• European bourses are weaker following a negative handover from APAC trade, with US futures also pressured amid yield upside & into earnings
• Dollar is firmer and Antipodeans are lower amid the risk-averse mood; GBP weighed by Dollar strength and softer UK wage metrics
• Bonds mixed, with Treasuries pressured as markets react to hawkish ECB speak; Gilts eventually firm post dovish data
• Crude continues to gain despite Dollar strength amid escalating geopolitical tensions & Chinese stimulus/reports; Base metals initially pressured though bounced such reporting
• Former US President Trump won the Iowa Republican Caucus with over 51% of the vote, Ramaswamy dropped out
• Looking ahead, US NY Fed & Canadian CPI, BoE's Bailey & Fed's Waller, Earnings from Goldman Sachs, PNC Financial Services, Morgan Stanley & Charles Schwab.

EUROPEAN TRADE

EQUITIES

• European equities, Stoxx 600 (-0.5%), are trading on the back-foot having sunk at the open, following a negative handover from APAC trade overnight, in the absence of a lead from Wall Street.
• European sectors have a strong negative tilt; Media is marginally firmer after a broker upgrade at Publicis (+1.2%). Banks are lower following a slew of downgrades at JPM and a cut in EPS estimates for Commerzbank (-4.5%).
• US equity futures are lower across the board, in tandem with European counterparts, though with losses slightly more pronounced; the Russell 2000 (-0.9%) underperforms. Earnings from Goldman Sachs and Morgan Stanley due, among others, in the pre-market.
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FX

• Dollar is firmer alongside the risk averse mood and as US yields rise after cash closure for MLK day; DXY took out 103.00 and surpassed the post-NFP high of 103.10, with the 200DMA at 103.41 now in sight. Fed's Waller at 16:00GMT/11:00EST will be in focus for the Dollar.
• EUR/USD has lost its 1.09 status amid the strength in the USD, less hawkish ECB speak and softer consumer inflation expectations. Today's trough at 1.0881 with yesterday's low at 1.0876 just below.
• Cable is swept up by Dollar buying, with lower UK wage data also not helping the Pound. On release, Cable sank lower before then entirely paring the move.
• Antipodeans are the G10 underperformers, in tandem with the cautious risk tone; support at 0.66 for the AUD/USD has broken in recent trade.
• USD/CNH bid and continuing to lift; focus on earlier sources around potential special bond stimulus and thereafter Premier Li on GDP, ahead of Wednesday's figures.
• PBoC set USD/CNY mid-point at 7.1134 vs exp. 7.1783 (prev. 7.1084).
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FIXED INCOME

• Treasuries pressured to a 112-05 trough, yields bear-flattening as cash reacts to Monday's ECB speak.
• Bunds are struggling for direction & drawn to the mid-point of 134.94-135.42 parameters after Monday's hawkish move on numerous ECB officials. Remarks thus far from Villeroy, Centeno & Valimaki at Davos stress data-dependency.
• Despite the dovish wage figures, Gilts opened 16 ticks lower at 99.91 as the bias from US yields dominates. Since, Gilts have lifted to a 100.33 peak, shy of last week's 100.47-69 highs.
• UK sells GBP 1.5bln 2033 I/L Gilt: b/c 3.04x (prev. 2.68x) and real yield 0.423% (prev. 0.724%)
• Germany sells EUR 3.2bln vs exp. EUR 4.0bln 2.10% 2029 Bobl; b/c 2.1x (prev. 2.07x), average yield 2.12% (prev. 2.56%), and retention 20.0% (prev. 19.2%)
• France is seeing in excess of EUR 74bln in demand for its new green bond, according to lead managers; spread set at 8bps over outstanding June 2044 (initial guidance +10bp)
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COMMODITIES

• An upward bias is seen in crude prices this morning, with the complex resilient to the surging Dollar and broader risk aversion as the downside is countered by escalating geopolitics coupled with reports of further Chinese stimulus and Premier Li on GDP; Brent at highs of USD 79.18/bbl.
• Precious metals feel the pressure from the surge in the Dollar and yields stateside; XAU fell from a USD 2,055.22/oz intraday peak to levels under its 21 DMA (USD 2,044.44/oz).
• Base metals are mostly lower but were lifted off worst levels amid reports that China is mulling further stimulus.
• First Quantum is to reduce operating activities at its Ravensthorpe nickel operation and will cut workforce at the site by 30% after a significant downturn in nickel prices during 2023, combined with higher operating costs in Western Australia.
• India's Oil Minister says India has opened up to every possible supplier; Indian demand for energy will not peter off for a while
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Central Bank Speak

