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USDCAD TECHS

Heading North

GLOBAL POLITICAL RISK

Modi, AMLO Top Major Economy Leader Poll, Macron Last

AUDUSD TECHS

Under Pressure

EURJPY TECHS

Trend Condition Remains Bearish

EXECUTIVE SUMMARY:

  • YIELDS, OIL, INFLATION BREAKEVENS HIT MULTI-MONTH HIGHS
  • DRAGHI SHORES UP SUPPORT FOR A NEW ITALIAN GOVERNMENT
  • SOUTH AFRICA HALTS ASTRAZENECA ROLLOUT ON FEARS IT DOESN'T STOP MILD ILLNESS
  • GERMAN INDUSTRIAL PRODUCTION FLAT IN DECEMBER


Fig.1: 30-Yr Tsys Touch 2% For The First Time In A Year


BBG, MNI


NEWS:

ITALY (BBG): Mario Draghi is on track to form a new Italian government after the former head of the European Central Bank won initial backing of some of the biggest parties. Draghi will start a second round of talks with parties on Monday and is expected to meet trade unions and business lobbies. Assuming the talks go well, Draghi could announce his cabinet picks this week before facing confidence votes in both houses of parliament. The former governor of the Bank of Italy secured support from parties across Italy's political divide in initial talks last week.

COVID/SOUTH AFRICA (RTRS): South Africa halted Monday's planned rollout of AstraZeneca's COVID-19 vaccinations after data showed it gave minimal protection against mild infection from one variant, stoking fears of a much longer cat-and-mouse battle with the pathogen. The coronavirus has killed 2.3 million people and turned normal life upside down for billions but new variants have raised fears that vaccines will need to be tweaked and people may have to have booster shots. Researchers from the University of Witwatersrand and the University of Oxford said in a prior-to-peer analysis that the AstraZeneca vaccine provided minimal protection against mild or moderate infection from the so-called South African variant among young people. "This study confirms that the pandemic coronavirus will find ways to continue to spread in vaccinated populations, as expected," said Andrew Pollard, chief investigator on the Oxford vaccine trial.

GERMANY DATA: German industrial production was flat in Dec, in contrast to markets looking for a small 0.3% uptick. Monthly Nov industrial production was revised up to 1.5% from the previously reported reading of 0.9%

GERMANY DATA: Many German industrial firms are more upbeat about the outlook than they have been in recent months, with expectation in the auto and pharma sectors improving 'dramatically', according to the Ifo Institute's head of surveys, Klaus Wohlrabe. Ifo's January production expectations index rose to 8.4, up from 5.1 in December.

ECB: The European Central Bank will begin publishing aggregate results of its Survey of Monetary Analysts (SMA) eight times per year, aligned with the six-week schedule of the monetary policy meetings of the Governing Council, starting from 18 June 2021.


DATA:

German Production Flat in Dec

GERMANY DEC IND PROD 0.0% M/M, -1.0% Y/Y; NOV +1.5% M/M

  • German industrial production was flat in Dec, in contrast to markets looking for a small 0.3% uptick.
  • Monthly Nov industrial production was revised up to 1.5% from the previously reported reading of 0.9%
  • Annual production fell by 1.0% in Dec, slightly stronger than projected (BBG: -0.8%)
  • Dec's output is still 3.6% lower than Feb's pre-crisis level and over the year of 2020, IP was 8.5% lower than in 2019.
  • Intermediate goods output rose 2.0% and consumer goods production ticked up 2.6%, while the production of capital goods eased 0.5%.
  • Energy output declined by 2.9% in Dec and construction output dropped by 3.2%.

MNI: SPAIN DEC IND PRD +1.1% M/M, -0.6% Y/Y; NOV -0.9% M/M


FIXED INCOME: Bear steepening

A range bound session for core as we start the week.

  • Nonetheless the bear steepening trend remains en vogue, with German 5/30s once again trading near session high, and still eyeing the August peak at 72.445 next.
  • In peripheral, BTP/Bund is testing 95.00bps, and lowest (tightest) levels since 2015.
  • Support target here is at 91.436 (02/12/15).
  • US stimulus, US Covid roll outs, Lagarde on EU positive outlook and Mario Draghi's odds of forming a Government boosted over the weekend, has kept Core Bonds better offered and BTP better bid
  • Gilts has traded inline with Bund, and the futures contract trades down 33 ticks on the UK Vaccination roll outs, brushing aside some concerns regarding the South African variant.
  • US Treasuries, Despite the small unwind in equity markets, core bonds are trading in the red and bear steeper.
  • US 5/30s are off their steepest levels in early trade at +152.305bps and last trading at +151.762bps
  • Looking ahead, BoE Gov Bailey, Fed's Mester andECB's Lagarde & Villeroy all scheduled.
  • No tier 1 data

FOREX SUMMARY

USD trades on the front foot in early European session, a continuation from the overnight price action, after consolidating some of the sell off post US NFP Friday.

  • The US Dollar is in the green against all G10, on the more positive risk outlook and in turn higher US yields.
  • The USD bid pushed back Cable towards the 1.3700 figure, traded 1.3702 low and at 1.3706 at the time of typing.
  • Reflation trade and tactical USD long have been favoured, on Covid vaccination roll out hopes.
  • SEK is the worst performer against the Dollar in G10, down 0.31%, but still trading with ranges, now at 8.3960.
  • USD is near session high against EUR, GBP, CAD, CHF, JPY, SEK, SGD, and MXN.
  • Looking ahead, no tier 1 data are left for the day.
  • Some focus on speakers this afternoon, with BoE Gov Bailey, Fed's Mester and ECB's Lagarde & Villeroy all scheduled.

EQUITIES: U.S. Futures Setting New All-Time Highs

  • Asian stocks closed higher, with Japan's NIKKEI up 609.31 pts or +2.12% at 29388.5 and the TOPIX up 33 pts or +1.75% at 1923.95. China's SHANGHAI closed up 36.114 pts or +1.03% at 3532.447 and the HANG SENG ended 30.79 pts higher or +0.11% at 29319.47.
  • European equities are gaining, with the German Dax up 35.78 pts or +0.25% at 14068.87, FTSE 100 up 48.15 pts or +0.74% at 6520.07, CAC 40 up 35.77 pts or +0.63% at 5694.61 and Euro Stoxx 50 up 14.62 pts or +0.4% at 3664.53.
  • U.S. futures are hitting fresh highs, with the Dow Jones mini up 112 pts or +0.36% at 31155, S&P 500 mini up 10.75 pts or +0.28% at 3891, NASDAQ mini up 50.25 pts or +0.37% at 13648.25.

COMMODITIES: Oil Hits 1-Yr High

  • WTI Crude up $0.65 or +1.14% at $57.59
  • Natural Gas up $0.06 or +2.1% at $2.933
  • Gold spot down $0.09 or -0.01% at $1810.39
  • Copper up $0.7 or +0.19% at $363.05
  • Silver up $0.13 or +0.47% at $26.9443
  • Platinum up $19.41 or +1.72% at $1142.9



LOOK AHEAD:


MNI London Bureau | +44 203-865-3807 | tim.cooper@marketnews.com
MNI London Bureau | +44 203-865-3807 | tim.cooper@marketnews.com