Good morning!

Asian indices ended the session on a more positive note after a tentative start.

The ASX was down by 0.75% early on, recovering later in the session to close almost flat.

Equities in China & Hong Kong are comfortably in the green after the NYSE U-Turn on De-listing

U.S. futures were largely unchanged, but starting to pick up a little as Europe comes online.

Oil slightly lower after yesterday's OPEC+ decision dithering.

AUD showing strength.

Polls close today in the Georgia senate runoffs, but it may be some time before the winners are declared.  

Why the winners in Georgia runoffs might not be known for days

Slow counting of Georgia’s mail ballots in November’s presidential election kept the world in the dark about who won the state until three days after polls closed. Biden ended up winning the state by less than 12,000 votes out of about 5 million cast.

A similar delay could unfold after Tuesday’s contests if the races are really close, said Walter Jones, a spokesman for the office of Georgia’s top election official, Secretary of State Brad Raffensperger.

“We may be looking at several days,” Jones said, adding that the delay would mostly come from mail ballots returned on Election Day.

Election officials cannot start counting ballots until 7 p.m. on Tuesday, though they have started processing them, such as checking that voter signatures on mail ballots match those on record.

Nearly 1 million mail-in ballots have been processed through Sunday, state data shows. These ballots, as well as more than 2 million cast in person at early voting centers, will likely be counted quickly on Election Night.

But for the mail votes that arrive on Election Day, officials will still need to open envelopes, check signatures and load the ballots in counting machines. They will also need to process hundreds of thousands of votes expected to be cast in person that day.

There's also the prospect of recounts on a tight result;

Georgia did two recounts of November’s presidential contest: a hand recount of paper ballots ordered by the state’s top election official, and a subsequent recount using computer scanners that was requested by the Trump campaign.

Georgia allows a losing candidate to force a recount if the margin of victory is less than or equal to 0.5% of the total vote in the race. A recount must be requested within two days of the results being certified by election officials.

Candidates can also request a recount if they think there has been an error in the tabulation; in that case it’s up to the secretary of state to decide whether to conduct one. Local election officials also have the power to recount results in their county before the results are certified.

NYSE Scraps Plan to Delist China Telcos in ‘Bizarre’ U-Turn

The New York Stock Exchange said it will no longer delist China’s three biggest state-owned telecommunications companies, backtracking on a plan that had threatened to escalate tensions between the world’s largest economies.

NYSE’s U-turn came with scant explanation just four days after the exchange said it would remove the shares to comply with a U.S. executive order barring investments in businesses owned or controlled by the Chinese military. Citing “consultation with relevant regulatory authorities” for the reversal in a brief statement late Monday, NYSE declined to elaborate further.

A lack of clarity on why NYSE changed course left investors to speculate over whether it was simply a result of the exchange initially misinterpreting the executive order or something with broader geopolitical implications.

NYSE’s reversal was “quite unexpected,” said Jackson Wong, director of asset management at Amber Hill Capital Ltd. in Hong Kong. “Some funds that had an obligation to unload these shares will now need to buy them back. Some investors are also starting to pricing in a scenario that the decision to halt delistings could be a start of a de-escalation in tensions between China and the U.S.”

FTSE Russell cuts three more China firms from indexes after U.S. blacklist

FTSE Russell will delete a further three firms from its global equity indexes after guidance on an executive order by outgoing President Donald Trump barring U.S. investments in some Chinese companies, a hardening of his stance against Beijing.

China United Network Communications, Semiconductor Manufacturing International Corporation (SMIC) and Nanjing Panda Electronics will be deleted from FTSE Russell’s FTSE Global Equity Index Series as well as the FTSE Global China A Inclusion Indexes from Thursday.

FTSE Russell said on Monday it will also remove SMIC, China’s top microchip maker, from its FTSE China 50 Index and video security firm Hangzhou Hikvision Digital Technology from its FTSE China A50 index having removed it from the FTSE Global Equity Index Series last month.

Oil prices slip before OPEC+ resumes meeting on Feb output levels

Oil prices edged down on Tuesday before deadlocked talks between major producers about potential changes in February output are set to continue later in the day while fuel demand concerns lingered amid new COVID-19 lockdowns.

Saudi Arabia argued against pumping more because of new lockdowns while Russia led calls for higher production, citing recovering demand.

OPEC+ will resume the talks later on Tuesday (time TBC).

“OPEC+ drama is of course steering the latest oil price downgrade, but the heavier hand is likely the still unknown impact of the new strain on economic activity and travel - both factors that warrant a belated mini-price correction after the winter holidays,” said Louise Dickson, oil markets analyst at Rystad Energy.

At the same time, rising tensions in the Middle East supported oil prices.

Iran’s Revolutionary Guards Corps on Monday seized a South Korean-flagged tanker in Gulf waters and detained its crew amid a dispute between Tehran and Seoul over Iranian funds frozen in South Korean banks because of U.S. sanctions.

