• European equities are mixed, with clear outperformance in the FTSE MIB, propped up by UniCredit (+8.7%) post-earnings; US equity futures are modestly softer, though the RTY underperforms
• Dollar is firmer continuing Friday’s advances, which has been leading the EUR towards December lows.
• Bonds are softer post-NFP and Chair Powell’s weekend commentary as attention turns to US ISM & other Fed speak
• Crude futures are pressured by the firmer Dollar and awaiting further geopolitical news.
• Looking ahead, US ISM, Japanese Household Spending & Overtime Pay, BoC Market Participation Survey, Fed SLOOS, Comments from BoC's Macklem & Fed’s Bostic, Earnings from McDonald’s, NXP Semiconductors & Caterpillar.

EUROPEAN TRADE

EQUITIES

• European equities are mixed, Stoxx600 (+0.1%); though the FTSE MIB outperforms, lifted by gains in UniCredit (+8.7%), post-earnings.
• European sectors also hold onto a mixed footing; Optimised Personal Care and Grocery is lifted by Jeronimo Martin (+2.5%) whilst Energy lags in tandem with broader weakness in the crude complex given sentiment/USD strength.
• US equity futures (ES -0.2%, NQ -0.2%, RTY -0.8%) hold just below the unchanged mark and within a relatively tight range; with the exception of the RTY, which significantly underperforms in a continuation of Friday's price action.
• Click here and here for the sessions European pre-market equity newsflow, including earnings from UniCredit & more.
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FX

• The Dollar is still enjoying the spoils from the post-NFP bounce printing a 104.29 high for the session thus far; next level to the upside goes back to 104.50 ahead of a cluster of highs between 104.50-60 from mid-Nov.
• EUR is still hampered by the USD with the pair at its lowest level since mid-Dec., 1.0750 is the trough today; 11th December low at 1.0740.
• JPY is steady vs. the USD but near Friday's levels with upside in USD/JPY running out of momentum at the 28th Nov. high of 148.83.
• AUD remains the laggard of the antipodes amid cautious sentiment surrounding China. Downtrend since late Dec continues to extend with AUD/USD low today of 0.6487 the lowest since mid-Nov.
• PBoC set USD/CNY mid-point at 7.1070 vs exp. 7.2088 (prev. 7.1006).
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FIXED INCOME

• USTs are slumping in a continuation of the post-Payroll move with Chair Powell factoring, alongside Bowman & Goolsbee also being unwilling to commit to a specific period; voter Bowman adding that she "remains willing to raise the policy rate" if required, currently 111-07 towards session lows.
• Bunds are unreactive to the morning's Final Composite & Services PMIs, which were subject to modest revisions. Within them, concern over wages/prices in the service sector remain a highlight and potentially influenced action on the margin; thus far, narrow 60 tick band which is well within Friday's 134.82-135.88 extremes.
• Gilts are similarly pressured, with further hawkishness filtering through post-BoE as we are yet to hear from those who voted for unchanged (ex-Pill) for any insight into when to expect the first cut; currently trading towards the session trough at 98.20.
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COMMODITIES

• Modest pressure in the crude benchmarks as the USD continues to strengthen post-NFP/Powell. Attention is still firmly on geopols. after US/UK strikes against the Houthi's and Kirby announcing more action will follow.
• Gold is unable to derive any benefit from geopolitical risk as the USD firms and yields lift across the board. Action which has sent XAU below its 50- & 21-DMAs of USD 2034/oz and 2029/oz respectively.
• Base metals are pressured given the overall risk tone and USD strength with little on the docket near-term to change this narrative before the afternoon's US data points.
• Two Ukrainian drones hit a primary oil processing facility at the Volgograd oil refinery in southern Russia.
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NOTABLE EUROPEAN HEADLINES

• UK seeks to end the Northern Ireland impasse and unveiled a plan to reduce trade friction on goods flowing from Great Britain to Northern Ireland, according to Bloomberg.
• Sinn Fein’s Michelle O’Neil was formally appointed as Northern Ireland's First Minister to become the first Irish nationalist to hold the post, according to Reuters.
• ECB’s Elderson said that they see a lot is going well for banks in the area of climate risks even if no single bank has currently met all expectations.
• ECB's Vujcic said patience is needed and need to ensure there aren’t any second-round effects on inflation from wages before cutting interest rates, according to Bloomberg.
• UK ONS Labour Force Survey re-weighting: Unemployment Rate in three-months to November 3.9% (prev. estimate 4.2%).
• German Ifo writes that the lack of orders within manufacturing is becoming an increasing burden on the domestic economy
• OECD raises 2024 global growth forecast to 2.9% from 2.7%, holds 2025 forecast at 3%. US 2024 forecast raised to 2.1% from 1.5%, 2025 held at 1.7%. EZ 2024 forecast cut to 0.6% from 0.9%, 2025 lowered to 1.3% from 1.5%. Chinese 2024 forecast held at 4.7%, 2025 held at 4.2%. Japan 2024 growth held at 1.0%, 2025 lowered to 1% from 1.2%. UK 2024 forecast held at 0.7%, 2025 held at 1.2%. Expects Fed to cut rates in Q2, ECB in Q3; policy will remain restrictive for some time.

