Risk sentiment in positive territory.

ASX & Nikkei posting gains in Asia, Chinese indices in the red...

Russell futures outperforming overnight & pushing higher alongside U.S. yields, with the 10y back to 1.10s after briefly dipping below 1.08 yesterday.

In FX, AUD & NZD lead the pack.

Bitcoin continues the road to recovery, sitting just abover $38,000.

China Ends 2020 With Record Trade Surplus as Pandemic Goods Soar

China’s export boom continued into December, pushing the trade surplus to a record high in the month and bolstering what is already the world’s best-performing major economy.
Fueling the shipments surge is insatiable global appetite for work-from-home technology and health care equipment as Covid-19 continues to surge in many places around the world. Demand is so strong that’s it’s contributing to a bottleneck at ports as manufacturers complain of a shortage of shipping containers and surging costs.
“The biggest takeaway is that China’s exports have remained surprisingly resilient despite the return of the second wave in major economies,” said Michelle Lam, Greater China economist at Societe Generale SA in Hong Kong.
The trade data showed surging demand across the board:
Exports grew 18.1% in dollar terms in December from a year earlier -- softer than November’s bumper 21.1% expansion -- while imports rose 6.5%, both beating economists’ expectations
The trade surplus of $78.2 billion for the month was higher than the $72 billion median estimate in a Bloomberg survey of economists. For the full year, the trade surplus reached $535 billion, a 27% increase from 2019 and the highest since 2015
Exports to the U.S. surged 34.5% in December from a year earlier, while imports of American goods rose 47.7%, the most since January 2013. Click here for breakdown of China’s exports by country, and here for imports
For the full year, the trade surplus with the U.S. was $317 billion, 7% higher than in 2019
“Demand for China’s goods may remain strong in the next few months with the recent surge of Covid infections in the U.S. and Europe,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc in Hong Kong.
That outperformance will inevitably wane as the virus is controlled in big markets including the U.S. and Europe and industrial production recovers, he added.
The figures also showed shifts in China’s trading partners last year, with the 10-member bloc of Southeast Asian nations rising to the No. 1 spot, followed by the European Union and the U.S.

Trump bolsters ban on U.S. investments in China

President Donald Trump has signed an order strengthening a November ban on U.S. investments in alleged Chinese military companies, the White House said on Wednesday, curbing Chinese access to U.S. capital markets days before he leaves office.
Under the amended directive, by Nov. 11, 2021, U.S. investors will be required to have completely divested their holdings of securities of companies designated by the Defense Department as owned or controlled by the Chinese military.
The change expands the scope of the initial November executive order, which initially only restricted U.S. investors from buying those securities by that date. Reuters had previously reported that the change was under consideration.
“Today’s executive order ensures that the United States retains a key tool to protect U.S. investors from funding Chinese military modernization,” a senior administration official told Reuters.
The executive order is part of Trump’s bid to cement his tough-on-China legacy in the waning days of his Presidency. It also sought to give teeth to a 1999 law that tasked the Defense Department with drafting a list of Chinese companies it believes are owned or controlled by the Chinese military.
Among the 35 companies that the DOD has blacklisted so far are China’s top chipmaker SMIC and oil giant CNOOC. But Reuters and other outlets reported earlier on Wednesday the administration had scrapped plans to blacklist tech giants Alibaba, Baidu and Tencent.
The Chinese Embassy in Washington did not immediately respond to a request for comment.

Trade deal allows Chinese staff to work in EU for 3 years

The EU-China investment agreement will make it easier to bring Chinese staff into the European Union, where they will be able to work for up to three years in subsidiaries of Chinese companies, according to a text of the agreement obtained by POLITICO.
Brussels struck a political deal on an investment accord with Beijing at the end of  last year, but many members of the European Parliament oppose ratifying it because of China's increasingly authoritarian approach to both pro-democracy activists in Hong Kong and the Uighur Muslim minority in Xinjiang.
Labor could also prove a contentious component of the deal, as China's investments across the world over recent years have sparked hostility because of the number of Chinese workers used on projects.
The European deal allows Chinese workers to come to the EU in two cases: First, if they are specialists, such as engineers or coders, or second, if they are responsible for establishing a new investment in Europe.
"The permissible length of stay shall be for a period of up to ninety days in any twelve month period for business visitors for establishment purposes, and up to three years for managers and specialists," the agreement reads.
That means specialists can work in Europe for three years, if they are "intra-corporate transferees" in companies that belong to the same group. "Intra-corporate transferees mean natural persons ... who are temporarily transferred to an enterprise that may be a subsidiary branch or head company of the juridical person," the deal states.

