With overnight US equity futures rising for a 5th straight day, tracking global markets, the Emini climbed to a new all time high as investors parsed through a flurry of corporate results amid signs the U.S. labor market may be gradually improving, while covid news continued to improve.

At 7:30 a.m. ET, Dow E-minis were up 146 points, or 0.51%, Nasdaq 100 E-minis were up 51.25 points, or 0.39% and S&P 500 E-minis were up 18.75 points, or 0.49%. Some notable moves:

• Pinterest jumped 11% after the image-sharing company reported better-than-expected quarterly results, benefiting from strong user growth and heavy advertising by e-commerce retailers during the holiday season.
• Johnson & Johnson rose 2.2% after the drugmaker said it had asked U.S. health regulators to authorize its single-dose COVID-19 vaccine for emergency use, and it would apply to European authorities in coming weeks.
• Snapchat dropped about 7% after it warned that upcoming privacy changes by Apple could hurt its ad business.
• GameStop shares were up 8% at $58 after Robinhood eased all trading restrictions.

Europe’s STOXX 600 index was up 0.3% at 410.8, as strong earnings results spurred gains in stocks including Vinci SA, the region’s largest construction company, and drugmaker Sanofi SA. One sign of the rally’s durability: the benchmark Stoxx 600 has risen for five straight days, the longest stretch in a month though slower vaccination rollouts in continental Europe and disappointing industrial data from Germany tempered optimism.

Earlier in the session, MSCI’s gauge of Asian shares outside Japan rose 0.4% while Japan’s Nikkei rallied 1.5%. Asian stocks rose with the regional benchmark posting its biggest weekly gain since early November, after economic optimism and improving coronavirus trends saw U.S. shares reach record highs. Equity benchmarks in the Philippines and Japan led the broad rally, helping the MSCI Asia Pacific Index rise for a fourth day this week. Philippine stocks advanced, erasing an earlier loss, as the central bank said inflation will settle within its target after data showed consumer price gains in January reached the fastest pace in two years. Japanese automakers climbed following a Nikkei report that Apple is in talks with several manufacturers as potential EV partners and strong earnings from Mazda Motor. The company’s stock surged 19%, the most in 12 years. Hong Kong shares were also strong, as short-video service provider Kuaishou Technology nearly tripled in its trading debut following the world’s biggest internet IPO since Uber’s U.S. share sale in May 2019

The S&P 500 and the Nasdaq are set to wrap up their best week since the Nov 3 election as upbeat earnings and economic data boosted optimism about a speedy recovery while a retail trading frenzy appeared to fade following a bout of market volatility last week. With Thursday data showing US jobless claims fell last week to the lowest level since the end of November, investors will be closely watching today’s January payrolls report which as we previewed earlier, could hammer risk assets if it comes in too hot (over 200K), as that would spark fears of roaring reflation and remove the urgency for Biden to pass his stimulus. The BLS data is likely to show U.S. economy added 105,000 jobs in January after 140,000 jobs were lost in December, as pandemic-led restrictions eased. The data is expected at 8:30 a.m. ET (see our full preview here).

Moves in the U.S. stock market indicate “the business cycle has entered an early stage of recovery,” said Nobuhiko Kuramochi, a market strategist at Mizuho Securities. Stocks with cheap valuations are likely to be bought, with expectations for an economic normalization getting a lift thanks to improving economic data and progress in vaccinations, he said.

“The economic data is coming in very strong,” Andrew Slimmon, fund manager at Morgan Stanley Investment Management, said on Bloomberg TV. “The market is going to struggle at some point this year, but at the moment it’s too early because the numbers are still coming through.”

On the political front, President Biden’s drive to enact a $1.9 trillion coronavirus aid bill gained momentum early on Friday as the U.S. Senate narrowly approved a budget plan allowing the passage of the legislation in coming weeks with or without Republican support. The House had already adopted its budget resolution but will likely have to vote again Friday to agree on the Senate’s language. Once that’s done, Democrats will be able to craft a relief bill in the coming weeks that can pass without any Republican votes under special budget rules.