DATA RECAP

• German Imports MM -6.7% (exp. -1.5%); Exports MM -4.6% (exp. -2.0%); Trade Balance, EUR 22.2B (exp. 18.8B)
• German HCOB Composite Final PMI (Jan) 47.0 vs. Exp. 47.1 (Prev. 47.1); HCOB Services PMI (Jan) 47.7 vs. Exp. 47.6 (Prev. 47.6)
• French S&P Global Services PMI (Jan) 45.4 vs. Exp. 45 (Prev. 45); HCOB Composite PMI (Jan) 44.6 vs. Exp. 44.2 (Prev. 44.2)
• Italian HCOB Services PMI (Jan) 51.2 vs. Exp. 50.6 (Prev. 49.8)
• Spanish Services PMI (Jan) 52.1 vs. Exp. 52.1 (Prev. 51.5)
• EU HCOB Services Final PMI (Jan) 48.4 vs. Exp. 48.4 (Prev. 48.4); Composite Final PMI (Jan) 47.9 vs. Exp. 47.9 (Prev. 47.9)
• UK S&P Global Services PMI (Jan) 54.3 vs. Exp. 53.8 (Prev. 53.8); Global Composite PMI (Jan) 52.9 (Prev. 52.5)
• EU Sentix Index (Feb) -12.9 vs. Exp. -15.0 (Prev. -15.8)
• EU Producer Prices MM (Dec) -0.8% vs. Exp. -0.8% (Prev. -0.3%); YY (Dec) -10.6% vs. Exp. -10.5% (Prev. -8.8%)
• Turkish CPI YY (Jan) 64.86% vs. Exp. 64.52% (Prev. 64.77%); CPI MM (Jan) 6.7% vs. Exp. 6.49% (Prev. 2.93%)
• Turkish PPI YY (Jan) 44.2% (Prev. 44.22%); PPI MM (Jan) 4.14% (Prev. 1.14%)

NOTABLE US HEADLINES

• Fed Chair Powell said with the economy strong, they feel that they can approach the rate cut timing question carefully but repeated expectation that the March meeting is likely too soon to have confidence to start rate cuts and want more confidence before taking the very important step of starting rate cuts. Powell said they are making good progress on inflation and could move sooner if they saw labour market weakness or inflation persuasively coming down but added that more persistent inflation could mean a later move and that there is no easy, simple, obvious path, according to 60 Minutes interview. Furthermore, FT reported that Powell said the Fed expects to make three cuts this year and a CBS reporter noted that Powell suggested the first cut could occur around mid-year.
• Fed’s Bowman (voter) said on Friday that she expects inflation to decline further with the policy rate held steady and it will eventually become appropriate to gradually cut rates if inflation continues to decline. Bowman also stated that upside risks to inflation include labour market tightness, easing financial conditions and geopolitics, while she will remain cautious on policy and watchful on data and revisions. Furthermore, she said reducing the policy rate too soon could mean more hikes will be needed in the future and she remains willing to raise the policy rate at a future meeting if needed, according to Reuters.
• US Senate Majority Leader Schumer announced a bipartisan bill that toughens border security and grants new aid to Ukraine, Taiwan and Israel, while the national security supplemental package totals USD 118bln and includes USD 60bln in military support to Ukraine and USD 14bln in security assistance for Israel, while it includes USD 30bln to strengthen US border security, according to a Reuters source.
• US President Biden said he strongly supports the bipartisan deal and that it is the toughest and fairest set of border reforms in decades, but added that there is more work to be done to get it over the finish line, while it was separately reported that US Senator Murphy said the bill also authorises a quarter of a million more visas which will reunite thousands of families, according to Reuters.
• US House Majority Leader Scalise said the Senate border bill will not receive a vote in the House, while House Speaker Johnson also said if this bipartisan bill reaches the House, it will be dead upon arrival.
• US President Biden is reportedly weighing joining Las Vegas hotel workers if they go on strike on Monday, according to the union chief.

EARNINGS

• UniCredit (UCG IM) - Q4 (EUR): Net 2.81bln (exp. 1bln), Revenue 5.98bln (exp. 5.56bln). NII 3.61bln (exp. 3.46bln). Adjusts FY24 Net "substantially in-line with FY23" (prev. guidance Net "at least in line"), Revenue 22.5bln (prev. guidance "broadly in line Y/Y"). The introduction of an interim dividend on FY24 earnings should allow for about EUR 10bln of calendar year distributions in 2024. Intends to distribute EUR 8.6bln to shareholders for 2023, pending approval. CEO says they expect rate cuts in H2’24. (Newswires) Shares +8.7% in European trade.

