• European bourses are trading on a mixed footing and lack clear direction; US equity futures follow suit ahead of a busy week of risk events
• Dollar continues to firm, EUR a touch softer and Antipodeans bid despite a flimsy risk tone
• Bonds are bid amid dovish ECB speak as attention turns to US Treasury Financing Estimates
• Crude is modestly firmer as geopols remain in focus; US said three troops were killed by an Iran-linked drone attack near the Syrian border
• Looking ahead, US Dallas Fed Manufacturing Business Index, Treasury Financing Estimates, Earnings from Western Digital

EUROPEAN TRADE

EQUITIES

• European bourses are on a mixed footing, having initially opened around the unchanged mark; the DAX 40 (-0.5%) underperforms, hampered by Bayer (-4.3%).
• European sectors hold a negative tilt, though with the overall breadth of the market narrow; Energy outperforms as crude prices remain propped up attributed to heightened geopolitical tensions. Autos underperforms, dragged down by losses in Volvo Cars (-3.8%).
• US equity futures (ES -0.1%, NQ +0.1%, RTY -0.1%) are on a mixed footing, though overall lacking any real direction as markets await this week’s key events including earnings from four out of the five “Magnificent 7”, Fed Policy Announcement, NFP & Quarterly Refunding highlight the week.
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FX

• DXY continues to edge higher making session highs at 103.66, though with fresh drivers lacking and contained in Friday's range of 103.14-72.; the Dollar has largely traded on a 103 handle since 17th Jan.
• EUR nudged lower in recent trade following dovish Centeno comments and towards the bottom end of Friday's range of 1.0813-86; markets await EZ CPI and GDP metrics this week.
• JPY a touch firmer vs. USD with the pair having oscillated around 148 in recent trading sessions. FOMC could become the next inflection point for the pair as markets consider Fed vs. BoJ policy paths.
• Antipodeans are both firmer vs. the USD despite the flimsy risk tone. AUD/USD has failed to sustain a footing above the 0.66 mark with 0.6620 the best the pair could muster last week.
• PBoC set USD/CNY mid-point at 7.1097 vs exp. 7.1785 (prev. 7.1074).
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FIXED INCOME

• USTs are firmer and hit a 111-13+ high on dovish Centeno comments, albeit well within last week's 111-13 to 111-19+ range. Fed is the week's highlight, WSJ's Timiraos says officials likely to no longer signal rates more likely to rise than fall.
• Bund price action has been dictated by ECB speak; ECB's Knot remarks on wages capped initial upside, thereafter EGBs extended on a dovish Centeno. Subsequently, ECB's Kazimir was a little less dovish which led to a marginal and short-lived moved to the downside.
• Gilts are bid printing a 98.95 session high on ECB's Centeno and in tandem with EGBs; focus on the BoE on Thursday with the docket thin before that.
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COMMODITIES

• Crude benchmarks began modestly firmer with geopolitics in focus. Specifically, the US said three troops were killed by an Iran-linked drone attack near the Syrian border; currently Brent futures reside off bests and just shy of USD 83/bbl.
• Spot gold is bid given the heightened geopolitical risk tone; XAU holds just above USD 2025/oz and well within last week's bounds of USD 2025.2-2037.9 bounds.
• Base metals are pressured as the Dollar picks up and coupled with Evergrande-related newsflow.
• Energy Intel's Bakr writes "...market has been underestimating the explosive situation we are in today. And with the US clearly blaming Iran for the killing of 3 Americans in Jordan it will get worse"
• 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.
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NOTABLE EUROPEAN 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 off UK PM Sunak, according to The Guardian.
• 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.
• The UK is to ban disposable vapes as part of plans to combat the rising number of those 11-17 years old vaping. Once implemented, retailers will have six months to implement changes. Currently unclear when the ban/bill will be introduced, PM Sunak to provide more details on Monday.

