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[PODCAST] European Open Rundown 25th January 2021

  • Asian equity markets began the week with a mildly positive tilt whilst US equity futures rebounded from Friday’s losses, although upside was limited
  • In FX, the DXY heads into the EU session softer, prompting support in major counterparts with GBP/USD reclaiming 1.37 status
  • China is looking for a meeting of its top diplomat with senior aides in the Biden administration, according to WSJ
  • Iraq plans to reduce oil output in January and February in order to compensate for breaches to the OPEC+ agreement in 2020
  • Italian PM Conte is reportedly close to resigning and is looking to form a new Gov't which would have a more substantial majority, according to papers
  • Looking ahead, highlights include German IFO, ECB's Lagarde, Panetta, Lane, Elderson, BoE Governor Bailey, Chinese President Xi at the WEF

CORONAVIRUS UPDATE

US CDC reported total COVID-19 cases rose to 24.88mln from 24.70mln the day before and total deaths rose to 416.0k from 412.6k, while a major newswire tally stated US cases increased by at least 131,188 to 25.00mln and deaths rose by at least 1,852 to 419.5k, according to a major newswire tally (Newswires)

US President Biden will sign an order on Monday to ban entry to most non-US citizens who have travelled to UK, Ireland, Brazil and South Africa. It was also reported that the CDC will sign an order requiring mask use on all flights, trains and ride-sharing vehicles, while it will not grant waivers for airlines seeking exemptions from COVID-19 testing requirements for all international flights. (Newswires)

White House Chief of Staff Klain said the Biden administration is working with states and agencies to improve rate of vaccinations, while he added they are very dedicated to passing priorities including minimum wage and that he has seen a lot of progress in bipartisanship at the Senate. (Newswires)

Pfizer (PFE) will ship fewer COVID-19 vaccine vials to account for ‘extra’ doses in each vial and will account a 6th dose in each vial towards its prior commitment of supplying 200mln doses by end-July after it received FDA approval to change the vaccine’s formal authorization language to acknowledge an additional dose for a total 6 doses per vial. (New York Times)

UK COVID-19 cases +30,004 (prev. +33,552) and deaths +610 (prev. +1,348), France cases +18,436 (prev. +23,924) and deaths +72 (prev. +230), Italy cases +11,629 (prev. +13,331) and deaths +299 (prev. +488). (Newswires)

UK PM Johnson is to approve a new border crackdown on Tuesday which could ban entry into the UK for nationals of COVID-19 hotpots, while there are also proposals for those arriving from hotspots including British citizens to be escorted to isolation hotels upon arrival where they will need to quarantine at their own expense. Furthermore, PM Johnson stated on Friday that there is some evidence the new variant of the COVID virus might be more deadly but added that all current evidence shows both vaccines the UK is using remains effective against old and new strains. (Sunday Times/Newswires) The government quietly extended COVID-19 lockdown laws to provide local councils authority to shut pubs, restaurants, shops and public spaces until July 17th this year. (Newswires/Telegraph)

As many as 500k fewer doses of COVID-19 vaccine will be supplied to the UK’s NHS in the week ahead as Whitehall sources admitted the target of vaccinating priority groups by mid-February was increasingly “tight". (Telegraph)

Oxford University researchers are planning the first, large high-quality trial of ivermectin which is a low-cost drug that claimed to reduce deaths by 80% among patients in hospitals, although other scientists were sceptical of the data which was from a combination of 11 prior trials and said that more results would be required before it could be considered as a treatment. (The Times)

AstraZeneca (AZN LN) is to cut deliveries to EU by 60% in Q1 to 31mln doses and was not able to indicate delivery targets to the EU for Q2, with the expected drop in deliveries due to production problems at vaccine factory in Belgium. (Newswires)

French President Macron may announce a 3rd national lockdown on Wednesday night which could take effect from the end of the week and last at least 3 weeks, amid concerns of a new wave of COVID-19 infections driven by the UK variant. (Journal du Dimanche)

Norwegian government is to widen the lockdown in the capital region in which the number of affected municipalities will be raised to 25 from the initial 10 that had been placed under the restrictions on Saturday. (Newswires)

