• APAC stocks began the week mostly on the back foot after last Friday’s losses in the US (S&P 500 -1.0%)
• Reports suggest Japan’s government sounded out BoJ's Amamiya for the position of Governor; later refuted
• European equity futures are indicative of a lower open with the Euro Stoxx 50 -0.7% after the cash market closed up 0.4% on Friday
• DXY lingers around the 103 mark, JPY lags post-BoJ reporting, EUR/USD sits on a 1.07 handle.
• US military shot down the Chinese spy balloon off the US coast following orders from President Biden.
• Looking ahead, highlights include EZ Retail Sales, Speeches from BoE’s Mann & Pill.

US TRADE

• US stocks finished lower in a choppy session on Friday as investors balanced a strong jobs report vs. the backdrop of disappointing big tech reports from Alphabet (GOOGL), Amazon (AMZN), and Apple (AAPL). The data hammered the Treasury curve lower with Fed pricing flirting back above 5% for the terminal rate, while the hawkishness ramped up even further after ISM Services for January saw a big rise above expectations, pushing back on recession fears.
• SPX -1.04% at 4,136, NDX -1.79% at 12,573, DJIA -0.38% at 33,926, RUT -0.78% at 1,985.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Democrat National Committee approved US President’s Biden revamped 2024 primary calendar in the latest signal of an expected re-election bid, according to Reuters.
• Apple (AAPL) internally discussed adding a higher-end iPhone to the top of its smartphone line-up and there is speculation the Co. could potentially add a new top-end “the Ultra” model in 2024, according to a Bloomberg report.

APAC TRADE

EQUITIES

• APAC stocks began the week mostly on the back foot after last Friday’s losses in the US where a blowout jobs report spurred hawkish rate bets and was seen to boost the Fed’s resolve of lifting rates further to above 5%.
• ASX 200 was subdued heading into tomorrow’s RBA decision and after a jump in the MI Inflation Gauge added to the inflationary narrative, although the downside was limited after quarterly Retail Sales data printed not as bad as feared and amid M&A prospects with Newmont making a USD 16.9bln offer for Newcrest Mining.
• Nikkei 225 outperformed after a report that Japan’s government sounded out BoJ's Amamiya about becoming the next BoJ Governor with Amamiya seen as more dovish compared to other candidates and was also a key architect in many of the BoJ’s policies including QQE with YCC, although the report was later refuted by a senior government official.
• Hang Seng and Shanghai Comp. were lower with Hong Kong pressured by losses in tech, healthcare and property, while risk sentiment was also clouded by tensions after the US shot down China’s spy balloon.
• US equity futures (ES -0.4%) marginally extended on the fallout from the blockbuster jobs data.
• European equity futures are indicative of a lower open with the Euro Stoxx 50 -0.7% after the cash market closed up 0.4% on Friday.

FX

• DXY marginally softened to the 103.00 level in a slight pullback after rallying on Friday.
• EUR/USD languished at a sub-1.0800 level owing to the recent dollar advances, while there were comments over the weekend from ECB’s Visco that short-term inflation expectations are dropping sharply.
• GBP/USD remained despondent after last week’s declines and with PM Sunak facing the threat of a backlash from within the Tories if he attempts to take Britain out of the European Convention on Human Rights.
• USD/JPY was higher after reports the BoJ’s Amamiya was sounded out for the role as the next BoJ Governor although some of the gains were reversed after this was later refuted by the Deputy Chief Cabinet Secretary.
• Antipodeans nursed some of their recent losses but with the recovery contained ahead of the RBA rate decision tomorrow and with New Zealand markets closed for a holiday.
• PBoC set USD/CNY mid-point at 6.7737 vs exp. 6.7755 (prev. 6.7382)

FIXED INCOME

• 10yr UST futures were lower after the pronounced bear-flattening in the aftermath of the head-spinning jobs report and strong ISM Services data which boosted market pricing for a Fed terminal rate north of 5.00%.
• Bund futures remained subdued albeit with further losses stemmed by support around 137.50.
• 10yr JGB futures tracked the losses in major counterparts but were off worse levels amid hopes of a potential dovish successor to BoJ Governor Kuroda.

COMMODITIES

• Crude futures lacked direction amid the glum mood and with the EU ban on Russian oil products taking effect.
• European ban on Russian diesel and other oil products took effect on Sunday and coincides with the G7 price cap on Russian refined products, according to Associated Press.
• IEA chief Birol said the price cap on Russian oil achieved the objectives of stabilising the oil markets and cutting Russia’s oil revenues with its oil and gas export revenues in January down by almost 30% or around USD 8bln in January from a year ago. Birol also commented that the largest uncertainty this year is China and expects half of global oil demand growth will be from China this year, while he also stated that China’s jet fuel demand is exploding this year which puts upward pressure on global demand and noted that the products markets will stabilise in H2 as more refineries come online, according to Reuters.
• Saudi’s Energy Minister said he hopes that sanctions, embargoes and a lack of investment don’t lead to a shortage of energy supplies, according to Reuters.
• UAE’s ADNOC set March Murban crude OSP at USD 82.63/bbl vs USD 80.11 in February. It was separately reported that the UAE, France and India established a tripartite initiative as they seek to cooperate in areas including energy and climate change, according to state news agency WAM.
• Spot gold retraced some of last Friday's post-NFP declines but remained beneath the USD 1900/oz level.
• Copper futures were lacklustre and only partially nursed some of the recent losses that were triggered amid the Fed rate hike bets and a firmer dollar.

