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[PODCAST] European Open Rundown 10th January 2022

  • Asia-Pac markets traded mixed and US equity futures were initially pressured after last Friday's post-NFP weakness
  • Ongoing Omicron woes and the absence of Japanese participants further added to the uninspired mood
  • China reported its first community transition of the Omicron variant in Tianjin which is a gateway city to Beijing
  • In FX, the DXY is firmer but sub-96.00, EUR/USD has reclaimed 1.13, USD/JPY remains on a 115 handle
  • ECB’s Schnabel stated that the green transition poses upside risks to medium-term inflation
  • Looking ahead, highlights include Eurozone Unemployment, Fed's Bostic


A strain of COVID-19 that combines Delta and Omicron was discovered in Cyprus, according to University of Cyprus biological sciences professor and head of the Laboratory of Biotechnology and Molecular Virology Leondios Kostrikis. (Newswires)

Canada announced that unvaccinated foreign truck drivers that arrive at the border will be turned back to the US from January 15th and that truck drivers could face delays due to the vaccine mandate, but does not expect it to result in significant disruptions or shortages. (Newswires)

UK reported 141.5k new COVID-19 cases and 97 deaths on Sunday vs 146.4k new cases and 313 deaths on Saturday. It was also reported that London may have passed or be at the peak of the latest COVID wave, according to the city's public regional health director. In relevant news, Tory Covid Recovery Group chair Harper called for PM Johnson to end all COVID-19 restrictions in England later this month, while he said PM Johnson should announce an end to restrictions and never bring them back when most current rules expire on January 26th. (Newswires/Sky News/FT) Chancellor Sunak is among those in the cabinet calling for a reduction in the isolation period to five days. (Telegraph)

France reported 296.1k new COVID-19 cases on Sunday which was around 7.5k cases less than the prior day, while Italy reported 155.7k cases on Sunday vs. 197.6k cases on Saturday. Furthermore, Italy is readying a EUR 2bln package to help COVID-hit firms, which is to be approved in the week ahead, according to Reuters sources. (Newswires)

A cluster of 20 Omicron cases was reported in Tianjin which is a gateway city to Beijing and it also reported China’s first community spread of the Omicron variant, while mass testing is underway in Tianjin and it required that residents do not leave the city unless necessary. In relevant news, Chinese health experts said that the Omicron variant tends to infect children more easily with more than half of the Tianjin cases in less than a month being middle and primary school students. (Newswires/Global Times)

Japanese prefectures of Okinawa, Yamaguchi and Hiroshima entered a COVID-19 state of pre-emergency on Sunday which will remain effective until January 31st. (


Asia-Pac markets traded mixed and US equity futures were initially pressured after last Friday's post-NFP weakness amid higher yields despite the miss on the headline jobs data, as a wider than expected decline in the Unemployment Rate provided evidence of the US moving towards full employment and boosted odds for a rate hike at the March meeting. This resulted in underperformance in consumer discretionary and tech with the latter also not helped by the worst start to the year for the Nasdaq 100 since 2000, while ongoing Omicron woes and the absence of Japanese participants due to Coming of Aged day further added to the uninspired mood. ASX 200 (-0.1%) was subdued as consumer discretionary and tech mirrored the underperformance of their US counterparts and with Australia suffering from the ongoing surge in COVID-19 cases, although loses for the index were cushioned by strength in the commodity-related sectors and better than expected Building Approvals data. KOSPI (-0.9%) continued its descent beneath the 3,000 level as it succumbed to the tech and consumer stock woes, with participants also cautious amid mixed expectations regarding the prospects of another rate hike by the BoK later this week. Hang Seng (+0.9%) and Shanghai Comp. (+0.3%) remained afloat with Hong Kong underpinned as some property concerns eased after Shimao placed all its property projects for sale and Kaisa agreed to the Shenzhen government's request to generate a plan by end-January to repay wealth management products to investors. Furthermore, China’s Guangdong provincial government held meetings with property enterprises which was said to likely pave the way for state-owned real estate enterprises to conduct M&A with troubled property firms, although not all developers joined in on the spoils as Modern Land reversed initial double-digit gains and slumped almost 40% on resumption from a two-month trading halt with the Co. in talks on a potential debt restructuring plan, while sentiment in the mainland was also contained after China reported its first community transition of the Omicron variant in Tianjin which is a gateway city to Beijing.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a CNY 10bln net injection. (Newswires) PBoC set USD/CNY mid-point at 6.3653 vs exp. 6.3628 (prev. 6.3742)

US Democratic Senators Brown and Republican Senator Portman called for the passage of the China competition legislation. (Newswires)