Australia approved the Pfizer (PFE) / BioNTech (BNTX) COVID-19 vaccine for use and PM Morrison stated that they are on track to begin the vaccine rollout late next month. In relevant news, Western Australia announced to loosen its COVID-19 lockdown policy towards New South Wales and Queensland from Monday although travellers would still be required to test & isolate for 14 days, while Victoria eased restrictions to permit entrance to the state for most people from Sydney where social distancing regulations limiting gatherings were also eased. (Newswires)

South Africa’s regulator permitted the health department to distribute AstraZeneca (AZN LN)/ University of Oxford COVID-19 vaccine which is the country’s first approval for COVID-19 inoculations. (BBG)

ASIA

Asian equity markets began the week with a mildly positive tilt and US equity futures also rebounded from Friday’s losses although upside was limited amid a lack of significant bullish catalysts with weekend newsflow dominated by COVID-19 headlines and as participants look ahead with the FOMC meeting and month-end on the horizon. ASX 200 (+0.4%) was led higher by consumer stocks amid an easing of restrictions after Western Australia and Victoria relaxed some lockdown policies concerning neighbouring states, while trade data was also encouraging as it showed a 16% M/M jump in exports. Nikkei 225 (+0.4%) was kept afloat as exporters benefitted from mild currency outflows and with Toshiba shares the stellar performer in Tokyo after its approval to return to the first section of the exchange. Hang Seng (+1.9%) and Shanghai Comp. (+0.6%) were also positive amid recent speculation the PBoC could potentially utilize the contingent reserve arrangement ahead of the Lunar New Year which allows banks to dip into their reserves to plug any shortfalls in liquidity, with the gains in Hong Kong exacerbated by southbound Stock Connect flows and after the city’s authorities lifted the weekend lockdown that was imposed in Kowloon. Finally, 10yr JGBs treaded water overnight following recent upside in USTs and with the BoJ also in the market for nearly JPY 1.4tln of JGBs in up to 10yr maturities, although upside was restricted with some analysts recently suggesting that JGB purchases could weaken in the current quarter as participants await further clarity regarding the BoJ’s March review given that potential tweaks could steepen the curve.

PBoC injected CNY 2bln via 7-day reverse repos at a rate of 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.4819 vs exp. 6.4836 (prev. 6.4617)

China is looking for a meeting of its top diplomat with senior aides in the Biden administration to explore a summit between the two nations’ leaders, according to sources. (WSJ)

15 Chinese aircraft including 12 fighter jets entered Taiwan’s air defence identification zone on Sunday although did not cross the median line that divides the Taiwan Strait and13 Chinese planes were also reported to have entered Taiwan’s ADIZ on Saturday, according to Taiwan’s Defence Ministry. Furthermore, the US urged that Beijing cease its military, diplomatic and economic pressure against Taiwan and said it is committed to deepening ties with Taiwan, as well as assisting it in maintaining sufficient self defence capability. (Newswires)

UK/EU

UK Chancellor Sunak doubled the offer for a one-off payment to millions of universal credit claimants to GBP 1,000 to replace the weekly GBP 20 uplift to quell a growing revolt among Tory MPs, while Sunak warned MPs that COVID-19 handouts 'can't go on forever' and is said to have begun rolling a pitch for revenue-raising tax measures although is understood to want to wait until later in year. (Telegraph)

UK government trade advisers are reportedly encouraging businesses exporting to the EU to set up separate companies inside the EU to avert extra charges, paperwork and taxes following the Brexit. (Observer)

UK is reportedly facing a crisis that would pressure union with polls showing majority of voters in Scotland and Northern Ireland want referendums on the break-up of Britain. (Sunday Times) Scotland’s governing SNP party set out a road map for a second independence referendum after the coronavirus pandemic, while a judge said she will make a “very swift” ruling regarding whether Scotland has the power to conduct a referendum without the UK’s approval. (Newswires)

London Stock Exchange is creating plans for a GBP 300mln listed vehicles aimed at increasing survival chances for companies affected hard by the coronavirus pandemic. (Newswires)

The BoE is being urged by MPs to add a "green twist" to its QE programme with The Environmental Audit Committee (EAC) stating that the Bank is risking creating a "moral hazard" by snapping up "high-carbon bonds" and financing the largest emitters. (Telegraph)

ECB’s Rehn stated there are better ways than yield curve control to achieve favourable financing conditions in the euro area. (Newswires)

Italian PM Conte is reportedly close to resigning and is looking to form a new Gov't which would have a more substantial majority, according to papers. (Newswires)

