Original insights into market moving news

[PODCAST] European Open Rundown 12th January 2021

  • Asian equity markets traded cautiously as the region struggled to break from the weak performance among global peers
  • In FX markets, the DXY holds on to gains around 90.50, EUR/USD hovers around 1.2150 and Cable maintains 1.35+ status
  • House Majority Leader Hoyer commented that there may very well be a vote on impeachment this Wednesday
  • EU is reportedly working on an Airbus (AIR FP) - Boeing (BA) trade offer for the upcoming Biden administration
  • Looking ahead, highlights include US NFIB Business Optimism, EIA STEO, Fed Discount Rate Minutes, BoE's Broadbent, Fed's Brainard, Kaplan, Mester, Rosengren, ECB's de Cos, supply from the UK and US


US COVID-19 cases +248,578 (prev. +269,623) and deaths +3,432 (prev. +3,655), while a major newswire tally stated US cases rose by at least 221,410 to a total of 22.46mln and deaths rose by at least 2,031 to a total of 376.2k. (Newswires)

Moderna (MRNA) CEO anticipates delivering 600mln doses of the vaccine this year, while they are also very comfortable with achieving up to 1bln doses of its COVID-19 vaccine this year. (Newswires)

UK COVID-19 cases +46,169 (prev. +54,940) and deaths +529 (prev. +563). (Newswires)

Portugal President Marcelo Rebelo de Sousa has tested positive for COVID-19, according to his office which follows an announcement last week that he would self-isolate after being in contact with someone who tested positive for the virus (Newswires)

Japanese PM Suga reportedly told ruling lawmakers he plans to declare a state of emergency for Osaka, Kyoto and Hyogo prefectures, while there were earlier reports that Japan will declare an emergency for the Osaka area as soon as Wednesday. Separately, Finance Minister Aso stated they are asking restaurants to shut early due to increased COVID-19 risk and will provide JPY 400k for small firms that experience a sales decline by half or more due to shorter hours. (Newswires)

China's Global Times tweeted that large scale free testing and 7-day quarantine will be applied to Langfang City after 1 case was found in Gu'an which is a county neighbouring Beijing. In other news, China's Coronavac vaccine was reported to have a general efficacy of less than 60% in its Brazilian trial. (Newswires/Twitter)


Asian equity markets traded cautiously as the region struggled to break from the weak performance among global peers including the tech-led declines on Wall Street amid fears of tougher regulation on the tech giants and with sentiment also dragged by ongoing COVID-19 concerns. ASX 200 (-0.3%) and Nikkei 255 (+0.4%) were rangebound for most the session with strength in Australia’s top-weighted financials sector just about kept the local benchmark afloat although pressure in tech and miners ultimately wiped out gains at the close, while Tokyo trade was indecisive on return from the extended weekend with Japan facing a possible State of Emergency declaration this week for the Osaka, Kyoto and Hyogo prefectures. Nonetheless, Chugai Pharmaceutical was the biggest gainer on recent news that the UK government found the Co.’s arthritis drug Actemra to be effective against COVID-19 and Tepco was also boosted by record power prices amid cold weather conditions and tighter supply. KOSPI (-1.9%) was worst performer after its recent record streak with Samsung Electronics also pulling back from all-time highs and South Korea's FSC to lift the ban on short sales from March 16th which had been implemented last year due to COVID-19. Hang Seng (+0.7%) and Shanghai Comp. (+1.1%) pared opening losses to trade in the green after the mainland eventually shrugged off the PBoC’s tepid liquidity operations and with the Hang Seng flirted with resistance around the 28k level, led by a continued rebound in the Chinese telecom giants. Finally, 10yr JGBs were lacklustre after the continued pressure seen in stateside peers and indecision in stocks, but with downside cushioned by the BoJ's presence in the market for over JPY 1.1tln of JGBs.

PBoC injected CNY 5bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 5bln. (Newswires) PBoC set USD/CNY mid-point at 6.4823 vs exp. 6.4794 (prev. 6.4764)

China reportedly plans a further crackdown on Hong Kong in which the city's elections could face reforms that are aimed at reducing the influence of democrats, according to sources. (Newswires)


UK BRC Retail Sales YY (Dec) 4.8% (Prev. 7.7%); BRC said 2020 was the worst year for retail sales since records began in 1995 with sales down 0.3% Y/Y. There were also comments from Barclaycard that UK consumer spending fell 2.3% Y/Y in December which is the largest drop since June. (Newswires)

EU is reportedly working on an Airbus (AIR FP) - Boeing (BA) trade offer for the upcoming Biden administration. In relevant news, the US Customs and Border Protection said it will begin collection of additional duties on aircraft parts and wines from France and Germany beginning Tuesday at 00:01 EST. (Newswires)


FX markets were uneventful although the DXY held on to the prior day’s gains around the 90.50 level after initially being underpinned by Monday’s risk aversion, higher yields and which also followed several Fed speakers in which officials anticipate a firm rebound this year and continued to brush upon the notion of tapering. This included Fed's Barkin who noted that H2 2021 will be very strong and the Fed would have to make substantial progress towards its goals before QE tapering is discussed, while Fed’s Bostic suggested strong moves in unemployment, inflation and virus control would be needed for changes in Fed bond buying and Fed's Kaplan was hopeful that later this year, they will meet the ‘substantial progress’ bar for tapering QE. Furthermore, it was reported that Morgan Stanley dropped its forecast for near-term USD weakness and exited short positions on the greenback against EUR and CAD due to the recent shifts in US rates. EUR/USD languished beneath 1.2150 as the single currency took a back seat to the USD strength and GBP/USD was rangebound but kept afloat after the recent reclaim of the 1.3500 status despite yesterday's comments from BoE's Tenreyro. USD/JPY extended above 104.00 as it continued to benefit from the rising dollar tide and antipodeans were rangebound with price action contained by a lack of pertinent data releases and a slightly weaker CNY reference rate setting.