“Following from a positive U.S. trading session on Thursday supported by decent earnings numbers, it looks as though Democrats will go on their own on stimulus and not try to compromise with Republicans, so you might get something closer to the $1.9 trillion rather than a compromise,” said Philip Shaw, chief economist at Investec in London.

In FX, the dollar headed for its best weekly gain in three months, confounding dollar bears and tracing a trading pattern known as the “Dollar Smile”, which in previous years has preceded major U.S. economic rebounds and currency surges. However, on Friday the dollar slipped ahead of a U.S. jobs report, falling against most of its Group-of-10 peers, while Treasuries edged lower. Most major currency pairs traded in a narrow range, with the oil-sensitive Canadian dollar and Norwegian krone gaining the most against the greenback.

“It seems markets are now trying to trade on economic normalisation based on progress in vaccination,” said Arihiro Nagata, general manager of global investment at Sumitomo Mitsui Bank. “The fact that the only currencies that are doing better than the dollar over the past two days are the British pound and the Israeli shekel, the two countries that are going further ahead in vaccination, seems to support that.”

The Norwegian krone led an advance in G-10 as Brent oil rose toward $60 a barrel on expectations OPEC+ is committed to restraining global supplies even as the demand outlook improves. The pound rose a second day after the Bank of England said on Thursday it isn’t close to introducing negative interest rates; gilts edged lower. The Australian dollar advanced in European session after the earlier slipping amid a weaker yuan fixing, and as central bank chief Philip Lowe said interest rates will remain low for “quite a while yet”.

“The market is concentrating on position adjustment as investors want to look at U.S jobs data to see whether or not the dollar’s uptrend is clearly in place and will continue,” said Takuya Kanda, general manager at Gaitame.com Research Institute Ltd.

In rates, longer-term U.S. Treasury yields rose in anticipation of the large pandemic relief bill from Washington as well as on rising inflation expectations. The benchmark 10-year yield stood at 1.165%, a fresh three-week high as Treasury futures traded near session lows, extending a weekly slide, amid steeper losses for gilts and gain for S&P 500 futures. The 10-year yield rebounded to ~1.16% from session low 1.127% reached during Asia hours, is more than 9bp higher on the week; 10-year gilts lag Treasuries by an additional ~3bp following Thursday’s BOE policy decision while bunds keep pace. Bond yields rose in Europe as well, with Germany’s 30-year government bond yield climbing back into positive territory for the first time since September.

In commodities, oil hit its highest level in a year, above $59 a barrel, supported by hopes of a quicker economic revival and supply curbs by OPEC and its allies. Brent crude was up 63 cents, or 1.1%, at $59.47 by 1200 GMT after hitting its highest since Feb. 20 last year at $59.75. U.S. crude was up 54 cents, or 1%, at $56.77, after reaching $57.09, its highest since Jan. 22 last year.

“The conditions still remain supportive for oil markets,” said Jeffrey Halley, analyst at brokerage OANDA. “Oil should find plenty of willing buyers on any material dip.”

In commodities, Brent was on track to rise more than 6% this week. The last time it traded at $60, the pandemic had yet to take hold, economies were open and people were free to travel, meaning demand for gasoline, diesel and jet fuel was much higher. The rollout of COVID-19 vaccines, however, is fuelling hopes of lockdowns being eased, boosting fuel demand. But even demand optimists such as OPEC do not expect oil consumption to return to pre-pandemic levels until 2022. Further boosting the market, a weekly supply report showed a drop in U.S. crude inventories to their lowest since March, suggesting that output cuts by OPEC+ producers are having the desired effect. Gold edged up 0.7% to over $1,805 per ounce, but was still set for its worst weekly dip in four after hitting a two-month low of $1,785.10 on Thursday.

Friday’s earnings highlights include chemicals giant Linde, makeup firm Estee Lauder and biotech Regeneron. Nonfarm payrolls are also due, expected to show a sharp gain for January.