Portugal President Marcelo Rebelo de Sousa was re-elected by a landslide, according to preliminary results. (Newswires)

S&P affirmed Slovakia at A+; Outlook revised to Stable from Negative. Fitch affirmed Greece at BB; Outlook Stable, affirmed Czech Republic at AA-; Outlook Stable and affirmed the European Stability Mechanism at 'AAA'; Outlook Stable. (Newswires)

FX

In FX markets, the DXY lacked firm direction above the 90.00 level amid the absence of any pertinent drivers, with participants also kept tentative ahead of the FOMC meeting and US GDP data later in the week. EUR/USD traded steady with the single currency propped up by an uninspired USD although upside was restricted by ongoing COVID-19 concerns across the bloc including in France where President Macron may announce a 3rd national lockdown on Wednesday and the government’s top COVID-19 adviser Delfraissy warned further measures will be needed and that the virus was managing to find new forms to escape new treatment methods. GBP/USD breached 1.37 with the currency unfazed by ongoing concerns of a prolonged lockdown nor from increased risks of crisis to the union after polls showed a majority of voters in Scotland and Northern Ireland want referendums on the break-up of Britain. Elsewhere, USD/JPY was lacklustre although JPY-crosses were lifted, due to the slightly constructive mood, which also contributed to the tailwinds for antipodeans due to their high-beta properties and following strong preliminary Australian export data.

Australian Bureau of Statistics preliminary December trade surplus at AUD 8.96bln, Exports rose 16% M/M and Imports fell 9% M/M. (Newswires)

COMMODITIES

WTI crude futures were confined to a tight range overnight above the USD 52.00/bbl level despite the mostly positive risk tone, as price action was hampered by ongoing COVID-19 disruptions and lockdown concerns. Furthermore, some countries are seeking to tighten their borders including US which is set to ban non-US citizens who have travelled to UK, Ireland, Brazil and South Africa, while the UK could also announce its own restrictions on travellers from COVID-19 hotspots. Elsewhere, gold prices traded sideways above the USD 1850/oz level as the weaker greenback provided a floor for prices but with upside limited by a lack of haven demand, and copper conformed to the humdrum picture across the complex with only marginal support provided by the constructive mood.

Baker Hughes US Rig Count (w/e Jan 22nd): Oil rigs +2 at 289, Nat Gas +3 at 88, Total rigs +5 at 378. (Newswires)

Iraq plans to reduce oil output in January and February in which it will produce 3.60mln bpd vs 3.85mln bpd in December in order to compensate for breaches to the OPEC+ agreement in 2020. (Newswires)

GEOPOLITICAL

White House spokesperson said the US has a vital interest in deterring North Korea and will begin a thorough review, as well as work closely with allies. (Newswires)

French Foreign Minister Le Drian said arrests of protestors jeopardises the rule of law and is worried about the authoritarian drift in Russia, while he added the success of demonstrations across Russia was impressive. (Newswires)

US

Treasuries were modestly firmer after solid US data offset the choppy risk tone and data out of Europe. By settlement, T-Note futures were 4+ ticks higher, with yields 0-2bps lower across the curve in a moderate bull-flattening fashion; TYH volumes were lacklustre. Yields had been descending modestly overnight amid the broader selling across global stock indices; a lack of fresh catalysts has taken some wind out of the recovery trade this week in general. However, after some disappointing January Flash PMIs out of the continent, Uncle Sam's readings failed to concur and instead reported surprise rises from the December prints, boding well for the more widely followed ISM figures at the beginning of February. The solid PMIs and a surprise rise in December Existing Home Sales saw yields bounce off their lows somewhat, keeping USTs rangebound through the rest of the session amid a floor found for stocks. T-note (H1) futures settled 4+ ticks higher at 137-01.

US President Biden said the economic crisis is deepening and called for bold and decisive action, while he added that there is nothing that the US can do to change the trajectory of the pandemic in the next several months. (Newswires)

US GOP lobbyists stated that they plan to water down the progressive elements of Biden's stimulus by putting pressure on three moderate Democrats who are up for re-election in 2024. (Fox)

US Senate Democrat Leader Schumer stated that the Trump impeachment trial will be fair but will move at a relatively fast pace, while he added that a big and bold stimulus plan is required and hopes Republicans will join Democrats. (Newswires)

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