CRYPTO

• Bitcoin was rangebound with price action indecisive after slipping below the 23,000 level during the weekend.

NOTABLE ASIA-PAC HEADLINES

• Japan’s government has sounded out BoJ Deputy Governor Amamiya about becoming the next BoJ Governor with the government to present its nominee to parliament this month, while Amamiya is seen as more dovish than the other potential candidates and will face the task of normalising the BoJ’s ultra-loose policy, according to Nikkei citing government and ruling party sources. However, Finance Minister Suzuki said he hasn't heard anything on BoJ Governor nominations yet and Deputy Chief Cabinet Secretary Isozaki later said there was no truth to the report that BoJ Deputy Governor Amamiya was sounded out for the next BoJ Governor.
• US military shot down the Chinese spy balloon off the US coast after US President Biden issued the order to take down the balloon, while a US defence official said it was a spy balloon intended to spy on sensitive military sites and part of a fleet of surveillance balloons that have spied over five continents, according to Reuters.
• China’s Foreign Ministry said it expresses strong dissatisfaction and opposition towards the US’s use of force to attack the airship, while it claimed that the balloon incident was a complete accident caused by a force majeure. Furthermore, it noted that top diplomat Wang Yi communicated with US Secretary of State Blinken on how to deal with accidental incidents in a calm and professional manner, as well as told Blinken that both parties need to communicate in a timely manner and avoid misjudgements, according to Reuters.
• China’s Defence Ministry said the use of force against the Chinese civilian unmanned airship was an obvious overreaction and China reserves the right to use necessary means to deal with similar situations, according to Reuters.
• US is considering sanctions for Chinese surveillance companies regarding sales to Iran’s security forces, according to WSJ.
• US is reportedly mulling deploying medium-range missiles in Japan as part of a plan to bolster defences against China along the East and South China Seas, according to Sankei.

DATA RECAP

• Australian MI Inflation Gauge MM (Jan) 0.9% (Prev. 0.2%)
• Australian MI Inflation Gauge YY (Jan) 6.4% (Prev. 5.9%)
• Australian Retail Trade (Q4) -0.2% vs. Exp. -0.6% (Prev. 0.2%, Rev. 0.3%)

GLOBAL

• A magnitude 7.7 earthquake hit Turkey near the border with Syria which killed dozens on both sides and injured hundreds, while Turkey's disaster agency reported that 76 were killed and 440 were injured, according to Reuters.

GEOPOLITICS

• Ukrainian President Zelensky said there are fierce battles in the Donetsk region and the situation is very difficult with Russia intensifying pressure on various fronts and in terms of information heading into the first anniversary of the war, according to Reuters.
• Ukraine’s Defence Minister Reznikov was transferred to another ministerial job and the head of the Main Directorate of Intelligence of the Ministry of Defence Budanov was named as the new Defence Minister. Furthermore, there were prior comments by Reznikov that they expect a possible major Russian offensive this month and that Ukraine has the reserves to hold back the Russian offensive despite not receiving all of the latest military supplies from the west by then, according to Reuters.
• UK PM Sunak spoke with Ukrainian President Zelensky over the weekend and agreed it was vital for the international community to speed up assistance for Ukraine, according to Reuters.
• Russian Defence Ministry said Kyiv is preparing to blow up buildings in the eastern Ukrainian city of Kramatorsk and accuse Russia of war crimes in a false flag operation, according to Reuters. Russia’s Defence Ministry also announced that 63 Russian POWs were returned from Ukrainian captivity after complex negotiations with Ukraine that were mediated by the UAE.
• Russia and Iran advance plans for an Iranian-designed drone facility in Russia, according to WSJ.
• Iran’s Supreme Leader Khamenei pardoned a large number of security-related prisoners that were arrested due to recent protests, according to state TV.
• US cybersecurity agency CISA is assessing the impact of reported incidents after Italy raised the alarm regarding a global hacking attack, according to Reuters.

EU/UK

• BoE and UK Treasury draft document said that they believe a central bank digital currency will likely be needed by later in the decade, according to The Telegraph.
• UK PM Sunak was warned by senior Tories that he would face a backlash from the party and certain defeat in the House of Commons if he attempts to take Britain out of the European Convention on Human Rights, according to FT.
• ECB’s Visco said short-term inflation expectations are dropping sharply and policy tightening can continue with due caution, while he added that longer-term inflation expectations are consistent with the price stability goal. Visco also commented that the risk of the Italian bond spread increasing will be contained as long as budgetary policies remain cautious and said that supervisors are monitoring credit, liquidity and refinancing risks as higher interest rates could impact banks’ funding costs quicker than in the past, according to Reuters.