Senior Chinese officials reportedly do not expect bilateral relations with US President Biden’s administration to improve in 2022, while they will not initiate discussions to remove tariffs and pledge to no longer instruct Chinese companies to buy large amounts of US goods, according to SGH Macro Advisers. Furthermore, it was noted that a China National Security Meeting of the CPCC in late December which Chinese President Xi presided over, outlined five priorities in which the fifth priority was placing the stability of Sino-US relations in a very important position and an official suggested that importance of US in China’s relations were greatly lowered citing its fifth ranking. However, SGH Macro Advisers stated it doubts the US is number 5 on China’s priority list but noted it reflects China has no expectations for an improvement of bilateral relations with US. (SGH Macro Advisers)

China may conduct monetary easing measures in the first quarter as the economy needs more support while the US Fed accelerates its tightening steps, according to experts. (China Economic Net)

China’s Guangdong province government reportedly held meetings with property enterprises, likely paving the way for state-owned real estate enterprises to conduct M&A with troubled property firms, while reports later noted that China will make it easier for state-backed property developers to buy up distressed assets of property companies. (Newswires)

Huawei is taking measures such as issuing debts and a management overhaul amid lingering challenges including the US' crackdown and the ongoing pandemic, although analysts noted the measures are not proof that the Chinese company is in serious financial trouble or faces other problems, as its business has generally stabilised despite external hits. (Global Times)


UK Foreign Secretary Truss is 'willing' to override the Northern Ireland part of the Brexit agreement and stated she will not accept a deal which involves goods from Britain being checked as they enter Northern Ireland. (BBC)

UK Chancellor Sunak is facing increasing pressure to levy a windfall tax on UK offshore oil and gas operators with some Tory MPs, as well as Labour and Liberal Democrats wanting Sunak to levy a tax on North Sea operator profits to alleviate surging domestic energy bills. (FT)

UK Housing Secretary Gove will issue a warning to unsafe property developers as he seeks to pressure them to spend on replacing dangerous cladding, while developers are pushing back on government plans to resolve the cladding crisis which could result in them footing the bill of as much as GBP 4bln. (Sky News/FT)

ECB’s Schnabel said the green transition poses upside risks to medium-term inflation and suggested that rising energy prices could require the ECB to act on policy but added there has not been signs so far of broader second round effects of a higher inflation. (Newswires)


In FX, the DXY steadied and found some relief from its post-NFP decline beneath 96.00 after having failed to benefit from the market pricing for a Fed rate hike in March and recent hawkish Fed rhetoric with Goldman Sachs now anticipating a total of four hikes this year beginning in March and for the balance runoff to start in July. Focus this week turns to Fed Chair Powell’s nomination hearing on Tuesday and the latest US CPI data on Wednesday. EUR/USD gave back some of Friday’s advances but maintained a footing at the 1.1300 handle, with notable comments over the weekend from ECB’s Schnabel that the green transition poses upside risks to medium-term inflation and who suggested that rising energy prices could require the ECB to act on policy but added there have not been signs so far of broader second-round effects of higher inflation. GBP/USD was rangebound with upside capped by resistance at the 1.3600 level and as the UK continues to echo a willingness to rescind the Northern Ireland part of the Brexit agreement. JPY-crosses are mostly contained amid the absence of Japanese participants and antipodeans are also uneventful with only mild gains in AUD/USD after Building Approvals data topped forecasts.

  • Australian Building Approvals (Nov) 3.6% vs Exp. 0.0% (Prev. -12.9%, Rev. -13.6%)


Commodities were mixed in which WTI Crude futures initially extended on Friday’s losses beneath the USD 79/bbl, while ongoing COVID-19 concerns also weighed on prices amid continued surges in cases globally and with China reporting its first domestic Omicron transmission in Tianjin where residents have been asked to not leave the city unless necessary. It was also reported that Qatar narrowed the premium for crude prices in February and that output from Kazakhstan’s largest oilfield Tengiz is gradually being restored following disruptions from protests, although oil prices gradually recovered to return near-flat. Elsewhere, gold traded sideways with precious metal languishing slightly beneath the USD 1800/oz level as participants look ahead to the approaching CPI data on Wednesday and copper was also lacklustre due to the mixed risk tone.