Yesterday, Kuwait’s foreign minister said Saudi Arabia will reopen its airspace and land and sea border to Qatar as of Monday as part of a deal seeking to resolve a political dispute that led Riyadh and its allies to impose a boycott on Qatar.

Current status;

Australia Job Ads Climb to 18-Month High

Job advertisements in Australia rose by 9.2 percent month-over-month to the highest in 18 months of 159,156 in December 2020, after a downwardly revised 13.5 percent increase a month earlier.
This was the eighth straight month of gains in job advertisement, as the economy reopened from coronavirus lockdowns. "The fast-paced recovery in job ads means solid employment gains should continue into early 2021 at least," ANZ senior economist Catherine Birch said.
"It also suggests the unemployment rate could fall quite quickly in 2021," she added.
On an annual basis, job ads grew by 5.0 percent, a rebound given COVID-19 lockdowns in April had dragged down the economy into the first recession in three decades.

Covid: England and Scotland begin new lockdowns as cases rise

Announcing England's lockdown, Mr Johnson said hospitals were under "more pressure from Covid than at any time since the start of the pandemic".

He ordered people to stay indoors other than for limited exceptions - such as essential medical needs, food shopping, exercise and work that cannot be done at home - and said schools and colleges should move to remote teaching for the majority of students until at least half term.

And he said all care home residents and their carers, everyone aged 70 and over, all frontline health and social care workers, and the clinically extremely vulnerable will be offered one dose of a vaccine by mid-February.

The race is on now. Further lockdowns/restrictions were expected. As long as the vaccine rollout moves forward at a good pace, markets have shown a willingness to look beyond any early teething problems.

News that the vaccination schedule is unachievable or unrealistic are ones to keep an eye out for, as these could see a pullback in risk assets.

Fed's Bostic says bond-buying 'recalibration' could happen in 2021

The Federal Reserve could begin to trim its monthly asset purchases this year if distribution of coronavirus vaccines boosts the economy as expected, Atlanta Fed President Raphael Bostic said on Monday in what amounted to a bullish outlook for the coming months.

“I am hopeful that in fairly short order we can start to recalibrate,” the $120 billion in U.S. Treasury and mortgage-backed securities that the U.S. central bank is currently buying each month, Bostic said in an interview with Reuters.

The Fed said in a policy statement last month that it would keep those purchases in place “until substantial further progress has been made” in restoring the economy to full employment and lifting inflation towards the central bank’s 2% goal.

Bostic said the coming weeks will “be somewhat difficult” for the economy with COVID-19 still spreading and any change in Fed policy tied tightly to a successful vaccine rollout that curbs the pandemic.

Still, he felt the country could be nearing the moment when those “post-vaccine” dynamics start to take shape, and warrant debate about when to scale back the aggressive steps taken in March to nurse the economy through its worst downturn in a century.

“I am hopeful that moving on into this year that the signals for weakness start to dissipate and the conversation turns consistently and robustly to sort of steady and broad-based growth,” Bostic said. He added that he was hopeful also that progress will be enough to let the Fed bring its asset holdings back to a level “more in line” with what existed before the pandemic.

“If we determine things have strengthened appreciably, that we have made significant progress, then we will think about the next appropriate action.”

But Bostic’s comments are among the most explicit yet from Fed officials about how vaccines may accelerate debate over when and how to exit the central bank’s core crisis-fighting measures.

In separate comments, Chicago Fed President Charles Evans also said policymakers were poised to push bond-buying in either direction - adding more if the economy seems to need it but also open to cutting back if the recovery and vaccines gain traction.

Bostic said he is optimistic the better outcome is now more likely, with additional fiscal help in place following the passage by Congress of a roughly $900 billion package to extend unemployment insurance and other benefits, and the vaccine distribution system likely to improve over time.

Bond-buying is only one of the tools the Fed deployed to fight the recession triggered by the pandemic.

But with the other main tool - the Fed’s benchmark overnight lending rate - likely on hold for years to come, the asset purchase program may now be the key measure of how the central bank is thinking about the economy and how to shape policy to it.

After a dramatic year, that may already be changing.

Until the Fed’s Dec. 15-16 policy meeting, many market analysts expected the central bank was on the verge of expanding its asset purchases to more fully support the economic recovery and try to further lift still-weak inflation.

The Fed, however, held those purchases steady, with news of vaccines offering some hope the worst had passed, and Fed Chair Jerome Powell emphasizing he felt the current level of purchases was providing adequate economic support.

Treasuries Inflation Gauge Exceeds 2% for First Time Since 2018

Traders see U.S. inflation averaging at least 2% per year over the coming decade, the first time expectations have climbed that high since 2018. The move came as real yields plumbed record lows.