Market Snapshot

• S&P 500 futures up 0.4% to 3,878.25
• MXAP up 0.8% to 212.64
• MXAPJ up 0.5% to 716.31
• Nikkei up 1.5% to 28,779.19
• Topix up 1.4% to 1,890.95
• Hang Seng Index up 0.6% to 29,288.68
• Shanghai Composite down 0.2% to 3,496.33
• Sensex up 0.3% to 50,746.72
• Australia S&P/ASX 200 up 1.1% to 6,840.53
• Kospi up 1.1% to 3,120.63
• Stoxx Europe 600 Index up 0.4%
• German 10Y yield fell 1.8 bps to -0.462%
• Euro up 0.2% to $1.1982
• Brent Futures up 1.3% to $59.63/bbl
• Gold spot up 0.7% to $1,806.22
• U.S. Dollar Index down 0.16% to 91.38

Top Overnight News from Bloomberg

• The Senate voted 51-50 to adopt a budget blueprint for President Joe Biden’s $1.9 trillion virus relief package — following nearly 15 hours of wading through amendments from both parties
• It will take the world as a whole seven years at the current pace before reaching 75% coverage with a two-dose vaccine, a Bloomberg database of Covid-19 shots suggests
• The dollar’s turnaround is shaking up a consensus on Wall Street that a strengthening recovery would weigh on havens such as the dollar. The opposite appears to be happening, as the prospect of more- generous U.S. government spending and rising Treasury yields have spurred the currency
• It didn’t take much from the Bank of England for U.K. investors to price out the specter of negative interest rates. Now, their attention is turning just as fast to whether it might wean the nation’s bond market off life- support
• The U.K. will require travelers from coronavirus hot spots to quarantine starting Feb. 15, the government said, adding flesh to a policy first announced last month
• A return of the reflation trade is seen pushing the U.S. yield curve higher, though swap markets may be what’s driving the latest extension. Hedging activity in interest rates — from insurance companies contending with record stock gains and investors who were short volatility — may be fueling the climb in longer-dated bond yields

A look at global markets courtesy of Newsquawk

Asia-Pac stock markets traded higher as regional bourses took their cues from the fresh all-time highs on Wall St where focus remained on earnings releases and stimulus hopes, with risk appetite stateside also stoked by encouraging data. ASX 200 (+1.1%) and Nikkei 225 (+1.5%) gained from the open with the broad constructive mood spurring outperformance among cyclicals in Australia and after the RBA reiterated its supportive tone, as well as upgraded its 2020 GDP forecast to -2.0% from -4.5%, while sentiment in Tokyo was underpinned after better-than-expected Household Spending data which showed surprise growth of 0.9% (exp. -1.9%) and as earnings updates also provided a catalyst with SoftBank Corp lifted after it raised FY net guidance. Hang Seng (+0.6%) and Shanghai Comp. (-0.2%) benefitted from the rising tide across stocks but with upside capped by a continued tepid liquidity effort by the PBoC which remained net neutral in today’s open market operations. Nonetheless, Kuaishou Technology stole the limelight on its Hong Kong debut as its shares surged to triple the IPO price which also benefitted its backer and index heavyweight Tencent Holdings, while CNOOC was buoyed after the Chinese oil giant posted a record preliminary production for last year. Finally, 10yr JGBs were subdued with demand sapped by the gains across stocks but with downside stemmed following a recent rebound in USTs and with the BoJ present in the market today for a total of JPY 640bln of bonds mostly concentrated in 5yr-25yr maturities.

