• Asian equity markets initially in the red following the soft lead from Wall St.
• AUD notably weaker after Australian inflation data falls below expectations.
• Looking ahead, highlights include EuroZone inflation, German Unemployment, US ADP, Quarterly Refunding Announcement and FOMC rate decision.

ASIA

A mixed tone was gradually seen in Asia, as equity markets somewhat recovered from the initial spill-over selling from Wall St. where the S&P 500 posted its worst 2-day performance since May last year. The overnight rebound in sentiment was alongside President Trump’s first State of the Union Address, which Trump was viewed to have delivered a composed and conventional speech, while he also refrained from any comments that would have unnerved markets. As such, ASX 200 (+0.2%) pared early losses and finished positive, although the commodity-related sectors continued their underperformance, while Nikkei 225 (-0.4%) swung between gains and losses with Japanese stock news dominated by earnings. Furthermore, the region also mulled over mixed Chinese Official PMI data in which Non-Manufacturing PMI topped estimates but Manufacturing PMI disappointed, which in turn clouded over the Shanghai Comp. (-0.6%) and Hang Seng (+0.1%), despite a brief turnaround which momentarily saw most stocks lifted with the tide. Finally, 10yr JGBs  are higher, with prices supported from today’s Rinban operation in which the BoJ were in the market for JPY 850bln of JGBs across the curve and upped its purchases of 3yr-5yr maturities.

Chinese Manufacturing PMI (Jan) 51.3 vs. Exp. 51.6 (Prev. 51.6). (Newswires)

Chinese Non-Manufacturing PMI (Jan) 55.3 vs. Exp. 54.9 (Prev. 55.0)

PBoC skipped open market operations for a 5th consecutive session. (Newswires)

PBoC set CNY mid-point at 6.3339 (Prev. 6.3312)

BoJ Summary of Opinions from January meeting said must continue with powerful easing policy as inflation remains weak. There summary noted the opinion that BoJ must look at effects and costs of BoJ's ETF and risky asset purchases given stock prices and corporate profits improving sharply, while there also may be a chance for the BoJ to consider adjusting level of yield targets if economy and prices continue improving. (Newswires)

UK

UK GFK Consumer Confidence (Jan) -9 vs. Exp. -13              (Prev. -13)

UK BRC Shop Price Index (Jan) Y/Y -0.5% vs. Exp. -0.4% (Prev. -0.6%)

UK Lloyds Business Barometer (Jan) 35 (Prev. 28)

UK PM May said that there was a long-term job to do in Brexit and that she will publish Brexit impact studies during February speech in Munich. Furthermore, PM May said the UK is seeking a free trade deal with China and wants more access in the interim before trade deal. (Newswires)

Ireland Minister for Financial Services D'Arcy urged for a quick deal on Brexit transition and stated that a 2-year transition for hard Brexit is practically impossible. (Newswires)

BoE Governor Carney said that any unwind of QE will be well telegraphed and that inflation pass tspanough due to FX rate shock has further to go, while he also expects inflation to remain above 2% in the near future. (Newswires)

EU

German Chancellor Merkel's CDU/CSU block and the SPD may clash on Russian sanctions. (Handelsblatt)

FX

In FX markets, USD was mostly subdued against its major counterparts and largely ignored President Trump’s State of the Union Address. Elsewhere, AUD underperformed on data releases including softer than expected CPI numbers and disappointing Chinese Official Manufacturing PMI, which dragged AUD/NZD to below the 1.1000 handle. Furthermore, JPY briefly saw safe-haven inflows upon the release of the aforementioned Chinese data, although this was pared shortly after as JGBs were underpinned and Japanese yields fell following the BoJ’s bond purchase announcement.

Australian CPI (Q4) Q/Q 0.6% vs. Exp. 0.7% (Prev. 0.6%). (Newswires)

Australian CPI (Q4) Y/Y 1.9% vs. Exp. 2.0% (Prev. 1.8%)

Australian CPI Trimmed Mean (Q4) Q/Q 0.4% vs. Exp. 0.5% (Prev. 0.4%)

Australian CPI Trimmed Mean (Q4) Y/Y 1.8% vs. Exp. 1.9% (Prev. 1.8%)

COMMODITIES

US API Weekly Crude Stocks (26 Jan, w/e) 3.229M vs. Exp. 0.100M (Prev. 4.755M). (Newswires)

Commodities were mixed as WTI crude futures extended on losses following a larger than expected build in headline API crude oil inventories, while natgas also broke below overnight range amid a bout of pressure heading into the European open. Conversely, the metals complex fared better with mild gains in gold amid a lacklustre greenback, and with copper marginally supported by the improvement in risk tone.

GEOPOLITICAL

President Trump commented on North Korea in State of the Union Address in which he stated that no regime has oppressed its own citizens more brutally than North Korea and that its reckless pursuit of nuclear missiles could soon tspaneaten the US, while he added US is waging a campaign of maximum pressure to prevent that from happening. (Newswires)

US

Bear-steepening was again the theme on Tuesday, with shorter-dated yields flattish, while longer-yields were around 4-5bps higher. All major curves were wider, with 2s30s up by circa 5bps, 5s30s circa 2bps higher, and 2s10s around 3bps steeper. Some traders expect the FOMC to hawkishly tweak its language at the conclusion of its policy meeting on Wednesday (preview below), to prepare markets for a rate hike. CME Fedwatch indicates there is only a 5% probability of a hike at this week’s meeting, and a 60% chance of tspanee hikes in 2018 (as the Fed has forecast). US T-Note futures settle 5+ ticks lower at 121.20+.

US President Trump delivered his first State of the Union Address in which he stated the US is finally seeing rising wages and that unemployment claims have hit a 45-year low. Trump also called on Congress to produce a bill that generates at least USD 1.5tln for new infrastructure investment and said that they will work to fix bad trade deals.

Former White House Strategist Bannon will not be appearing before The House Intelligence Committee tomorrow, according to reports. (Newswires)