• Major EU equities in the red [Euro Stoxx 50 -0.2%], but IT outperforms sector-wise
• DXY extends gains above 96.000 while AUD underperforms on dovish Lowe, EUR dipped on German factory orders
• Looking ahead, highlights include US International Trade, EIA Inventories, Brazilian Rate Decision, Fed Chair Powell, Fed’s Quarles and BoC’s Lane, US 10yr Note Auction
• EARNINGS: Prudential Financial, Chipotle, General Motors, GlaxoSmithKline

ASIA

Asian equity markets traded quietly with most bourses in the region closed for holidays, although the few that opened were kept afloat after the gains of their counterparts in US where earnings remained in focus and the S&P 500 notched a 5th consecutive win streak. ASX 200 (+0.3%) was led higher by tech as it mirrored the sector’s outperformance stateside, although the index was initially pressured and briefly retreated below the 6000 level amid weakness in financials due to profit taking and after its top component CBA posted a decline in H1 net. Nikkei 225 (+0.2%) also benefitted from the tailwinds and with focus centred on earnings releases, which has seen the list of best and worst performing stocks in Japan dominated by recent corporate updates. Finally, price action in 10yr JGBs was contained as the lack of demand due to the positive risk tone in Japan, was counterbalanced by the BoJ’s presence in the market.

US President Trump is to meet with Chinese President Xi later this month. In related news, US Trade Representative Lighthizer and Treasury Secretary Mnuchin will visit Beijing early next week for trade discussions, while reports also noted that China is said to have agreed to negotiate on items which were previously off-limits according to a senior administration official. (Newswires/WSJ)

US

US President Trump delivered the State of the Union Address in which he said the state of the union is strong and unemployment has reached its lowest level in half a century. President Trump also noted that he sent a proposal to Congress that includes plans for a physical barrier or wall on the southern border and said that he will get the border wall built, while he also commented that a new trade agreement with China must include end to unfair trade practices, reduce chronic trade deficit and protect American jobs. (Newswires)

UK/EU

UK ministers are reportedly considering a plan that would delay Brexit to May 24th. There were separate reports that the Department for exiting the EU are looking at a plan that would use technology to keep the Irish border open; to be tested in March. (Telegraph/Sun)

European Council President Tusk says the EU 27 will make no new Brexit offer, while Irish PM Varadkar says he is open to discussions with the UK, but the Withdrawal Agreement stands. (Newswires)

CBI has warned that the UK risks "crashing out" of 40 trade agreements across five continents in the event of a no-deal Brexit. (BBC)

Ireland is reportedly in dialogue with the EU over emergency funds to offset the damage caused to the country in a no-deal Brexit scenario. (The Guardian)

ECB officials see no urgent need to offer fresh LTROs and may avoid doing so at their March meeting, according to sources. (Newswires)

Business Insider reports that the UK government is accused of " forcing through hundreds of pieces of Brexit-related legislation without proper parliamentary scrutiny. Ministers are seeking to drive through delegated legislation that often they themselves do not fully comprehend"  Shadow Chancellor John McDonnell tell Business Insider. (Business Insider)

Business Insider's Payne tweets ""Malthouse Compromise" MPs insist that Theresa May is taking their plan seriously despite her remarks about tech solutions yesterday. They claim to have met with "a dozen" civil servants to work on the proposals." (Twitter)

Telegraph's Swinford tweeted that UK Business Secretary Clark said the deadline for a Brexit deal is not March 29th, suggesting it could be as soon as next Friday "for those exporting to places like Japan who need certainty about the tariffs they will face" (Twitter)

Telegraph's Hope reports "Conservative MPs developing the Malthouse compromise are expecting the plan to be ready by tonight to allow Theresa May to take a copy to Brussels for her talks tomorrow. 20 civil servants working on plan". Malthouse Compromise (Plan C) – Transition period will be extended from the end of 2020 and into December 2021. It allows the UK and EU to “prepare properly” for WTO terms or “obviate this outcome by negotiating a mutually beneficial future relationship”.

GEOPOLITICAL

US President Trump plans to meet with North Korea leader Kim in Vietnam on February 27th-28th. (Newswires)

EQUITIES

Major European equities are in the red [Euro Stoxx 50 -0.2%], with the exception of the AEX (+0.4%) following earnings from ING Groep (+5.3%). Sectors are broadly in the red, with the exception of IT names who are outperforming slightly following on from their strong performance in the US and overnight. Other notable movers include, CYBG (+15.2%) who are at the top of the Stoxx 600 after the Co. guides their net interest margin to the upper end of their prior range. Also firmly in the green after a 13% increase in their Q4 non-IFRS revenue are Dassault Systemes (+8.6%). This mornings significant earnings came from BNP Paribas (-2.0%) and Daimler (-3.2%) who are both in the red after lowering guidance and missing on Q4 EBIT respectively. At the bottom of the Stoxx 600 are Ocado (-7.9%) as yesterday’s fulfilment enter incident will lead to a sales growth reduction until capacity can be increased elsewhere. Separately, GlaxoSmithKline (-1.5%) are expected to report their earnings today at 12:00 GMT. In recent news flow the proposed merger between Alstom (+2.1%) and Siemens (-0.5%) has been rejected by the EU.

