- APAC stocks were mostly negative in reaction to the hot NFP report, while risk sentiment failed to benefit from Chinese trade data.
- European equity futures indicate a lower cash open with Euro Stoxx 50 futures down 0.3% after the cash market finished with losses of 0.8% on Friday.
- DXY is on the front foot and eyeing 110, JPY is marginally firmer vs. the USD, GBP is once again on the backfoot.
- Crude futures gained from the open amid expectations of Russian crude supply disruption after the US recently toughened sanctions on Russia's energy sector.
- Looking ahead, highlights include US NY Fed SCE, Supply from Italy, Earnings from Brunello Cuccinelli.
SNAPSHOT
1. Subscribe to the free premarket movers reports
2. Listen to this report in the market open podcast (available on Apple and Spotify)
3. Trial Newsquawk’s premium real-time audio news squawk box for 7 days
US TRADE
EQUITIES
- US stocks and bonds tumbled on Friday while the Dollar surged in response to the strong US jobs report which saw traders pare Fed rate cut bets. The NFP rose above all analyst expectations while the unemployment rate surprisingly slipped. Money markets started to unwind Fed rate cut bets with only 28bps of easing priced throughout the year, implying just a 12% probability of a second 25bps rate cut. The data also saw a lot of banks revise their Fed calls, notably Bank of America no longer expecting any rate cuts this year.
- SPX -1.54% at 5,827, NDX -1.57% at 20,848, DJI -1.63% at 41,938, RUT -2.22% at 2,189.
- Click here for a detailed summary.
APAC TRADE
EQUITIES
- APAC stocks were mostly negative in reaction to the hot NFP jobs report and subsequent rise in yields as Fed rate cut bets were unwound, while risk sentiment was also not helped by the holiday closure in Japan and failed to benefit from Chinese trade data.
- ASX 200 was lower with underperformance in tech, financials and consumer discretionary sectors, while energy bucked the trend owing to a surge in oil prices.
- Hang Seng and Shanghai Comp were pressured at the open as participants awaited the latest Chinese trade data but pared some of the losses following comments from PBoC Governor Pan that they have the confidence and means to overcome difficulties in the economy and will use interest rate and RRR tools to keep liquidity ample, while sentiment then remained subdued amid the broad risk-aversion and failed to benefit from the better-than-expected Chinese trade figures.
- US equity futures (ES -0.4%, NQ -0.5%) mildly extended on last week's declines as the negative mood rolled over into Asia-Pac counterparts.
- European equity futures indicate a lower cash open with Euro Stoxx 50 futures down 0.3% after the cash market finished with losses of 0.8% on Friday.
FX
- DXY extended on its post-NFP advances and climbed to just shy of the 110.00 level to print its highest since November 2022, while there was a lack of fresh catalysts from over the weekend and participants also await more data this week including US CPI.
- EUR/USD initially traded sideways in an attempt to find composure following its post-NFP slip but later succumbed to further advances in the dollar, while there were recent comments from ECB's Lane that Europe's economy is still in recovery from the pandemic and that there is probably more easing to come.
- GBP/USD trickled beneath the 1.2200 level to a 14-month low with the announcement by UK Chancellor Reeves of deals with China over the weekend, providing little to support the currency and was even criticised as a desperate move to save the British economy.
- USD/JPY retested Friday's lows amid the broad risk-off mood and with price action constrained by the absence of Japanese participants.
- Antipodeans was supported earlier in the session amid mild strength in the CNH after the PBoC continued to defend the currency with a firmer-than-expected reference rate setting and raised its cross-border macro adjustment parameter for the first time since July 2023 to 1.75 from 1.50. However, the gains were later pared as the dollar eventually resumed its advances.
- PBoC set USD/CNY mid-point at 7.1885 vs exp. 7.3442 (prev. 7.1891).
FIXED INCOME
- 10yr UST futures remained pressured after slumping due to the strong US jobs data which underpinned yields and saw money markets unwind Fed rate cut bets, while demand was also not helped by the closure of overnight cash trade owing to the Tokyo holiday.
- Bund futures languished around contract lows after slipping beneath the 131.00 level in tandem with the dwindling Fed rate cut bets.