GEOPOLITICS

MIDDLE EAST

• US and UK carried out strikes against 36 Houthi targets which included missile systems, launchers, air defence systems, radar and buried weapons storage facilities, while the UK government said this was not an escalation, according to Reuters. US Central Command also announced its forces conducted a strike on four anti-cruise missiles which were prepared to launch against ships in the Red Sea.
• Yemen’s Houthi spokesperson said the continuation of US-British aggression will not achieve any goal for the aggressors and Yemen’s decision to support Gaza will not be affected by the attacks, while the spokesperson added that Yemeni military capabilities are not easily destroyed and were rebuilt during years of tough war, according to Reuters.
• White House’s Kirby said strikes on Friday against Iran-backed groups were just the first round of action and more action will follow, according to an interview with Fox News.
• US National Security Adviser Sullivan said there will be more steps in the US response to the drone strike in Jordan and that the US would not describe it as an open-ended military campaign but added that if the US continues to see threats and attacks, they will respond to them. Sullivan also stated that Gaza humanitarian issues will be the top priority for Secretary of State Blinken on his trip and that the ball is in Hamas’ court on the hostage proposal, according to Reuters.
• Iraqi military spokesperson said US air strikes constitute a violation of Iraqi sovereignty and pose a threat that could lead Iraq and the region into dire consequences. It was also reported that the Iraqi PM denied the US had coordinated air strikes with the Iraq government and called those claims lies, while the Iraqi PM said 16 were killed including civilians and 25 were wounded in the US aggression against Iraq’s sovereignty. Furthermore, Iraq’s Foreign Ministry summoned the US Charge D’Affaires to Baghdad and handed a note of protest against US attacks in Iraq, according to Reuters.
• Iran strongly condemned the US military strikes which it said were violations of the sovereignty and territorial integrity of Iraq and Syria, while it added that US attacks represent another adventurous and strategic mistake by the US that will result only in increased tension in instability in the region. Syria’s Foreign Ministry also condemned the US attack on Syrian territory and stated that the US is fuelling conflict in the region in a very dangerous way.
• Israeli army said its warplanes bombed an operational headquarters and military infrastructure of Hezbollah in the area of the village of Yaron and they also targeted a Hezbollah observation point in the village of Maroun al-Ras in southern Lebanon, according to Al Jazeera.

OTHER

• Ukrainian President Zelensky said he was considering replacing several officials including state leaders and in the military.
• G7 countries are reportedly drawing up plans to issue debt to help fund Ukraine using Russian assets as a backstop for the repayment, according to FT.
• South Korea summoned the Russian envoy over Moscow’s comment criticising President Yoon’s remarks on North Korea.

CRYPTO

• Bitcoin holds above USD 43k, with more pronounced strength in Ethereum (+1.3%) taking the coin to USD 2.3k.

APAC TRADE

• APAC stocks were mostly subdued after last Friday's red-hot jobs report and the latest comments from Fed Chair Powell who reiterated the expectation that a March cut is likely too soon.
• ASX 200 was dragged lower by underperformance in the commodity-related sectors and as participants await tomorrow's RBA decision, while Australian Services and Composite PMI data improved but remained in contraction territory.
• Nikkei 225 was underpinned by recent currency weakness and with the biggest movers influenced by earnings.
• Hang Seng and Shanghai Comp were initially both pressured from early on in a continuation of the equity rout after Chinese stocks plunged to five-year lows despite the PBoC's previously announced RRR cut taking effect, while the securities regulator pledged to stabilise the market and prevent abnormal market fluctuations although refrained from announcing specific measures. As such, Chinese markets later recovered from their lows which saw both benchmarks briefly turn positive.

NOTABLE HEADLINES

• China’s securities regulator vowed to stabilise the market and prevent abnormal market fluctuations although refrained from announcing specific measures, while it will crack down on ill-intended short-selling and attract more investment by long-term capital. It was also reported that China is to step up financing support for major private projects, according to Bloomberg.
• Indonesia Central Bank Governor Warjiyo said there should be room to cut rates, but they are waiting for the IDR to strengthen and stated that Indonesia’s economy is in an upward cycle with a peak seen in 2026.
• Foxconn (2317 TW) January sales down 20.9% Y/Y; the outlook for the first quarter of this year is expected to decrease Y/Y

DATA RECAP

• Chinese Caixin Services PMI (Jan) 52.7 vs. Exp. 53.0 (Prev. 52.9); Caixin Composite PMI (Jan) 52.5 (Prev. 52.6)
• Australian Trade Balance (AUD)(Dec) 10.96B vs Exp. 11.00B (Prev. 11.44B); Exports MM (Dec) 1.8% (Prev. 1.7%); Imports MM (Dec) 4.8% (Prev. -7.9%)