Clarida says Fed won't raise rates until its sees 2% inflation

Federal Reserve Vice Chair Richard Clarida on Wednesday reiterated that the U.S. central bank won’t raise interest rates until inflation reaches 2%, and he expressed confidence that market participants believe in that promise, a key element in the Fed’s strategy.
“We are not going to lift off until we get inflation at 2% for a year. ... We are trying to tie our hands. We are saying we are not going to hike until we get to 2%,” Clarida told a conference held by the Hoover Institution. “It actually doesn’t seem lacking credibility to markets that we are going to do that.”

On first viewing, nothing new there...

However, the mention of above target inflation for a year drew some attention.

This is not new either...

Heres an excerpt from Clarida's November 16th speech


Short version - the Federal Reserve will look for inflation to be above 2% for one year before considering raising rates.

Fed's Harker gave an interview to MNI too...

'I'd like to see inflation moving above 2% or on its path to moving above 2% before I would consider starting to taper purchases'

This thread adds some broader context for recent comments by Fed officials

Ultimately, tapering seems to be a way off yet, even though a few Fed officials have offered comments about tapering at the end of the year.

Nothing is set in stone though. Always remember Goodhart's law....

When a measure becomes a target, it ceases to be a good measure

One way in which this can occur is individuals trying to anticipate the effect of a policy and then taking actions that alter its outcome

Biden aides told congressional allies to expect Covid relief package with roughly $2 trillion price tag

President-elect Joe Biden is expected to unveil a major Covid-19 relief package on Thursday and his advisers have recently told allies in Congress to expect a price tag in the ballpark of $2 trillion, according to two people briefed on the deliberations.
The Biden team is taking a "shoot for the moon" approach with the package, one lawmaker in close contact with them told CNN, though they added that the price tag could still change. The proposal will include sizable direct payments to American families, significant state and local funding -- including for coronavirus vaccine distribution and other emergency spending measures -- to help those struggling during the pandemic.
Biden is set to announce the details of his plan in Wilmington, Delaware, Thursday evening.
Democrats hold only the slimmest of majorities in the House and the Senate, and Republicans have recently resisted efforts to pass Covid-19 relief on a multi-trillion dollar scale. But Biden's party believes it may have only a brief window to pass sweeping relief legislation and the President-elect has faced significant pressure from some Democrats to go big.
Brian Deese, Biden's pick to lead the National Economic Council, said Wednesday at a conference that the package will include $2,000 stimulus checks, and address other relief measures like unemployment insurance.
Biden's early focus on a sweeping relief package reflects the political reality that his first year in office will be defined by his ability to combat the virus and stave off an economic collapse.

Twitter’s Jack Dorsey admits internet companies have too much power and praises bitcoin as a model to change that

Twitter CEO Jack Dorsey said on Wednesday that banning President Donald Trump was the “right decision for Twitter,” but admitted that the internet shouldn’t be controlled by a handful of private companies.
In a series of 13 tweets, Dorsey said that online speech resulting in real world harm requires action even if a ban on an account is divisive “and sets a precedent I feel is dangerous.” He wrote that if a company like Twitter makes a decision that people don’t like, they can go elsewhere, creating an inherent check on its power.
However, the across-the-board bans of Trump following the Capitol riot raised his level of concern.
“This concept was challenged last week when a number of foundational internet tool providers also decided not to host what they found dangerous,” Dorsey wrote. “I do not believe this was coordinated. More likely: companies came to their own conclusions or were emboldened by the actions of others.”
“The reason I have so much passion for #Bitcoin is largely because of the model it demonstrates: a foundational internet technology that is not controlled or influenced by any single individual or entity,” Dorsey wrote. “This is what the internet wants to be, and over time, more of it will be.”
He referenced an announcement from late 2019, when Twitter said it was funding a small team called Bluesky to come up with “an open decentralized standard for social media.” He said the project is hiring now and will “do the work completely through public transparency.”