COMMODITIES
- Crude futures gained from the open amid expectations of Russian crude supply disruption after the US recently toughened sanctions on Russia's energy sector targeting more than 200 entities and individuals, while it was also reported that Israel struck a number of Hezbollah targets in southern Lebanon.
- Iran shipped out nearly 3mln bbls of oil stockpiled in China in which the proceeds could reportedly be used to fund its allied militias in the Middle East, according to WSJ.
- Goldman Sachs said tougher US and UK sanctions on Russian oil could lift oil prices above USD 85/bbl, while it also commented that TTF price risks remain skewed to the upside despite moderation in cold weather. Goldman Sachs also commented that while the latest round of sanctions has mostly focused on oil and the potential impact on LNG supply is very limited, it keeps global gas balances more vulnerable at the margin to tightening shocks and to the risk that TTF might need to price oil-switching in a EUR 65-86/MWh range this summer.
- Spot gold was indecisive as participants reflected on the ramifications of the recent strong jobs data and amid the risk-off conditions.
- Copper futures were lacklustre amid the downbeat risk appetite and failed to benefit from better-than-expected Chinese trade data.
CRYPTO
- Bitcoin swung between gains and losses but was ultimately kept afloat by support around the USD 94,000 level.
NOTABLE ASIA-PAC HEADLINES
- PBoC raised the cross-border macro adjustment parameter to 1.75 (prev. raised to 1.50 in July 2023), while it held a meeting for the FX market in Beijing and pledged to strengthen FX market management, as well as discussed to resolutely keep yuan exchange rate basically stable at reasonable and balanced levels. PBoC also said it will increase forex market resilience, strengthen the forex market, deal with behaviours disrupting market orders and prevent exchange rate overshooting risks. Furthermore, it reiterated the yuan rate will stay at a reasonable and balanced level.
- PBoC Governor Pan said China's economy addressed risks and challenges in recent years, while they have confidence and means to overcome difficulties in the economy and will use the interest rate and RRR tools to keep liquidity ample. Pan reaffirmed China is to raise the fiscal deficit and will continue to be the world economy's engine. Furthermore, he said policy should shift to investment and consumption but also noted that challenges remain in China's economic development.
- PBoC Governor Pan met with BoE Governor Bailey in Beijing on Saturday and discussed financial stability and cooperation, while Pan also met with top executives from HSBC, Standard Chartered and the London Stock Exchange. It was separately reported that UK and China will explore a wealth connect program and they announced the launch of an OTC bond business with China to launch a sustainable government bond in London this year.
- HKMA said China is to encourage listings and debt issuance in Hong Kong, while the HKMA and PBoC will set up a CNY 100bln liquidity facility for trade finance. HKMA also announced to extend trading hours for the Bond Connect Southbound Scheme with the settlement time for the Bond Connect to be extended to 04:30 pm local time (08:30GMT/03:30EST) which includes USD and EUR bonds, while it is to expand onshore investor choices for international bonds through the link.
- South Korean impeached President Yoon’s lawyer said Yoon will be absent from the first hearing in the impeachment trial out of safety concerns.
DATA RECAP
- Chinese Trade Balance (USD)(Dec) 104.84B vs. Exp. 99.8B (Prev. 97.44B)
- Chinese Exports YY (USD)(Dec) 10.7% vs. Exp. 7.3% (Prev. 6.7%)
- Chinese Imports YY (USD)(Dec) 1.0% vs. Exp. -1.5% (Prev. -3.9%)
- Chinese Yuan-Denominated Trade Balance (Dec) 752.90B (Prev. 692.80B)
- Chinese Yuan-Denominated Exports (Dec) 10.9% (Prev. 5.80%)
- Chinese Yuan-Denominated Imports (Dec) 1.30% (Prev. -4.70%)
GEOPOLITICS
MIDDLE EAST
- Israeli PM Netanyahu is to send the head of Mossad to Qatar for hostage talks, according to the PM’s office cited by Reuters.
