• European bourses are firmer continuing from upbeat APAC performance while US futures are more contained but retain a positive bias pre-CPI, ES +0.1%, NQ +0.3%
• Chinese inflation metrics cooled from the prior and came in below expectations
• The DXY is towards the top of a narrow range with peers generally contained ex-crude sensitive FX, given benchmark action
• USTs are cautious as we await data, Fed speak and supply while EGBs, led by Bunds, have continued to climb
• Looking ahead, highlights include US CPI, DoEs, Fed's Kashkari, BoE's Cunliffe supply from the US

CORONAVIRUS UPDATE

Washington D.C. Mayor Bowser declared a limited public health emergency until January 26th to help hospitals cope with a surge in COVID infections, while it was also reported that schools in Las Vegas, Nevada will shut for a week due to staff shortages and COVID surge. (NBC4 Washington/Fox5)

China halted flights from US to Shanghai amid the Omicron spread, while it was reported that an airline trade group is in talks with both the US and Chinese governments over China service halts; subsequently, China Aviation Regulator, due to COVID, has suspended two flights between San Francisco and Shanghai from Jan 24th and four flights from Los Angeles to Guangzhou from Jan 31st. (Newswires)

Tokyo daily COVID cases 2198 (vs yesterday's 962); Japan's COVID cases expected to exceed 10k (vs yesterday's 6235). (Newswires)

ASIA

Asia-Pac bourses traded positively as stocks took their cue from the energy and tech-led gains in the US where sentiment was underpinned as yields eased and focus centred on Fed Chair Powell's confirmation hearing where he noted that the Fed is prepared to act to control inflation if required but refrained from ramping up the hawkish rhetoric. ASX 200 (+0.7%) was led higher by strength in commodity-related sectors after gold made headway above the USD 1800/oz level and WTI crude notched its biggest gain in a month, while the tech sector was also inspired following the growth and duration bias stateside. Nikkei 225 (+1.9%) was underpinned amid the broad constructive mood and recent JPY weakening with Softbank among the top performers after it was reported to have repurchased around JPY 42.9bln of shares during December. Hang Seng (+2.8%) and Shanghai Comp. (+0.8%) also benefitted from the risk momentum with the former spearheaded by tech and energy shares including CNOOC which saw an initial double-digit percentage jump due to the rally in oil prices and after it raised its production guidance for 2022. However, the gains in the mainland were modest in comparison as Chinese property developers face key bond payments this week and with participants digesting softer than expected Chinese inflation data. Finally, 10yr JGBs clawed back yesterday’s losses following a rebound in USTs and despite the heightened risk appetite, while prices briefly stalled after the 5yr JGB auction showed weaker results across all metrics although this was only momentarily with further upside on a break above the 151.00 level.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.3658 vs exp. 6.3655 (prev. 6.3684)

Chinese CPI MM (Dec) -0.3% vs. Exp. 0.2% (Prev. 0.4%); YY (Dec) 1.5% vs. Exp. 1.8% (Prev. 2.3%)

• PPI YY (Dec) 10.3% vs. Exp. 11.1% (Prev. 12.9%)

China December vehicle sales fell 1.6% Y/Y and 2021 vehicle sales rose 3.8% Y/Y, while China new energy vehicle sales rose 113.9% Y/Y in December and 157.5% Y/Y in 2021, according to the industry association. (Newswires)

US

US President Biden said he supports a change to key Senate filibuster rule to pass voting reforms, while CNN's Manu Raju tweeted that President Biden said he has been having quiet conversations with Congress over the past two months and is tired of being quiet. (AFP News Agency/Twitter)

US Democratic House Budget Committee Chairman Yarmuth said he thinks House Speaker Pelosi is likely to retire after this term. (Fox News)

UK/EU

EU Industrial Production MM (Nov) 2.3% vs. Exp. 0.5% (Prev. 1.1%, Rev. -1.3%); YY (Nov) -1.5% vs. Exp. 0.6% (Prev. 3.3%, Rev. 0.2%)

GEOPOLITICAL

North Korea said Tuesday's launch was a hypersonic missile and that its final test-firing of the hypersonic missile was successful which its leader Kim Jong Un attended, while it was separately reported that the missile launch prompted the US to temporarily pause some flights at some airports along its west coast. (Yonhap/SCMP)

Russian Kremlin says it is not making ultimatums but is in need of concrete answers from the West regarding concerns, existing agreements on the conflict in Eastern Ukraine must be fulfilled before new negotiations with Ukraine can take place. No link between Russia-NATO discussions on Ukraine and the military exercises taking place in the West of Russia. (Newswires)

The West and Iran are still far from reviving agreement despite progress by the end of December, according to the French Foreign Minister. (Twitter)

