being dragged into a regional conflict and no one will win from a regional conflict, while he visited Saudi Arabia to discuss steps toward peace in the region.
• French Foreign Minister Colonna said she told her Iranian counterpart that the risk of regional conflagration has never been greater, while she added that Iran and proxies must immediately stop their destabilising actions, according to Reuters.
• US Central Command said an unmanned aerial vehicle launched from Yemen was shot down in self-defence by USS Laboon in international waters of the southern Red Sea which was in the vicinity of multiple commercial vessels, according to Reuters.
• Russia launched a large-scale air assault on several Ukrainian regions with all of Ukraine under air raid alerts, according to Ukraine's military cited by Reuters.
• South Korea’s military said North Korea fired shots on Sunday into the sea north of Yeonpyeong Island, while it urged North Korea to cease military activity raising tensions near the border and said North Korea’s provocation will face an overwhelming response.
• North Korea’s army said it conducted a coastal artillery firing drill on Sunday and that the drill did not pose any threat to the enemy. There was also a prior report that North Korean leader Kim’s sister said North Korea did not fire artillery shells but instead detonated explosives and she warned that the army would launch a ‘baptism of fire’ at any provocation, according to state media.

UK/EU

• UK’s RMT trade union said strike action on the London Underground planned for this week was suspended after the union made progress in discussions with TFL, according to Reuters.
• British employers increased pay and regained some of their appetite for hiring in December, according to a survey from the Recruitment and Employment Confederation.
• Germany’s GDL train drivers’ union called for a rail strike in Germany on January 10th-12th, according to Reuters.
• EU Council President Michel will run in the election for the European Parliament in June and will leave his post in mid-July if elected, according to an interview with De Standard.