US Baker Hughes Rig Count (w/e Jan 7th): Oil +1 at 481, Nat Gas +1 at 107, and Total +2 at 588. (Newswires)

Qatar cut oil price differentials vs Dubai/Oman for February with Marine crude OSP at a premium of USD 1.35/bbl vs Dubai/Oman average (prev. premium of USD 3.05/bbl) and with Land crude at a premium of USD 2.00/bbl vs Dubai/Oman (prev. premium of USD 3.80/bbl). (Newswires)

Production at Kazakhstan’s largest oilfield Tengiz is gradually being restored after reductions due to disruptions from protests in the country. (Newswires)


US President Biden administration is weighing up offering Russia cuts to US troops in Eastern Europe and with cuts matched by Russia in the stated area, according to NBC News. There were later reports that a US official confirmed the Biden administration is open to discuss reciprocal limits on military exercises in the eastern European region as part of talks with Russia on Ukraine but clarified that US in not willing to talk about the number of US troops deployed in NATO. (Newswires/NBC News)

Russian Deputy Foreign Minister Ryabkov said preliminary discussions in Geneva on Sunday were “complex and businesslike” after he met with US Deputy Secretary of State Sherman ahead of Monday’s talks, while Ryabkov also stated that it is entirely possible that diplomacy with US could end abruptly after a single meeting on Monday and that Russia will not make any concessions whatsoever under pressure. Furthermore, reports noted that Sherman stressed the US commitment to the principles of sovereignty, territorial integrity and freedom of sovereign nations to choose their own alliances. (Newswires/RIA)

US Secretary of State Blinken said he does not expect a breakthrough from US-Russia talks this week and that it is very hard to see progress happening when ‘Russia has a gun to the head of Ukraine’, while he commented that the US is seeking clarification from Kazakhstan officials in why they needed to ask for help from Russian-led troops and that the shoot to kill order in Kazakhstan is wrong which should be rescinded. Blinken also said regarding US-Russia talks that there are two paths ahead including a path of dialogue and diplomacy, while the other path is confrontation and massive consequences for Russia with the decision ultimately up to President Putin. (Newswires/ABC/CNN/The Hill)

US National Security Adviser Sullivan sought advice from Russia hawks ahead of this week's talks and a group of Russia experts urged for the US to send more arms to Ukrainians. (Axios)

NATO Secretary-General Stoltenberg urged Russia to co-operate with the west and warned Russia to abandon its hostile foreign policy or face a military alliance ready for conflict in Europe. There were separate comments from French European Affairs Minister Beaune said that Europe must not be absent from the negotiating table regarding Ukraine and that they need to understand what is happening in Kazakhstan including what Russia is doing. Furthermore, it was also reported that Kazakhstan authorities announced that 164 people were killed and almost 6,000 were detained after days of deadly unrest, while they warned that they will continue operations against “terrorists” with the help of Russian-led forces. (Newswires/FT)

US National Security Advisor Sullivan stated Iran imposed sanctions on 52 Americans and said the US will protect and defend citizens, while other reports also noted that the US warned Iran of severe consequences if it attacks any Americans including the 52 people that Tehran imposed sanctions on. (Newswires/Twitter)


Treasuries were sold on Friday as NFP gave evidence towards full employment and as Fed speakers lay the groundwork for QT. At settlement, 2s -1.4bps at 0.868%, 3s +0.8bps at 1.152%, 5s +2.3bps at 1.500%, 7s +3.0bps at 1.700%, 10s +3.2bps at 1.766%, 20s +3.2bps at 2.154%, 30s +2.0bps at 2.113%. 5yr TIPS +1.3bps at -1.308%, 10yr TIPS +0.6bps at -0.759%, 30yr TIPS -1.3bps at -0.161%, 5yr BEI -0.7bps at 2.812%, 10yr BEI +1.4bps at 2.496%, 30yr BEI +2.1bps at 2.293%. T-Notes trundled lower into the US jobs data print at levels around 128-15, and went on to find interim lows in wake of the report at 128-08, pressured amid more certainty in Fed lift off pricing as soon as March as many took the report as further evidence of full employment being met, or at least close to being. It wasn't until later in the NY morning that new lows were made with cash 10s breaking above their Q1 2021 post-COVID yield high of 1.78% to make a new peak of 1.80%. Assisting that move was some comments from Fed's Daly saying she would prefer a few hikes with more adjustment in the balance sheet, which saw steepeners prosper as the long-end saw fresh selling. Furthermore, participants have attention on the upcoming week's 3s, 10s, and 30s auctions from the Treasury, accentuating selling pressures, especially now we are entering a period where the Fed is taking off the stabilizers. T-note (H2) futures settled 7+ ticks lower at 128-09+.

Fed's Daly (2024 voter, dove) said she is not a fan of using balance sheet adjustments on a meeting-by-meeting basis, while she suggested they may start a reduction of the balance sheet earlier and go faster, but it will not be a daily conversation and she prefers to leave balance sheet out of the Fed's SEPs. (Newswires)

US Senator Manchin reportedly no longer supports a USD 1.8trl Build Back Better counterproposal (which was put forward by himself before Christmas) following a breakdown in negotiations between himself and the White House. (Washington Post)