Canadian PM Trudeau reportedly plans a cabinet reshuffle involving several ministers on Tuesday. (Newswires)


WTI crude futures were little changed throughout the session above the USD 52.00/bbl level as prices reflected the indecisive overnight mood across other asset classes and amid lingering virus concerns. Nonetheless, there were forecasts from Goldman Sachs that anticipates higher oil prices this year and brought forward its USD 65/bbl Brent Crude price target to July from December as roll out of vaccines increases the likelihood of a quickly tightening market despite increasing production. Gold consolidated around the USD 1850/oz level with mild upside seen as the pressure from the recent USD strength was offset by the precious metal's haven properties, while copper was also higher and nursed recent losses.

Russia's OPEC+ compliance reportedly slipped to 93% in December, according to Energy Intel. (Twitter)

Goldman Sachs expects Brent crude to average USD 60/bbl in Q2 2021 and reach USD 65/bbl in July vs prev. forecast of December, while it sees 1.3mln bpd deficit in April despite OPEC+ increasing production. (Newswires)


US Secretary of State Pompeo is travelling to Brussels on Wednesday and Thursday for discussions with NATO leaders, while it was also reported that Pompeo will use newly declassified US intelligence today to publicly accuse Iran of links to Al-Qaeda, according to sources familiar with the matter. (Newswires)

US military is to proceed with its plans for a troop withdrawal from Afghanistan despite a new law barring it without the Pentagon sending Congress a risk assessment report. (Newswires)


Duration started the week on its bearish trend as yields continued to test new cycle highs amid a busy supply slate, despite the broader aversion to risk assets. By settlement, 2s +0.8bps at 14.5bps, 10s +2.7bps at 113.4bps, 30s +1.6bps at 187.9bps; futures volumes were decent; inflation breakevens narrowed as 5-year TIPS +5.5bps at -159.0bps, 10-year TIPS +9.9bps at -93.8bps and 30-year TIPS +7.8bps -20.2bps. Sovereigns had been supported overnight, although as US participants returned from the weekend selling pressures picked up. There wasn't anything incrementally new on the macro front that drove the sell-off in USTs, with newsflow rather light today, and instead appeared to be more of a fade of the overnight narrowing in inflation breakevens and the prospects of a busy Monday for corporate issuance ahead of the 10s and 30s Treasury auctions this week (today's 3-year auction tailed the WI, but the internals were promising). Real yields (TIPS) continued to rise strongly, where the post-GA election reflation momentum has been paring from the end of last week; participants will be looking to Wednesday's CPI print to provide support to the market-based expectations, which some question whether they have gone too far too fast. Given that breakevens are now gravitating towards the Fed's 2% (average) target, Goldman's analysts note that much further widening would need to reflect an environment of inflation sustainably overshooting the target, something that the bank (and many) believe as unlikely. Thus, from here GS expects the majority of upside to economic growth to be priced in rising real yields. T-note (H1) futures settled 7+ ticks lower at 136-13+.

Fed's Barkin (voter) said H2 2021 will be very strong and suggested it will be "bumpy" but elevated savings and potential stimulus are backstops, while he added we will see stronger inflation in Q2 because of lower inflation a year ago. Furthermore, Barkin stated that he doesn't want to put a date onto when the Fed will taper bond purchases but is a consideration and that the Fed would have to make substantial progress towards its goals before QE tapering gets discussed. (Newswires)

Fed's Bostic (voter) said it is hard to know what is happening with inflation right now due to price volatility during the pandemic and that the economic recovery has been stronger than expected but many segments still need relief. Furthermore, he added that the medium to long term is looking pretty positive with the baseline outlook for a robust recovery and stated that changes in Fed bond buying would need strong moves in unemployment, inflation and virus control, while he is not "super concerned" about the rise in 10-year bond yields and it is not something the Fed needs to react to. (Newswires)

Fed's Kaplan (non-voter) said next couple of months will be challenging due to virus resurgence and sees 2020 GDP to decline between 2.25%-2.50% but forecasts 2021 GDP growth of 5.0% and noted that Q1 GDP is likely to be positive. Kaplan also commented that he is hopeful that later this year, we will meet the substantial progress bar for tapering QE, while he added that he would be strongly against negative rates in US. (Newswires)

US House GOP Leader McCarthy told the House GOP that he does not support a Trump impeachment, while it was other reports noted that House GOP are preparing to introduce a resolution on Tuesday to censure President Trump for role in the Capitol siege. Furthermore, House Majority Leader Hoyer had earlier commented there may very well be a vote on impeachment this Wednesday. (Newswires)

FBI said armed protests are being planned at all 50 state capitols and Washington DC ahead of President Elect Biden's inauguration on January 20th, while it was separately reported that 15k national guards have been authorised to support the inauguration. (ABC/Politico)