DATA RECAP

• Swedish GDP QQ Prelim (Q4) 0.1% vs. Exp. 0.3% (Prev. -0.3%); GDP YY Prelim (Q4) 0.0% (Prev. -1.4%)
• Swedish Retail Sales YY (Dec) -2.2% (Prev. -1.7%); Retail Sales MM (Dec) -0.2% (Prev. -0.5%)

ECB SPEAK

• ECB's Centeno says bank should begin cutting rates, sooner rather than later and avoid abrupt moves, according to Reuters; no need to wait for Q1 wage data to make a decision on rates. Inflation is falling in a sustained manner and almost all factors that drive prices higher have dissipated. No visible second-round effects via wages. No need to wait for Q1 wage data to make a decision on rates. Deviations below 2% inflation target are as punishable as deviations above. ECB also has to be a source of stimulus for EZ growth. Comments that sparked modest dovish price action.
• ECB's Kazimir says the next move will be a rate cut and it is within our reach; rate cut in Jun is more probable that April but exact timing is secondary to the decisions impact. Patience is essential before making pivotal decisions. ECB not behind the curve and it's the market getting ahead of events. Signs of disinflation are positive but we don't yet have enough information to make confident conclusion. Comments which began a slight pullback in EGBs.
• ECB's de Guindos says they will cut rates when they are sure inflation is attaining the 2% goal. Seen good news on inflation recently, sooner/later monetary policy will reflect this. Optimistic on inflation, incl. core.
• 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.

NOTABLE US 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.
• Boeing (BA), Alaska Airlines (ALK) - Alaska Airlines completed inspections on its Boeing 737 MAX 9 aircraft, and resumed MAX 9 operations after an in-flight cabin blowout, with flights resuming on Friday. Ryanair exec said it might not see first Boeing Max 10 fly in 2024, could be seen in Q1 2025. Added that United Airlines (UAL) recent remarks on the Max 10 were unhelpful, and said that if UAL does not want to take the Max 10's, then Ryanair will. Airbus (AIR FP) has approached leasing firms and airlines, exploring the possibility of repurchasing A321neo slots, to present an enticing offer to United Airlines, and challenging Boeing's position, Bloomberg reports. United is considering options due to delays in Boeing's 737 Max 10, and may potentially reconsider its order. Winning over United, one of the world's largest airlines, would be a significant victory for Airbus, though complexities and uncertainties would exist in any switch.

EARNINGS

• Philips (PHIA NA) - Q4 (EUR): Revenue 5.06bln (exp. 5.3bln). Proposes dividend remains at 0.85/shr. 2024 Guidance: FCF 0.8-1.0bln, only excludes the remaining cash-out related to the previously announced resolution of the economic class action within the US. Expects around 100bp of costs related to remediation activities and disgorgement payments for Respironics sales within the US. Elsewhere, Co. halts the sale of sleep apnea devices in USA after a FDA deal, via Bloomberg. Shares -6.4% in European trade.
• Ryanair (RYA ID) - Q3 (EUR): Revenue 2.7bln (exp. 2.72bln), RevPAR +9%, average fare +13%, ancillary revenue +2%. Fuel bill 1.2bln, +320mln. Sees weaker than expected load factors/yields in late-Q3/early-Q4.Close-in Christmas/New Year loads & yields were softer than previously expected given the sudden, but welcome, removal of flights from online agents. Narrowing FY24 PAT guidance to 1.85-1.95bln (prev. guided 1.85-2.05bln). Run extra checks on recent Boeing (BA) 737 deliveries, and noted quality improvements with fewer delivery defects. CFO: Might not see the first Boeing Max 10 fly in 2024, but perhaps in Q1-2025. United's (UAL) remarks on the Max 10 were unhelpful, if they won't take the Max 10's then Ryanair will. No issues with pilot staffing. CEO: Number of travel agents have approached for new deals. Look forward to the summer with some degree of optimism. 2026/2027 before Europe returns to pre-COVID short-haul capacity. Shares -2.6% in European trade.

GEOPOLITICS

MIDDLE EAST

• US President Biden and other top US officials discussed on Sunday a "significant military response" against pro-Iranian militias over the weekend attack which killed three US soldiers, according to Axios
• 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.

CRYPTO

• Bitcoin back above the USD 42k level as sentiment in the Crypto space continues to improve.

APAC TRADE

• 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.

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