• APAC stocks began the week mostly on the front foot, albeit with some of the gains capped by heightened geopolitical tensions and Chinese property sector concerns.
• Three US troops were killed and dozens were injured from an aerial drone attack on US forces in northeastern Jordan near the Syrian border; US says attack linked to Iran.
• European equity futures indicate a lower open with Euro Stoxx 50 future -0.2% after the cash market closed up 1.2% on Friday.
• DXY hovers around 103.50, EUR/USD sits around its 200DMA at 1.0841, USD/JPY trades close to 148.00.
• ECB’s Knot said Eurozone wage growth needs to slow before rates can be decreased.
• Looking ahead, highlights include UK Nationwide House Prices, US Dallas Fed Manufacturing Business Index, ECB Survey of Monetary Analysts, Comments from ECB’s de Guindos, Supply from Treasury Financing Estimates

US TRADE

EQUITIES

• US stocks traded mixed on Friday following the latest PCE inflation data which on the surface was relatively in line with expectations although the Core services ex. housing print accelerated in December while Personal Income and Consumer Spending were strong, showing consumer demand is still high. Nonetheless, the major indices finished relatively flat aside from the NDX which underperformed due to tech weakness after weak earning reports from INTC, KLAC and FICO.
• SPX -0.07% at 4,891, NDX -0.55% at 17,421, DJI +0.16% at 38,109, RUT +0.12% at 1,978.
• Click here for a detailed summary.

NOTABLE HEADLINES

• US President Biden’s administration is expected to formally announce billions of dollars in chip subsidies to Intel (INTC), TSMC (2330 TT) and others in the coming weeks to help build new US factories, according to WSJ.
• WSJ's Timiraos wrote "Plummeting Inflation Raises New Risk for Fed: Rising Real Interest Rates" and that the Fed feels pressure to cut rates as falling inflation raises the real cost of borrowing, while he also noted the Fed won't cut rates at this week's meeting but officials are likely to take a symbolically important step by no longer signalling in their policy statement that rates are more likely to rise than fall.

APAC TRADE

EQUITIES

• APAC stocks began the week mostly on the front foot heading closer to month-end albeit with some of the gains capped by heightened geopolitical tensions in the Middle East and Chinese property sector concerns.
• ASX 200 finished marginally higher with the index led by the energy sector after the recent upside in oil prices.
• Nikkei 225 climbed above the 36,000 level with the help of Japanese automakers amid currency effects.
• Hang Seng and Shanghai Comp were initially lifted after China's latest measures to stabilise stocks including the suspension of restricted shares lending, although gains were capped after a Hong Kong court ordered China Evergrande to be wound up which saw shares in the world's most indebted developer drop by as much as 21% before trading in the Co. and its affiliates were halted.
• US equity futures lacked conviction ahead of this week's key events and busy schedule of earnings.
• European equity futures indicate a lower open with Euro Stoxx 50 future -0.2% after the cash market closed up 1.2% on Friday.

FX

• DXY stayed within a thin range between 103.47-103.57 ahead of this week's major risk events.
• EUR/USD was uneventful in which the single currency loitered around its 200-day moving average of 1.0841.
• GBP/USD traded rangebound on both sides of the 1.2700 level in the absence of any pertinent catalysts.
• USD/JPY price action was indecisive and reverted towards an overnight floor around the 148.00 level.
• Antipodeans were ultimately firmer and shrugged off the concerns related to Evergrande's liquidation order.
• PBoC set USD/CNY mid-point at 7.1097 vs exp. 7.1785 (prev. 7.1074).

FIXED INCOME

• 10yr UST futures kept afloat after a rebound from Friday's support at the 111.00 level, albeit with price action contained after weekend newsflow mostly centred around geopolitical headlines and ahead of the major risk events later this week.
• Bund futures were marginally higher but with gains limited following weekend comments from ECB's Knot that Eurozone wage growth needs to slow before rates can be decreased.
• 10yr JGB futures lacked although losses were cushioned amid the BoJ's presence in the market for over JPY 1tln of JGBs.

COMMODITIES

• Crude futures were boosted at the reopen amid geopolitical tensions after an attack by Iranian-backed militants on a Jordanian base which killed three US service members and injured dozens more, although most of the gains were then pared.
• Russian Energy Minister said Russia's 2024 oil output is seen broadly unchanged Y/Y, while the Russian Energy Ministry separately commented that there is no need for additional measures on the fuel market for now.
• Head of Russia’s Gazprom Neft said there is a slight surplus in the global oil market and he sees no need for additional oil supply cuts by OPEC+ oil producers.
• Spot gold eked mild gains with price action choppy amid tentativeness ahead of the week's risk events.
• Copper futures were indecisive amid the mostly constructive risk tone and Chinese developer concerns.

CRYPTO

• Bitcoin mildly extended on gains after climbing back above the USD 42,000 level over the weekend.