The 10-year breakeven rate -- a measure that draws on pricing for inflation-linked Treasuries -- rose as high as 2.017% Monday, a level last seen more than two years ago, data compiled by Bloomberg show.

The gauge has gained momentum as traders prepare for an uptick in the world economy in the wake of a deal on Brexit and the approval of additional virus-relief aid in the U.S. The roll-out of vaccinations against the coronavirus is also fueling the move higher, as is speculation that Tuesday’s U.S. Senate runoff elections in Georgia could give Democrats control of Congress.

“There’s a general expectation that the increase in demand as things return to normal will lead to higher inflation because supply chains are still disrupted,” said Michael Pond, head of inflation-linked market strategy at Barclays Capital. The possibility that Democrats will win Tuesday’s votes creates additional upside potential for breakevens, he said. “If we do have unified government, more can get done and we’ll probably see a bit more fiscal stimulus.”

The Federal Reserve has been setting the tone for markets, making a renewed push to revive inflation -- which has been too low for years. In August, policy makers announced that they would seek inflation that averages 2% over time by allowing price pressures to overshoot after periods of weakness. Buoying expectations for inflation is key to lifting inflation itself, officials have said.

The flip side of the climb in inflation expectations is that real yields -- which strip out the effects of inflation -- have been spiraling lower. Ten-year real rates sank to a record low of about minus 1.124% on Monday.

That tumble provided a strong backdrop for gold. The metal climbed to an eight-week high, topping $1,900 an ounce.

U.S. Treasury to allow US banks to use blockchain settlement

The Office of the Comptroller of the Currency (OCC) today published a letter clarifying national banks’ and federal savings associations’ authority to participate in independent node verification networks (INVN) and use stablecoins to conduct payment activities and other bank-permissible functions.

“While governments in other countries have built real-time payments systems, the United States has relied on our innovation sector to deliver real-time payments technologies. Some of those technologies are built and managed by bank consortia and some are based on independent node verification networks such as blockchains,” said Acting Comptroller of the Currency Brian P. Brooks. “The President’s Working Group on Financial Markets recently articulated a strong framework for ushering in an era of stablecoin-based financial infrastructure, identifying important risks while allowing those risks to be managed in a technology-agnostic way. Our letter removes any legal uncertainty about the authority of banks to connect to blockchains as validator nodes and thereby transact stablecoin payments on behalf of customers who are increasingly demanding the speed, efficiency, interoperability, and low cost associated with these products.”

The agency letter concludes a national bank or federal savings association may validate, store, and record payments transactions by serving as a node on an INVN. Likewise, a bank may use INVNs and related stablecoins to carry out other permissible payment activities. In deploying these technologies, a bank must comply with applicable law and safe, sound, and fair banking practices.

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JPMorgan Sees $146,000-Plus Bitcoin Price as Long-Term Target

Bitcoin may have the potential for substantial further gains over the long term as it competes with gold for investment flows, according to JPMorgan Chase & Co.

Bitcoin’s market capitalization of around $575 billion would have to rise by 4.6 times -- for a theoretical Bitcoin price of $146,000 -- to match the total private sector investment in gold via exchange-traded funds or bars and coins, strategists led by Nikolaos Panigirtzoglou wrote in a note. But that outlook depends on the volatility of Bitcoin converging with that of gold to encourage more institutional investment, a process that will take some time, they said.

“A crowding out of gold as an ‘alternative’ currency implies big upside for Bitcoin over the long term,” the strategists wrote Monday. However, “a convergence in volatilities between Bitcoin and gold is unlikely to happen quickly and is in our mind a multiyear process. This implies that the above-$146,000 theoretical Bitcoin price target should be considered as a long-term target, and thus an unsustainable price target for this year.”

Bitcoin slid as much as 17% on Monday, the biggest drop since March, after breaching $34,000 for the first time over the weekend. The swings are a reminder of the famed volatility of the largest cryptocurrency, whose price has more than quadrupled over the past year.

More institutions and noted investors, from Paul Tudor Jones to Scott Minerd and Stan Druckenmiller, have either started allocating funds into Bitcoin or have said they’re open to doing so. While some argue that the cryptocurrency offers a hedge against dollar weakness and inflation risk in a world awash with fiscal and monetary stimulus, others say retail investors and trend-following quant funds are pumping up an unsustainable bubble.

For now, JPMorgan sees headwinds for the largest cryptocurrency, with indicators like a buildup of speculative long positions and an increase in investment wallets holding small amounts of Bitcoin showing potential froth.

“The valuation and position backdrop has become a lot more challenging for Bitcoin at the beginning of the New Year,” the strategists wrote. “While we cannot exclude the possibility that the current speculative mania will propagate further pushing the Bitcoin price up toward the consensus region of between $50,000-$100,000, we believe that such price levels would prove unsustainable.”

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