• APAC stocks traded mixed with the major indices mostly rangebound alongside geopolitical concerns and Chinese data.
• US and UK conducted a joint strike against Houthi targets in Yemen.
• Chinese trade data either improved or topped forecasts, while inflation figures were mixed but ultimately deflationary on a Y/Y basis.
• European equity futures are indicative of a higher open with Euro Stoxx 50 future +0.7% after the cash market closed lower by 0.6% yesterday.
• DXY is caged in tight parameters, EUR/USD still capped by 1.10, USD/JPY remains on a 145 handle.
• Looking ahead, highlights include UK GDP, Output data & Trade Balance, French and Spanish CPI (Final), US PPI, ECB’s Lane & Fed’s Kashkari, Earnings from UnitedHealth, JP Morgan, BlackRock, Wells Fargo, Citi, BofA & Delta Airlines.

US TRADE

EQUITIES

• US stocks finished mixed with the major indices relatively unchanged after whipsawing in the aftermath of the US inflation data which printed firmer than expected and initially triggered a hawkish reaction in stocks, treasuries and the dollar. However, the moves were gradually pared throughout the US session as both Fed's Goolsbee and Barkin noted that the data was in line with expected, while Mester stressed the data showed the Fed's job is not done yet but added that progress on inflation is not stalling.
• SPX -0.07% at 4,780, NDX +0.17% at 16,820, DJI +0.04% at 37,711, RUT -0.75% at 1,955.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Barkin (2024 voter) said he is looking to be convinced that inflation is headed to the target and noted the improvement in inflation is still pretty narrow and focused on goods. Barkin also commented that the latest CPI was about as expected and is still forecasting moderation in the overall level of inflation but there is still a "disconnect" with services and shelter.
• Fed's Mester (voter, retiring in June) said CPI data doesn't change her view of where the Fed is and shows the job isn't done yet. Mester said March is too early for her for a rate cut and needs to see more evidence, while she added that as continuing disinflation is seen, the Fed will have that conversation and inflation has to be coming down on a sustainable basis for that conversation to happen, according to a Bloomberg TV interview.
• Fed's Goolsbee (non-voter) said 2023 was a hall of fame year for inflation and that overall CPI in December was pretty close to what was expected, while services inflation was a little more favourable than expected and housing inflation was a little less favourable. Goolsbee said he does not want to commit on policy decisions when Fed still has weeks and months of data to come and the Fed cannot answer the question of what it is going to do at the March meeting without seeing the data, as well as noted that the Fed is still on golden path though it could be derailed, according to Reuters.
• NEC Director Brainard said the US economy has seen very little effect from the Red Sea shipping trouble and that US wage gains have outpaced inflation since pre-pandemic.

APAC TRADE

EQUITIES

• APAC stocks traded mixed with the major indices mostly rangebound alongside geopolitical concerns after the US and UK conducted joint strikes on Houthi targets, while participants also digested Chinese inflation and trade data.
• ASX 200 was subdued as strength in commodity-related sectors was offset by weakness in defensives.
• Nikkei 225 continued to rally and is up over 6% this week with gains helped by strong earnings from top-weighted Fast Retailing.
• Hang Seng and Shanghai Comp struggled for direction despite the latest Chinese trade data which either improved or topped forecasts although 2023 USD-denominated exports contracted for the first time since 2016, while the Chinese inflation figures were mixed but ultimately deflationary on a Y/Y basis.
• US equity futures (ES -0.2%) were contained after whipsawing post-CPI, while participants also await big bank earnings.
• European equity futures are indicative of a higher open with Euro Stoxx 50 future +0.7% after the cash market closed lower by 0.6% yesterday.

FX

• DXY was flat and kept to within a narrow range of between 102.18-102.32 after whipsawing yesterday in the aftermath of the US CPI data which initially lifted the dollar before the moves were eventually pared, while the attention now turns to incoming PPI figures.
• EUR/USD traded steadily overnight and eked slight gains although remained beneath the 1.1000 resistance level.
• GBP/USD marginally extended on the prior day's intraday rebound as participants await GDP and output data.
• USD/JPY tested support at the 145.00 level while JPY-crosses saw a brief uplift on the continued stock rally.
• Antipodeans was firmer after the latest key data from China including mixed inflation and mostly encouraging trade figures.
• PBoC set USD/CNY mid-point at 7.1050 vs exp. 7.1592 (prev. 7.1087).
• Peru Central Bank cut its reference rate by 25bps to 6.50%, as expected, while it stated the rate cut does not necessarily imply a cycle of successive reductions to the interest rate and that annual inflation is expected to reach the target range in the next months.

FIXED INCOME

• 10yr UST futures took a breather after whipsawing post-CPI, while the curve steepened yesterday as duration lagged heading into what turned out to be a decent US 30yr auction.
• Bund futures held onto the prior day's gains following a rebound from support around the 135.00 level.
• 10yr JGB futures were propped up with the BoJ reportedly considering lowering its price outlook for FY24, while there were some headwinds from mixed 30yr JGB auction results which showed a relatively wide tail but not as drastic as the record tail seen in December.