FX

AUD – Having rallied in relief after the RBA policy meeting yesterday, the Aussie has recoiled sharply following comments from Governor Lowe signalling a shift in rate guidance via the omission of tightening as the next move and a cut now on the agenda if the jobs market and economy overall weakens. Aud/Usd is now at risk of filling bids ahead of 0.7100 and then 0.7075, while Aud/Nzd is hovering just above 1.0400 vs 1.0500+ in the immediate aftermath of Tuesday’s RBA decision and statement, even though the Kiwi has been dragged down with its Antipodean peer – Nzd/Usd now hovering around 0.6850 from circa 0.6900 overnight. Note, the delayed GDT auction could help the Nzd pare some losses if prices rise again per indications via futures, but a decline after 4 increases in a row cannot be ruled out.

CAD – Another G10 underperformer and victim of a broad downturn in risk sentiment that has spread to oil, with the Loonie retreating further from sub-1.3100 highs vs its US counterpart and now testing support near 1.3200. Ahead, Canadian building permits may provide some independent impetus along with comments from BoC’s Lane not long after the data.

JPY – Bucking the overall trend of losses against the Greenback, as the DXY consolidates above 96.000, after another failure to sustain gains above 110.00, has seen the headline pair pull-back towards 109.50 again, and with hefty option expiries between 109.50-65 (2.2 bn) also a potential draw.

GBP/CHF/EUR - All narrowly mixed vs the Dollar, but with the Pound paring losses on the back some technical buying as Cable based around 1.2925 for a 2nd time and leverage accounts reportedly took profit on short positions instigated from 1.3050 to 1.3000 yesterday. Recovery high 1.2973, just shy of the 21 DMA at 1.2975. Meanwhile, the Franc remains anchored around parity and the single currency probed a bit further below 1.1400 to test bids at 1.1380 before regaining some composure ahead of 1.1375 Fib support. However, Eur/Usd still looks fundamentally bearish amidst yet more disappointing German data/surveys (factory orders and construction PMI).

FIXED INCOME

Again no standout or clear driver, but Bunds and Gilts have both retreated further from best levels, with the former forging a slender new Eurex high at 165.68 (+19 ticks) before revisiting intraday lows, while the latter declined to a fresh Liffe intraday low of 123.47 (-5 ticks vs +23 ticks at best). Tech impulses are almost certain to have played a part as the 10 year German benchmark continues to meet offers/resistance around the 0.15% cash to futures conversion level, and its UK counterpart had a chart gap to plug having kicked off higher. Supply issues may also be hampering bulls given Italy’s 30 year syndication that is drawing strong investor interest, and with 10 year US T-notes looming that may require some concession as Treasury futures retain a mild bid and flattening bias.

COMMODITIES 

A relatively downbeat session in the energy complex thus far, with WTI (-0.7%) and Brent (-0.6%) pressured by the overall risk-averse sentiment, alongside a firmer dollar and latest release of the API crude stocks. US crude stocks increase by 2.514mln barrels last week, a wider build than the expected 2.200mln barrels while distillate fuel oil inventories printed a surprise build. News flow has been light for the complex, though prices failed to gain any lasting support from reports that all Libyan oil exporting ports are shut due to adverse weather conditions. Looking ahead, participant will be eyeing the DoE crude inventory at 15:30GMT today alongside US production numbers which remained at a record for three consecutive weeks. Elsewhere, metals are mixed with spot gold (-0.2%) largely dictated by Dollar moves rather than the risk-sentiment. Meanwhile, iron ore May’19 futures rose in excess of 3% after Brazilian mining giant Vale declared a force majeure on some contracts, including one affecting 30mln tonnes of iron ore production a year, amid health and safety concerns. Finally, copper prices found some support amid hopes of easing trade tensions after US President Trump said he is to meet with Chinese President Xi later this month.

Vale declared force majeure in iron ore sale contracts. (Newswires)

All Libyan oil exporting ports are reportedly to shut due to poor weather. (Newswires)

Libyan oil facilities guard force are approaching Libya's 300k bpd Sharara oil field, according to Al Jazeera. (Newswires)