• European bourses and US futures are entirely in the red owing to a soured risk tone and mixed Chinese data overnight
• Dollar is firmer, Pound is bid following hotter-than-expected UK CPI and Antipodeans lag
• Bonds weaker amid hawkish central bank speak and hot UK CPI; Fed speak & Retail Sales due
• Crude sinks due to a firmer Dollar & mixed Chinese data; XAU is weaker though losses are cushioned amid haven flows, base metals entirely in the red
• Looking ahead, US MBA, Import Prices, Retail Sales, Industrial Production, Japanese Machinery Orders, Fed Beige Book, Comments from ECB’s Knot & Lagarde, Fed’s Williams, Barr & Bowman, Supply from the US, Earnings from, US Bancorp & Citizen Financial Group.

EUROPEAN TRADE

EQUITIES

• European bourses are lower, with over 90% of the Stoxx600 (-1.1%) in the red, amid a negative risk tone following mixed Chinese data overnight, initial hawkish-tone and hotter-than-expected UK CPI; the FTSE 100 (-1.7%) lags, dragged down by miners.
• European sectors are entirely in the red; Real Estate suffers from the higher yield environment, Basic Resources and Energy are dragged lower by broader weakness in the commodity markets.
• US equity futures are trading on the backfoot, in tandem with losses seen in the European session. The RTY (-1.3%) significantly underperforms, continuing to extend on yesterday’s hefty losses. ES/NQ (-0.4%), into Retail Sales, Fed speak and a handful of earnings.
• Headline US Specifics: JPM will increase headcount this year; IBKR down after results; TSLA reduces Model Y prices in Germany.
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FX

• USD continues to gain as Waller tempers the pace of rate cut expectations. DXY has advanced to a high of 103.58 with not much resistance until 104.
• EUR is one of the better performers vs. the USD today amid hawkish ECB speak. That said, EUR/USD saw a hefty decline from yesterday's 1.0951 high. Further downside could bring its 200DMA at 1.0845 into play.
• The Pound is the only G10 currency firmer vs. USD amid hawkish inflation metrics; Cable hit a high just shy of the 1.27 mark but remains some way off yesterday's best of 1.2729.
• Antipodeans both remain battered by risk environment with AUD lagging on account of Chinese sell-off overnight; AUD/USD next target is a Dec 7th low at 0.6525 with NZD/USD selling putting a test of 0.61 on the cards.
• PBoC set USD/CNY mid-point at 7.1168 vs exp. 7.1986 (prev. 7.1134).
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FIXED INCOME

• USTs are contained, but with a modest bearish-bias given a hotter than expected UK CPI print and additional hawkish commentary from ECB speakers. Yields continue to bear-flatten a touch as participants digest Waller before Retail Sales and thereafter Bowman, Barr & Williams
• Bunds started the session on the backfoot and felt additional pressure on UK CPI which saw the 134.37 trough print (matches 8/12 low); since, benchmarks have found some reprieve though still remain in negative territory.
• Gilts are the clear laggard after an unexpected rise in UK CPI for December, which led benchmarks to fall to a 98.82 trough; levels to the downside include 98.29, Dec 12th low.
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COMMODITIES

• Crude is at lows, Brent (-2.1%), amid a concoction of bearish factors including the firmer Dollar, soured risk tone, hotter-than-expected UK CPI data, and the mixed Chinese GDP data overnight; Brent Mar is back under USD 77.00/bbl and markets await OPEC MOMR at 12:45GMT/07:45EST.
• Gold is subdued amid the firmer Dollar, but losses in the yellow metal are cushioned, potentially amid haven flows coupled with technical support; XAU resides around USD 2,025/oz.
• Base metals are softer across the board, in-fitting with the broader market mood, and in the aftermath of the mixed Chinese GDP data overnight.
• China is to cut gasoline price by CNY 50/t starting Jan 18th, according to the NDRC
• Saudi Aramco CEO says Red Sea attacks are manageable in the short-term, may create tanker shortage and weigh on market if it lasts longer
• Pemex reports that it is carrying out work activity which could result in flaring at the Deer Park, Texas facility (340k BPD)
• Exxon's (XOM) 250k BPD Joliet Illinois refinery reports flaring, according to Reuters
• Antofagasta (ANTO LN) reports FY23 copper production at 661kt (vs guided 640-670kt)
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ECB SPEAK

• ECB President Lagarde (Neutral) says inflation is not where the ECB wants it to be; confident the ECB will get inflation to the 2% target; Will stay restrictive for as long as necessary. Too optimistic markets do not help the ECB in its inflation fight. Cannot should victory until inflation is sustainably at 2%. Watching wages, profit margins, energy and supply chains. Second-round effects would be a cause for concern. ECB has reached peak rates, short of a major shock.
• ECB President Lagarde (Neutral) says it is likely that the ECB will cut rates by the summer, according to Bloomberg.
• ECB’s Knot (Hawk) says markets are getting ahead of themselves on rate cuts; a lot must go well to hit the 2% inflation in 2025; rate path priced by markets can be self-defeating, via CNBC; "rate hike in the first half is rather unlikely".
• ECB's Vasle (Neutral) says his rate expectations are significantly different to the market; says it is absolutely premature to expect rate cuts at the start of Q2.
• ECB's Panetta (Dove) says disinflation is happening, and is strong and will continue; says risks are emerging for raw material costs; adds that monetary conditions should adjust; awaiting data first to confirm the disinflation outlook.
• ECB's Villeroy (Neutral) says the job of monetary policy is not finished yet; premature to say when the ECB will reduce rates this year