EQUITIES

Overall a positive but choppy morning for European cash equities thus far (Euro Stoxx 50 +0.7%; Stoxx 600 +0.6%), with the regional mood underpinned by the upside seen on Wall Street and then across APAC markets. The gains were attributed to Powell refraining from sounding more hawkish, while noise has also been growing regarding the possibility for China to further ease monetary policy amid domestic growth concerns. US equity futures saw some mild selling shortly after the European cash open despite a lack of fundamental catalysts, and with action contained to the equity space – potentially as players take some chips off the table ahead of US CPI and following this week’s gains. Futures are back in modest positive territory at the time of writing, with the NQ (+0.2%) back to narrowly leading and the RTY (-0.1%) the slight laggard. Back to Europe, the region also saw some modest losses in lockstep with state-side futures but mostly remained in positive territory with relatively broad-based gains. The SMI (-0.2%) lags amid the pro-cyclical/anti-defensive nature of the European sector composition, with Healthcare and Food & Beverages at the bottom of the pile – thus exerting some pressure on heavyweights Roche (-1.5%) and Nestle (-0.6%). The sectors table sees Basic Resources, Oil & Gas and Tech towards the top – the former two amid price action in their respective complexes, and the latter tracking the sectoral gains on Wall Street and APAC. Taking a look at some individual movers, Just Eat Takeaway (+2%) and Sainsbury’s (+2%) gain on the LSE following trading updates, with the latter upping its guidance in the pre-market. The other end of the spectrum sees Philips (-14%) plumbing the depths after missing forecasts and reporting higher-than-expected costs. In terms of analyst commentary, Goldman Sachs has conformed to the view that European stocks will outperform this year as the US stocks’ outlook gets dimmer against the backdrop of a hawkish Fed; “The unusually high concentration of stocks within the S&P leaves it more vulnerable to pressures coming from antitrust regulation or higher bond yields”, the analysts said

Foxconn's (2354 TT) Indian Apple (AAPL) iPhone plant is to restart production with one week shifts; will take two more months for full production, according to a company official. (Newswires) Chimes with sources earlier in the week

DiDi (DIDI) is in discussions around a Q2 Hong Kong IPO, according to SCMP citing sources; bankers are working on a solution to ensure all HK listing requirements are satisfied. (SCMP)

Morgan Stanley (MS) is to award 2021 bonus increases of 20% or more for top-performing staff members, according to Reuters sources. (Newswires)

UK CMA starts merger investigation regarding Microsoft (MSFT) and Nuance Communications (NUAN), March 9th deadline for the CMA Phase 1 decision. (Newswires)

German Financial Stability Committee has called for countercyclical capital buffers for banks to be reactivated; BAFIN intends to increase the countercyclical capital buffer from 0% to 0.75% with a supplementary buffer of 2% for residential mortgages, bring an additional EUR 22bln into the system. (Newswires)

FX

DXY - The Greenback is hovering off deeper post-NFP lows in advance of CPI data that is tipped to show another acceleration in headline terms, albeit due to base effects on a y/y basis, and could rekindle hawkish Fed policy vibes that were doused somewhat by chair Powell on Tuesday. To recap, at his renomination hearing in front of the Senate Banking Committee he was noncommittal on the timing for tightening and also pushed back on the notion that running down the balance sheet is likely to start soon after, if not immediately following lift-off and the end of tapering. Looking at the Dollar index as a proxy, a partial recovery in early European trade fell a fraction short of 95.700 and 95.500 is holding on the downside as Treasury yields meander between new cycle peaks and overnight retracement troughs awaiting the second leg of this week’s auction schedule in the form of Usd 36 bn 10 year notes alongside rhetoric from former Fed dove Kashkari.

CAD - Ongoing strength in crude prices is helping to keep the Loonie aloft, and Usd/Cad is now testing support and underlying bids around 1.2550 as a result. However, the 55 DMA comes in just below the half round number and could stall the fall as WTI encounters some resistance circa Usd 82/brl.

EUR/AUD/NZD/CHF/JPY/GBP - All narrowly mixed, marginally softer or off peaks against their US counterpart to be precise, with the Euro easing off after breaching 1.1350 and the 55 DMA on the way to peaking at 1.1378, the Aussie back under the 10 DMA having reached 0.7223 irrespective of softer than expected Chinese inflation metrics and the Kiwi fading from just a few pips shy of 0.6800 ahead of NZ building consents. Meanwhile, the Franc is maintaining 0.9250+ status, the Yen is staying afloat of the 115.50 mark after the BoJ upgraded its outlook for all 9 Japanese regions and Sterling retains a firm grip of the 1.3600 handle even though PM Johnson’s position is looking increasingly precarious as he heads for Question Time at the Commons. Note also, from a technical perspective there are several hurdles for Cable to overcome if its scales 1.3650, as Fibs sit at 1.3675 and 1.3706, while the 200 DMA resides at 1.3737.