• ECB's Villeroy says it is too early to declare victory over inflation, most monetary policy transmission is more or less over. Will not remark on the season for the next ECB move; but the next move should be a cut this year. Can see a soft landing in both Europe and the US. Estimates R to be around zero within the Euro-area.
• ECB's Centeno says ECB needs to be prepared for all topics, including rate cuts; says recent data confirmed Dec projections, but inflation was slightly below forecast. Inflation is coming down sustainably, should not be worried about resurgence of real wages. Q1 growth could remain around zero. Expects contained wage demand. Inflation trajectory is very positive at this point.
• ECB's Valimaki says inflation is on the right track but job is not done so restrictive monetary policy is still called for; must not jump the gun on rate cuts and best to wait a bit longer than exit prematurely. Soft landing for economy still the baseline but risks tilted towards downside. Wage data so far consistent with ECB's December projections.

On Monday, 15th January

• ECB's Nagel (hawk) says it's too early to discuss rate cuts as inflation remains too high, maybe the ECB can wait until after the summer break; markets are sometimes over optimistic - Bloomberg TV interview.
• ECB's Holzmann (hawk) says rate cut expectations are optimistic; shouldn't count on rate cuts at all in 2024 - CNBC interview.
• ECB's Herodotou says it is too soon to contemplate policy easing or the pace of easing - Econostream Media interview
• ECB's Lane, weekend remarks: will have key data by June to decide on rates and that changing rates too fast can be harmful, while he added that once the ECB begins lowering rates, this would not be by a single decision of a rate cut and there would likely be a sequence of rate cuts - Corriere Della Serra.

NOTABLE EUROPEAN HEADLINES

• British pension funds are preparing to "flood the market" with billions of GBP's of private assets, according to Bloomberg. As much as GBP 200bln in assets could be offloaded as rising interest rates provide funds with an opportunity to offload the part of the risk of meeting future liabilities.
• BofA January Fund Manager Survey: cash levels up, more investors expect short term rates to be lower in the next 12 months, more expect a weaker Chinese economy than a stronger one.
• Ocado (OCDO LN) Retail CEO is not expecting much impact on business from the Red Sea/Suez Canal disruptions
• German economy is expected to grow 0.3% in 2024, according to German BDI Industry Association; German economy is at a standstill and there is no change of a rapid recovery
• ECB Consumer Inflation Expectations survey (Nov) - 12-months ahead 3.2% (prev. 4.0%); 3-year ahead 2.2% (prev. 2.5%). Economic growth expectations for the next 12 months -1.2% (prev. -1.3%)

DATA RECAP

• UK Avg Earnings (Ex-Bonus) (Nov) 6.6% vs. Exp. 6.6% (Prev. 7.3%, Rev. 7.2%); Avg Wk Earnings 3M YY (Nov) 6.5% vs. Exp. 6.8% (Prev. 7.2%)
• UK Claimant Count Unem Chng (Dec) 11.7k (Prev. 16.0k, Rev. 0.6k); ILO Unemployment Rate (Nov) 4.2% vs. Exp. 4.2% (Prev. 4.2%); Employment Change (Nov) 73k (Prev. 50k)
• UK HMRC Payrolls Change (Dec) -24k (Prev. -13k, Rev. 9k)
• German ZEW Economic Sentiment (Jan) 15.2 vs. Exp. 12.0 (Prev. 12.8); ZEW Current Conditions (Jan) -77.3 vs. Exp. -77.0 (Prev. -77.1)
• EU ZEW Survey Expectations (Jan) 22.7 (Prev. 23.0)
• German HICP Final YY (Dec) 3.8% vs. Exp. 3.8% (Prev. 3.8%); CPI Final YY (Dec) 3.7% vs. Exp. 3.7% (Prev. 3.7%)
• German CPI Final MM (Dec) 0.1% vs. Exp. 0.1% (Prev. 0.1%); HICP Final MM (Dec) 0.2% vs. Exp. 0.2% (Prev. 0.2%)
• Norwegian GDP Month (Nov) 1.2% (Prev. 2.1%. Rev. 2.2%); GDP Month Mainland (Nov) -0.2% vs. Exp. -0.2% (Prev. 0.4%, Rev. 0.3%)
• Italian CPI (EU Norm) Final MM (Dec) 0.2% vs. Exp. 0.2% (Prev. 0.2%); Italian Consumer Prices Final MM (Dec) 0.2% vs. Exp. 0.2% (Prev. 0.2%)
• Italian Consumer Prices Final YY (Dec) 0.6% vs. Exp. 0.6% (Prev. 0.6%); CPI (EU Norm) Final YY (Dec) 0.5% vs. Exp. 0.5% (Prev. 0.5%)