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Oil prices dipped on virus worries; U.S. stock draw, China data check losses

Oil prices eased for a second day on Thursday as mounting coronavirus cases globally raised demand concerns, although a drawdown in U.S. crude stocks for a fifth straight week and robust data from China capped losses.
“Oil market’s sizzling rally likely took a hiatus as the stronger dollar and the omnipresent gasoline supply overhang offset the evaporating U.S. crude inventories,” said Stephen Innes, chief global market strategist at Axi.
U.S. crude oil stockpiles last week fell more than expected, while gasoline and distillate inventories rose as refiners ramped up output to its highest level since August, the Energy Information Administration said on Wednesday.
China’s total crude oil imports surged 7.3% in 2020 despite the coronavirus shock earlier in the year, with record arrivals in the second and third quarters as refineries expanded operations and low prices encouraged stockpiling, customs data showed on Thursday.
A hefty COVID-19 relief package, which U.S. President-elect Joe Biden is due to unveil on Thursday, also kept losses in check.
“China data continues to outperform, and a monstrous U.S. stimulus package appears to be on the way,” said Jeffrey Halley, senior market analyst at OANDA.
“Both should ensure that plenty of physical buyers will appear on any price dips, limiting losses.”

Covid infection shown to provide as much immunity as vaccines

People who have already contracted coronavirus are as protected against reinfection as those who have received the best Covid-19 vaccines, according to a survey of 20,000 UK healthcare workers, the largest study in the world so far.
Public Health England regularly tested two matched groups of volunteers between June and November — 6,000 health workers who had previously been infected with coronavirus and 14,000 who had not.
A comparison of infections in the two groups, described in preliminary results released on Thursday, found that prior infection provided at least 83 per cent protection against reinfection. It gave better than 94 per cent protection against symptomatic Covid-19, matching the figures for the most effective Covid-19 vaccines.
Susan Hopkins, PHE senior medical adviser, said she was “strongly encouraged” by the finding that infection gave powerful — though not complete — protection against reinfection for at least five months.
“Natural infection looks as good as a vaccine, which is very good news for the population,” she said.
Although the study could not provide data on possible protection beyond five months, Prof Hopkins was optimistic that it would last for “much longer than the few months people were speculating about” during the early stages of the pandemic last year.
“It will give a level of immunity in the community that will reduce transmission,” she said.

J&J's one-shot Covid vaccine is safe and generates promising immune response in early trial

  • J&J scientists randomly assigned healthy adults between the ages of 18 and 55 and those 65 and older to receive a high or low dose of its vaccine — called Ad26.COV2.S — or a placebo.
  • Most of the volunteers produced detectable neutralizing antibodies, which researchers believe play an important role in defending cells against the virus, after 28 days, according to the trial data.
  • By day 57, all volunteers had detectable antibodies, regardless of vaccine dose or age group, and remained stable for at least 71 days in the 18-to-55 age group.
The phase one and two clinical trial data shows a single shot of the vaccine "gives sustainable antibodies," Dr. Paul Stoffels, chief scientific officer at J&J, told CNBC's Meg Tirrell in an interview. He added it gives the company "confidence" the vaccine will be highly effective against the virus.
The trial tested 805 volunteers. The company is expected to release results from its 45,000-person phase three trial later this month. J&J is using the same technologies it used to develop its Ebola vaccine for its Covid-19 vaccine.

Matteo Renzi pulls party out of Italian government

Former Prime Minister Matteo Renzi on Wednesday withdrew his party from Italy’s coalition government, plunging the country into political chaos.
Renzi, whose Italia Viva party is a junior partner in a coalition with the 5Star Movement and the Democrats, has been threatening to pull support for Conte’s government for days over Italy’s post-pandemic economic recovery plan.
He announced the resignation of ministers Teresa Bellanova and Elena Bonetti, who have responsibility for agriculture and family respectively, as well as undersecretary for foreign affairs Ivan Scalfarotto, at a press conference, effectively removing support for the government in parliament and leaving Prime Minister Giuseppe Conte’s position hanging by a thread.
Renzi, whose nickname is Il Rottamatore (the Scrapper), said it “took courage” to walk away. But politicians inside and outside the coalition slammed the move as irresponsible. The leader of the Democrats, Nicola Zingaretti, told state television it was “an act against Italy. We need investment, work, health, to fight the pandemic. Not a government crisis.”
If he cannot command a majority, Conte must submit his resignation to Mattarella, who will then hold consultations on forming a new government. Renzi has ruled out lending his support to the right, saying he had supported Conte to keep Matteo Salvini of the far-right League out of power.

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Looking ahead, more Fed speakers on the wires, with Powell's Princeton Webinar the highlight. We will also hear from Rosengren, Bostic & Kaplan.

On the calendar, ECB minutes, U.S trade and weekly jobless claims are the highlights.

U.S earnings season also gets underway...