COMMODITIES

• Crude futures were underpinned amid the geopolitical risk premium after the US and UK conducted joint strikes on Houthi targets in retaliation to Red Sea shipping attacks, while it was also reported yesterday that Iran had seized a US-linked oil tanker in the Gulf of Oman.
• US Treasury official said the discount for Russian crude oil has risen roughly 40% since the US began increasing enforcement of the price cap on Russian oil in October.
• Spot gold edged higher but with gains capped after the two-way reaction seen across markets from the US CPI data.
• Copper futures were kept afloat alongside the mostly encouraging Chinese trade data. while it was also reported that China's 2023 steel products exports rose 36.2% Y/Y to 90.26mln tons and its iron ore imports rose 6.6% Y/Y to a record high of 1.18bln tons.

CRYPTO

• Bitcoin was marginally lower and made several attempts to breach support at the USD 46,000 level.

NOTABLE ASIA-PAC HEADLINES

• China's Customs said China's 2023 exports and imports of goods are better than expected but noted complexity and uncertainty of the external environment are expected to rise in 2024, while it added more efforts are needed to improve China's trade stabilisation in 2024.
• Chinese Foreign Minister Wang Yi held a call with his Canadian counterpart and said the current difficult situation in China-Canada relations is not what China wants to see but added that China is open to contacts and dialogue with Canada. Wang noted the fundamental reason why relations have fallen to a low point in recent years is that there has been a serious deviation in Canada's perception of China and he hopes the Canadian side will interpret China's domestic and foreign policies objectively, rationally and correctly.

DATA RECAP

• Chinese CPI MM (Dec) 0.1% vs. Exp. 0.2% (Prev. -0.5%)
• Chinese CPI YY (Dec) -0.3% vs. Exp. -0.4% (Prev. -0.5%)
• Chinese PPI YY (Dec) -2.7% vs. Exp. -2.6% (Prev. -3.0%)
• Chinese Trade Balance (USD)(Dec) 75.3B vs. Exp. 74.8B (Prev. 68.4B)
• Chinese Exports YY (USD)(Dec) 2.3% vs. Exp. 1.7% (Prev. 0.5%)
• Chinese Imports YY (USD)(Dec) 0.2% vs. Exp. 0.3% (Prev. -0.6%)
• Chinese Trade Balance (CNY)(Dec) 540.9B (Prev. 490.8B)
• Chinese Exports YY (CNY)(Dec) 3.8% (Prev. 1.7%)
• Chinese Imports YY (CNY)(Dec) 1.6% (Prev. 0.6%)

GEOPOLITICS

• US and UK conducted a joint strike against Houthi targets in Yemen which targeted Houthi radar, air defence sites, weapon storages and launch sites. US and allies released a joint statement that Yemen strikes were intended to disrupt and degrade the capabilities the Houthis use to threaten global trade, while their aim remains to de-escalate tensions and restore stability in the Red Sea but will not hesitate to defend lives and protect the free flow of commerce in one of the world's most critical waterways in the face of continued threats.
• US President Biden said US military forces together with the UK and with support from Australia, Bahrain, Canada and the Netherlands successfully conducted strikes against targets in Yemen used by Houthi rebels and the strikes were a direct response to Houthi attacks against international maritime vessels in the Red Sea, while he added that they will not hesitate to direct further measures.
• US senior official said Houthi actions present a threat to the US and the entire world, while the official added there is no intent to escalate the situation after strikes on Houthi targets and that US and British forces in the Red Sea remain well prepared to defend themselves following the Yemen strikes. Furthermore, they believe Iran has been involved in every phase of Houthi attacks and that they hold Iran responsible for the role it has played in attacks against US forces.
• Yemen's Houthis spokesman said there is no justification for the US-UK attack on Yemen and the targeting of ships heading towards Israel will continue. It was also separately reported that Iran strongly condemned the US-UK attack against Houthis and said it is a violation of Yemen's sovereignty and territorial integrity.
• Russian letter to Security Council members considers the use of force in Yemen a violation of the UN Charter, while Russia requested a UN Security Council meeting regarding the US-UK strikes on Yemen.
• Saudi Arabia said it so closely monitoring with great concern the air strikes on Yemen and it emphasises the importance of maintaining the security and stability of the Red Sea, while it called for restraint and avoiding escalation in light of the events taking place in the region.
• US military said Iranian-backed Houthis fired an anti-ship ballistic missile into international shipping lanes in the Gulf of Aden on Thursday but there were no injuries or damage reported from the attack.
• US Secretary of State Blinken said the State Department is imposing sanctions on three Russian entities and one individual involved in the transfer and testing of North Korea's ballistic missiles for Russia's use against Ukraine.
• European Commission is willing to give in to some of Hungary’s demands in order to secure a EUR 50bln support package for Ukraine, according to FT citing senior officials.

UK/EU

NOTABLE HEADLINES

• ECB President Lagarde said they are winning a battle at the moment and must complete the job, while she thinks the ECB has passed the hardest and worst bit regarding inflation. Lagarde said she sees Eurozone inflation at 1.9% in 2025 and said if there is no shock, inflation will trend in line with ECB projections.
• French President Macron reappointed Le Maire as finance chief.