NOTABLE ASIA-PAC HEADLINES

• White House said US National Security Adviser Sullivan and Chinese Foreign Minister Wang Yi held candid, substantive and constructive discussions on global and regional issues including Ukraine, the Middle East, North Korea, South China Sea and Burma, while Sullivan stressed that although the countries are in competition, both sides need to prevent it from veering into conflict or confrontation. White House also stated US and Chinese officials committed to maintaining a strategic channel of communication and pursuing additional high-level diplomacy and consultations through a call between US President Biden and Chinese President Xi which the US expects to take place sometime in spring. It was also reported that Secretary of State Blinken may revisit Beijing this year, according to Reuters.
• China’s Foreign Ministry said Chinese Foreign Minister Wang told US National Security Adviser Sullivan that the US and China should treat each other as equals rather than be condescending, while Wang stressed the Taiwan issue is China’s internal affair. China’s Foreign Ministry also stated that US and China's presidents will maintain regular contact to provide strategic guidance for bilateral relations and will make good use of the current strategic communication channels and dialogue mechanisms.
• The first joint meeting of the US-China working group on fentanyl precursor chemicals will be held on January 30th in Beijing with the US to pursue enforcement actions and impose controls of precursors, according to a senior US official.
• China’s securities regulator announced it is to fully suspend restricted shares lending from this Monday, while the Shanghai and Shenzhen stock exchanges will suspend securities lending by strategic investors during lockup periods, according to Reuters.
• Evergrande (3333 HK) received a winding-up order from a Hong Kong court after talks between the Co. and creditors broke down, while Evergrande, Evergrande New Energy Vehicle (708 HK) and Evergrande Property Services (6666 HK) shares were suspended.
• Monetary Authority of Singapore maintained the width, centre and slope of the SGD NEER policy band, as expected, while it stated that current monetary policy settings remain appropriate. MAS said Singapore's economy is expected to strengthen this year, barring any further global shocks, as well as noted that both upside and downside risks to the inflation outlook remain.

DATA RECAP

• Chinese Industrial Profits YY (Dec) 16.8% (Prev. 29.5%)
• Chinese Industrial Profits YTD YY (Dec) -2.3% (Prev. -4.4%)
• New Zealand Trade Balance (Dec) -0.32B (Prev. -1.23B, Rev. -1.25B)
• New Zealand Exports (Dec) 5.94B (Prev. 5.99B, Rev. 5.95B)
• New Zealand Imports (Dec) 6.26B (Prev. 7.23B, Rev. 7.20B)

GEOPOLITICS

MIDDLE EAST

• Three US troops were killed and dozens were injured from an aerial drone attack on US forces in northeastern Jordan near the Syrian border which US President Biden said was carried out by radical Iran-backed militant groups operating in Syria and Iraq. It was later reported that President Biden said the US will respond to the attack, according to Reuters.
• US Senate Minority Leader McConnell and other Republican senators advocate for significant costs to Iran and call for military retaliation against Iran's forces, both inside the country and across the Middle East.
• Iran denied any link to the deadly attack on US troops in Jordan and blamed Washington for igniting tensions in the region.
• Negotiators were reportedly closing in on a hostage deal that would stop fighting in Gaza for weeks, according to NYT. However, it was separately reported that Israeli PM Netanyahu’s office said the summit to negotiate a hostage deal was constructive but gaps remain and they will continue to negotiate a hostage deal this week, according to Reuters.
• White House said there is no change to its Israel policy after NBC News reported the US was reviewing weapons transfers to Israel.
• Several countries suspending funding for the United Nations Relief and Works Agency for Palestine Refugees are allegations that some staff were involved in the October 7th deadly Hamas attacks on Israel, according to BBC.
• US military said it conducted a strike against a Houthi anti-ship missile aimed towards the Red Sea which was prepared to launch, according to Reuters.
• US official said National Security Adviser Sullivan told Chinese Foreign Minister Wang Yi that Iran is supporting instability in the Red Sea and urged Beijing to use its influence to rein in Tehran, while the official added that China said they are raising Iran’s support for the Houthis with Iran. US also raised with China its deep concerns about the growing relationship between North Korea and Russia.
• Iran said it successfully launched three satellites into space simultaneously with a rocket that previously had multiple failures.

OTHER

• US President Biden’s administration is reportedly working on a long-term strategy for supporting Ukraine although the plans do not anticipate significant gains by Ukraine against Russia in 2024, according to The Washington Post.
• Armenian PM Pashinyan said they proposed a mutual arms control mechanism to Azerbaijan and the signing of a non-aggression pact, according to France 24.
• US said the Venezuelan court decision upholding a ban on leading opposition presidential candidate Machado is deeply concerning and the US is currently reviewing its Venezuela sanctions policy based on this development, according to the State Department.
• South Korean military said North Korea fired off multiple cruise missiles, while it was later reported that North Korean leader Kim guided a submarine launch cruise missile test on Sunday and inspected the construction of a nuclear submarine. Furthermore, Kim said nuclear weaponisation of the navy is key to building a state nuclear strategic force.
• US & Philippines eye 2+2 talks in Manila for the first time in which US Secretary of State Blinken and Defence Secretary Austin will meet Philippine counterparts in March, according to Nikkei.
• US wants cloud services providers such as Amazon (AMZN). and Microsoft (MSFT). to actively investigate and flag foreign clients developing AI apps on their platforms, something which could heighten a tech conflict between Washington and Beijing, according to Bloomberg.

UK/EU

NOTABLE HEADLINES

• UK Chancellor Hunt is reportedly considering providing workers with another tax cut through a further reduction of national insurance in the March budget as an attempt to take the heat of UK PM Sunak, according to The Guardian.
• ECB’s Knot said Eurozone wage growth needs to slow before rates can be decreased, while he stated that they have a credible prospect that inflation will return to 2% in 2025 but added conviction is missing that wage growth will adapt to the lower inflation, according to Reuters citing an interview with Dutch TV program Buitenhof.
• ECB's Villeroy said the ECB could cut interest rates at any moment this year and all options are open at upcoming meetings, while he added the central bank is on the right path to defeating inflation as the rise in the deposit rate to a record 4% has already played a very significant part in moderating underlying inflation, according to Bloomberg.
• Brussels mulls support for solar panel makers as Chinese imports flood the market, according to FT.
• French farmers vowed to blockade Paris and continue protests despite the concessions offered by PM Attal including the scrapping of a diesel tax increase, according to FT.