NOTABLE EUROPEAN HEADLINES

DATA RECAP

• UK Core CPI MM (Dec) 0.6% vs. Exp. 0.4% (Prev. -0.3%); Core CPI YY (Dec) 5.1% vs. Exp. 4.9% (Prev. 5.1%)
• UK CPI MM (Dec) 0.4% vs. Exp. 0.2% (Prev. -0.2%); CPI YY (Dec) 4.0% vs. Exp. 3.8% (Prev. 3.9%); All Services 6.4% (prev. 6.3%)
• UK RPI YY (Dec) 5.2% vs. Exp. 5.1% (Prev. 5.3%); RPI MM (Dec) 0.5% vs. Exp. 0.4% (Prev. -0.1%)
• UK RPIX YY (Dec) 4.0% (Prev. 4.1%); RPI-X (Retail Prices) MM(Dec) 0.4% (Prev. -0.2%); RPI Index (Dec) 379.0 (Prev. 377.3)
• UK PPI Output Prices MM NSA (Dec) -0.6% vs. Exp. -0.2% (Prev. -0.1%); PPI Output Prices YY NSA (Dec) 0.1% vs. Exp. 0.4% (Prev. -0.2%, Rev. -0.1%); PPI Input Prices MM NSA (Dec) -1.2% vs. Exp. -0.7% (Prev. -0.3%, Rev. -0.4%)
• UK PPI Input Prices YY NSA (Dec) -2.8% vs. Exp. -1.9% (Prev. -2.6%, Rev. -2.7%); PPI Core Output YY NSA (Dec) 0.1% (Prev. 0.2%)
• EU HICP Final YY (Dec) 2.9% vs. Exp. 2.9% (Prev. 2.9%); HICP-X F,E,A&T Final YY (Dec) 3.4% vs. Exp. 3.4% (Prev. 3.4%)
• French Budget Balance (Nov) -197.97B (Prev. -177.71B)

NOTABLE US HEADLINES

• US Senate voted 68-13 to advance the stopgap funding bill through the first procedural hurdle in an effort to avert a shutdown.
• US Secretary of State Blinken says they are dealing very directly and clearly with China on businesses and despite differences, there are places to cooperate more

GEOPOLITICS

• Maersk (MAERSKB DC) CEO sees Red Sea disruptions "lasting a few months at least"
• US President Biden's administration is expected to announce plans to designate Yemen's Houthi rebel group as a global terrorist organisation, according to an official cited by CBS News.
• US National Security Council spokesperson said the US welcomed the announcement by Qatar that an agreement was reached to have medicine delivered to hostages in Gaza, according to Reuters.
• Iran’s Defense Minister said the country is engaged in talks with Russia over concluding an MoU on respect for national sovereignty, territorial integrity and regional interests, according to journalist Aslani.

OTHER

• China's Taiwan Affairs Office said Taiwan's election result cannot stop the trend towards reunification and China is willing to create the widest space for peaceful reunification, while it added that Taiwan has never been a country and China will never leave any space for Taiwan independence, according to Reuters.

CRYPTO

• Bitcoin (-1.7%) continues to edge lower and now resides below the USD 43k mark, whilst Ethereum (-2.2%) posts losses to a slightly larger magnitude.
• A new rule requiring US businesses to report cryptocurrency transactions over USD 10k has been postponed until the IRS issues new regulations on digital asset reporting, according to Cointelegraph.

APAC TRADE

• APAC stocks were mostly pressured after the recent upside in yields and tapering of Fed rate cut expectations, while participants also digested mixed Chinese economic releases including GDP and activity data.
• ASX 200 declined as losses in the commodity-related sectors overshadowed the gains in defensives and tech.
• Nikkei 225 was initially boosted at the open on the back of a weaker currency and briefly climbed back above 36,000 but then pulled back from fresh three-decade highs and wiped out all of its gains as it succumbed to the risk-off mood.
• Hang Seng and Shanghai Comp retreated amid the mixed data releases from China and with Hong Kong significantly underperforming amid hefty losses in tech and property, with the latter pressured by the decline in Chinese home prices.

NOTABLE HEADLINES

• China's stats bureau head said the economy faces a complex external environment and insufficient demand in 2024, as well as noted that low consumer prices reflect insufficient effective demand and expects a modest consumer price rise in 2024. NBS head stated China's economy is at a crucial stage of recovery and its property market is showing some positive changes, while he added there is still relatively big room for China's property sector to develop and there is still room to unveil more policy steps to support growth.
• China has drafted guideline on formatting standards for AI sector; details light
• China's BYD (1211 HK) to stop making pouch-type batteries for its hybrid EVs on concerns they may leak; plans to completely stop using pouch cells by 2025, via Reuters citing sources.
• Former BoJ official Maeda says that the BoJ could end NIRP in April, but will likely move slowly in any additional normalisation steps, via Reuters.

DATA RECAP

• Chinese GDP QQ SA (Q4) 1.0% vs. Exp. 1.0% (Prev. 1.3%, Rev. 1.5%); GDP YY (Q4) 5.2% vs. Exp. 5.3% (Prev. 4.9%)
• Chinese Industrial Production YY (Dec) 6.8% vs. Exp. 6.6% (Prev. 6.6%)
• Chinese Retail Sales YY (Dec) 7.4% vs. Exp. 8.0% (Prev. 10.1%)
• Chinese China House Prices YY (Dec) -0.4% (Prev. -0.2%)