NOTABLE US HEADLINES

• Former US President Trump was called as the winner of the Iowa Republican caucuses from very early on, while Edison Research later announced that Trump has 51.1%, DeSantis has 21.2% and Haley has 19.0% with 95% of estimated Iowa caucus votes in; Ramaswamy dropped out thereafter and has given his support to Trump.
• UBS Global Research raises 2024 SPX target to 5,150 from 4,850 (vs 4,783.83 close on Friday)
• House and Senate negotiators have agreed on a roughly USD 78bln framework for a package of tax benefits aimed at businesses and low-income families, according to Punchbowl sources; the two sides expect to roll it out this morning

GEOPOLITICS

MIDDLE EAST

• Explosions were reported in different areas in Erbil, northern Iraq and in Syria, according to Al Arabiya IRGC said it attacked and destroyed the espionage headquarters of Israel's Mossad in Iraq's Kurdistan and it targeted Islamic State in Syria in response to the group’s recent terrorist attacks in Iran, according to Reuters.
• US State Department said the US strongly condemned Iran's attacks in Erbil on Monday, while US officials said no US facilities were impacted by missile strikes in Erbil, Iraq and there were no US casualties, according to Reuters.
• UK PM Sunak signalled the UK could participate in further strikes against Houthi rebels and told MPs that Britain will not hesitate to protect its interests where required, according to FT.
• Houthi military spokesman said they consider all American and British vessels and warships participating in aggression against them as hostile targets, according to Reuters.
• Iran’s Islamic Revolutionary Guard Corps commanders and advisors are on the ground in Yemen and playing a direct role in Houthi rebel attacks on commercial traffic in the Red Sea, according to SEMAFOR.

OTHER

• Ukraine President Zelenskiy asked Switzerland to organise a high-level peace conference, while teams will start on plans today.
• North Korea decided to shut down organisations dealing with unification and inter-Korean tourism, while North Korean leader Kim said they do not want war but have no intention to avoid it. Furthermore, Kim said war will destroy South Korea and deal an unimaginable defeat to the US, according to KCNA.
• South Korean President Yoon said North Korea's recent missile launch and artillery firing are political acts to divide South Koreans and its provocations will be met with response on a multiplied scale, according to Reuters.

CRYPTO

• Bitcoin, +0.4%, holds just below the USD 43k level with Ethereum also posting gains to a similar magnitude.

APAC TRADE

• APAC stocks were pressured in the absence of a lead from Wall Street and amid the upside in yields.
• ASX 200 retreated with miners among the worst hit after lower iron ore output and shipments by Rio Tinto.
• Nikkei 225 extended beneath the 36,000 level owing to slightly higher yields and firmer-than-expected PPI data.
• Hang Seng and Shanghai Comp conformed to the downbeat mood but with the losses in the mainland initially cushioned after a substantial PBoC liquidity operation, while Beijing reportedly told some institutional investors in recent days not to sell stocks.

NOTABLE HEADLINES

• PBoC injected CNY 760bln via 7-day reverse repos with the rate at 1.80% for a CNY 695bln net injection.
• Chinese authorities reportedly told some institutional investors in recent days not to sell stocks as the Chinese stock rout resumes, according to FT.
• Chinese President Xi stresses boosting high-quality development of the country's financial sector, according to Reuters citing state media.
• Microsoft (MSFT) CEO says China is not a large business for the Co.
• China is said to be mulling more stimulus with USD 139bln of special bonds, according to Bloomberg sources; proposals include the sale of ultra-long sovereign bonds to fund projects. Projects are related to projects related to food, energy, supply chains and urbanisation, sources added.
• Japanese government is to increase new bond issuance by USD 3.43bln to fund extra budget reserves (following recent earthquakes); there will be no change to JGB issuance sold to market
• Chinese Premier Li says China's economy is making steady progress; Chinese economy rebounded in 2023 and had an estimated growth of 5.2%, higher than the 5% target; says in promoting development, China did not resort to massive stimulus. Comes ahead of the Chinese GDP and activity data on Wednesday.

DATA RECAP

• Japanese Corporate Goods Price MM (Dec) 0.3% vs. Exp. 0.0% (Prev. 0.2%); Corporate Goods Price YY (Dec) 0.0% vs. Exp. -0.3% (Prev. 0.3%)
• Australian Westpac Consumer Sentiment Index 81.0 (Prev. 82.1) Westpac Consumer Sentiment MM (Jan) -1.3% (Prev. 2.7%)