SCANDI/EM - The Nok has extended gains through 10.0000 vs the Eur in wake of firmer than forecast Norwegian mainland GDP and much less contraction in the overall economy compared to the previous quarter, while the Sek has pared some losses from recent lows with encouragement from news that Sweden plans to offer compensation to households facing higher energy bills to the tune of Sek 6 bn. Elsewhere, the Rub is lagging amidst ongoing angst between Russia and the West and the Try has not really taken on board latest protestations from Turkish PM Erdogan about inflation not matching fundamentals and his promise to lower prices soon. Conversely, the softer Usd in general is propping up the Cnh and Cny following the aforementioned downturn in Chinese PPI and CPI, while the Zar is continuing its bull run regardless of Gold waning beyond Usd 1820/oz, the Czk has more hawkish remarks from CNB’s Mora to lean on and the Brl could also benefit from BCB Governor Campos Neto repeating that further is appropriate.

BoJ Nagoya branch manager says the pros and cons of a weaker JPY must be looked at; desirable for the moves to stably reflect fundamentals. (Newswires)

Russian Finance Ministry announces it will increase daily FX purchases to USD 491mln Jan 14th - Feb 4th. (Newswires)

Turkish President Erdogan reiterates that inflation figures are not in line with fundamentals; will lower prices as soon as possible. Hopes to see the benefits of economic policy in the summer. (Newswires)

Notable FX Expiries, NY Cut:

• EUR/USD: 1.1285 (366M), 1.1300-10 (3.06BLN), 1.1330-35 (778M), 1.1400 (929M), 1.1425 (836M), 1.1520-30 (1.3BLN)
• USD/JPY: 113.45-50 (1.11BLN), 113.64-75 (572M), 114.00 (205M), 114.95-00 (592M), 115.50 (638M), 115.79-80 (320M), 115.95-05 (1.365BLN), 116.30-35 (543M)
• EUR/GBP: 0.8495-00 (1.1BLN)
• USD/CAD: 1.2680-90 (1.15BLN), 1.2705-15 (360M), 1.2750-60 (1.3BLN), 1.2790-00 (1.94BLN), 1.2840 (860M)

FIXED

US Treasuries are still trading cautiously ahead of US CPI and perhaps keeping something in reserve for 10 year note issuance, but the latest recovery in European bonds has resumed and extended after a rather mixed German 2052 sale given bids barely covering the offer again despite a hefty concession, but the retention considerably lower this time. Bunds have now topped 170.00 at 170.06 (+27 ticks vs -5 ticks at one stage) and Gilts are retesting very early Liffe highs of 123.27 vs 123.10 at the other end of the scale (vs yesterday’s 123.08 close). Also ahead, comments from Fed’s Kashkari that are likely to slot somewhere between hawkish and dovish camps.

COMMODITIES

WTI and Brent front-month futures initially gained following a period of consolidation in APAC hours, although recently the benchmarks have drifted off best levels. Prices are underpinned by the softer Buck heading into the US CPI metrics, with the former finding resistance at USD 82/bbl (vs low 81.17/bbl) and the latter extending above USD 84/bbl (vs low 83.52/bbl). News flow for the complex on the lighter side in the European morning. Eyes remain on the US CPI metrics, whilst China’s zero-COVID policy remains as a headwind to global demand, with China halting more flights and China's Tianjin locking down three districts due to the COVID outbreak, whilst the Dalian port also reported cases. From a data perspective, the contracts were little-swayed by the smaller-than-expected draw in Private Inventories, whilst the internals also saw a much larger-than-expected in gasoline stocks (+10.9mln vs exp. +2.4mln) but US NatGas futures remain firmer by some 4% at the time of writing. The EIA STEO yesterday meanwhile upped their 2022 oil prices forecast by almost USD 5/bbl vs last month but sees those levels falling throughout the year. In terms of geopolitics, France has poured some cold water on the recent optimism surrounding the Iranian nuclear deal, suggesting the sides are still some ways apart despite the reported progress. The Russian/Ukrainian front hasn’t seen any further developments thus far. Turning to metals, spot gold has been moving in lockstep with the Dollar and has waned off yesterday’s USD 1,822/oz best, with the downside seeing the 50 DMA (1,806), 21 DMA (1,803) and 200 DMA (1,801) ahead of the psychological USD 1,800/oz. Elsewhere, LME copper inches closer towards USD 10k/t from a USD 9,818/t intraday base, with the softer Dollar and upbeat mood in China spurring prices.

US Private Energy Inventory Data (bbls): Crude -1.1mln (exp. -1.9mln), Cushing -3.7mln, Gasoline +10.9mln (exp. +2.4mln), Distillate +3.0mln (exp. +1.8mln). (Newswires)

Iran has set the Iranian Light Crude price to Asia for February at Oman/Dubai + USD 2.00/bbl (+ USD 3.10/bbl in January), according to Reuters sources. (Newswires)

Citi Metal forecasts. Zinc: Q122 USD 3.6k/T (prev. USD 3.2k/T(. Aluminium: Q122 USD 2.9k/T (prev. 2.7k/T), 0-3month target USD 3k/T (prev. USD 2.7k/T). (Newswires)