- Israeli PM Netanyahu spoke with US President Biden on Sunday in which they discussed negotiations for a Gaza ceasefire and a hostage deal, while Biden stressed the immediate need for a ceasefire and return of hostages, as well as the need for a surge in humanitarian aid enabled by a stoppage in the fighting.
- Israel's Foreign Minister said Tel Aviv is determined to reach a truce agreement in Gaza, according to Israeli media cited by Asharq News.
- Israel's army said it targeted a number of Hezbollah targets in southern Lebanon based on intelligence information, according to Sky News Arabia.
- Syria’s de facto ruler Al-Sharaa said he discussed with Lebanon’s caretaker PM Mikati the issue of Syrian deposits in Lebanese banks, while Mikati said they will work with Syria to secure the land borders and follow up on land and sea border delineation.
- Western and Arab foreign ministers and diplomats began a regional conference with Syrian Foreign Minister Shibani in Riyadh on Sunday.
- German Foreign Minister said Germany proposes a smart approach to sanctions so the Syrian population gets relief and a quick dividend from the transition of power, while Germany will provide an additional EUR 50mln to Syria for food, emergency shelters and medical care.
RUSSIA-UKRAINE
- Ukrainian President Zelensky said Ukrainian soldiers captured North Korean military personnel in Russia’s Kursk region, while he later commented that Kyiv is ready to hand over North Korean soldiers if North Korean leader Kim can organise their exchange for Ukrainians captive in Russia. It was separately reported that a South Korean lawmaker said North Korean troop fatalities in Ukraine exceeded 3,000.
- Russia took control of the settlements of Shevchenko, Kalynove and Yantarne in eastern Ukraine, according to TASS.
- Russian Foreign Ministry said new US sanctions against the energy sector are an effort to harm Russia’s economy at the cost of risking destabilisation of global markets and Russia will respond to Washington’s hostile actions.
- US President Biden said on Friday that as long as they keep Western Europe united on Ukraine, there is a real chance Ukrainians can prevail, while he added that Russian President Putin is in tough shape right now and it is important that Putin does not have more breathing room to do what he is doing.
- US President-elect Trump’s incoming National Security Adviser Waltz said he expects a call between Trump and Russian President Putin in the coming days and weeks, according to an ABC News interview.
OTHER
- White House said US President Biden discussed trilateral maritime security and economic cooperation with the leaders of Japan and the Philippines, while they discussed China’s dangerous, unlawful behaviour in the South China Sea and agreed on the importance of continued coordination in the Indo-Pacific.
- Denmark’s government sent private messages to the Trump team expressing a willingness to discuss increased US military and security presence in Greenland, according to Axios.
- Japan will test hypersonic missile tracking with space sensors and will deploy sensors which is set for a first launch in fiscal 2025 to resupply the International Space Station, according to Nikkei.
EU/UK
NOTABLE HEADLINES
- UK Chancellor Reeves said the fiscal rules set in the October Budget are non-negotiable and that there undoubtedly have been moves in global financial markets. Reeves said that they will take action to ensure that they meet fiscal rules and she is committed to having one Budget a year which will be in Autumn. Reeves also announced that the UK will earn GBP 600mln from five-year agreements made with China.
- UK Chancellor Reeves is set to tell British regulators that they need to embrace risk and "strip back" overly cautious rules that are stifling economic growth, according to The Times.
- ECB's Lane said Europe's economy is still in recovery from the pandemic and their baseline for Europe is a recovery but noted a modest Europe recovery has a downside alternative, while he expects consumption to improve this year and said there is probably more easing to come. In a separate interview, Lane said we need to make sure that the economy does not grow too slowly, via Der Standard; need to work out the middle path of being neither too aggressive or too cautious in our actionsFor inflation to be sustainably at target, there would need to be a further decline in services inflation from around 4% currently.
- ECB's Rehn said Europe must not get caught off guard regarding a trade war and the EU should not take a beating in the case of tariffs.
- Brussels Airlines said it will need to cancel a significant number of flights at Brussels Airport on Monday due to a strike.
- Fitch affirmed Austria at AA+; outlook revised to negative, while it stated the outlook for Austria’s economy remains subdued with a forecast of weak real GDP growth of 0.8% for 2025.