Top Asian News

• Asia Stocks Cap Best Week in Three Months as Philippines Rallies
• SoftBank May See Record Vision Fund Profit on Market Rebound
• Tencent Music Said to Tap Banks for $5 Billion Hong Kong Listing
• Kuaishou Surges 161% In Biggest Technology IPO Since Uber

Equities in Europe trade mostly higher (Euro Stoxx 50 +0.6%) as sentiment tilts towards risk-on ahead of the looming US jobs data. US equity futures meanwhile trade with broad-based gains across the ES (+0.4%), NQ (+0.3%), and YM (+0.4%), whilst the RTY (+0.7%) narrowly outperforms. In terms of the broader environment in the midst of earnings season, eyes remain on the rate of vaccinations alongside any vaccine resilience shown by emerging COVID-19 variants, whilst markets also eye policymakers for any hints of recalibration to fiscal or monetary packages as the recovery stage is underway – as US Senate adopted budget measures to fast-track the USD 1.9tln Biden stimulus plan, although the swift passage will depend on any opposition for Democrats. Back to Europe, the FTSE MIB (+1.5%) outperforms following reports that the PD Chief said the party will support a Draghi government and expects Draghi has an 80-90% chance of forming a government, whilst the SMI (-0.3%) continues to be weighed on by Nestle (-1.3%) following yesterday’s report of potential toxic metal levels in its baby food products. Sectors are mostly firmer with a cyclical bias. Travel & Leisure top the charts whilst JNJ submitted an application to US FDA for EUA of its single-shot Janssen COVID-19 vaccine, thus paving the way for another vaccine addition, and recent reports telegraphed the experimental mixing of vaccines in a bid to make distribution and inoculation more flexible. Oil & Gas also resides as a winner amid price action in the crude complex, meanwhile telecoms underperform after T-Mobile (-2.5%) underwhelmed markets post-earnings, in turn denting its largest shareholder Deutsche Telekom (-1%). In terms of large-cap earnings-related movers, BNP Paribas (+3.9%) is supported despite missing on revenue and FICC expectations as the board is to propose a dividend equivalent to 21% of 2020 net income, and is looking into share buybacks contingent on the ECB. Sanofi (+2%) is buoyed as earnings matched forecasts and the group confirmed its target regarding the expansion of business operating income margin.

Top European News

• Report on Credit Suisse Banker’s Fraud Shows Years of Lapses
• Sanofi Bolsters Cost-Cutting in Pursuit of More Blockbusters
• BNP Paribas Warns Fixed Income to Slow After Uneven Results
• Deutsche Bank Single-Handedly Revives Europe’s Floater Market

In FX, it could purely be a case of consolidation ahead of the monthly BLS update, but also a function of external factors and perhaps some technical impulses given the fact that the DXY failed to sustain upward momentum towards the next bullish chart target in the form of the 100 DMA (91.839 as of today) having eclipsed Thursday’s peak by a fraction at one stage (91.600 vs 91.581), and is now back below 91.500 nearer a 91.329 low. However, the US Treasury yield backdrop and curve profile is also a tad less supportive, oil remains on the boil and precious metals are trying to find a footing after their fall from grace, with Gold back on the Usd 1800/oz handle, albeit just and Silver straddling Usd 26.50/oz.

• AUD/CAD/GBP – The Aussie is back on the 0.7600 handle with independent impetus from firmer than forecast retail sales data and a relatively upbeat RBA SOMP, albeit underlining the likelihood that ultra-accommodative policy will be maintained for the next 3 years at least, while the Loonie remains anchored around 1.2800 with one eye on crude prices and the other on the upcoming Canadian labour report. Elsewhere, Sterling is still elevated in wake of the BoE’s emphatic not now if at all NIRP message, with Cable probing 1.3700 and Eur/Gbp under 0.8750 even though the Euro is trying to claw back losses against the Buck and other peers. Note, little reaction to latest comments from BoE’s Broadbent – see 9.08GMT post on the headline feed for details – or weaker than expected Halifax house prices, as the Pound awaits more from Governor Bailey around the same time as NFP, but in cross terms 1.2 bn option expiries between 0.8760-70 could either cap rebounds or keep bears at bay.
• CHF/EUR/NZD/JPY – Also firmer vs the Dollar or clawing back recent losses, as the Franc draws encouragement from hold just above 0.9050 again, the Euro recovers from a slightly deeper pullback from 1.2000 where 1.1 bn option expiry interest resides, the Kiwi bounces from under 0.7150 and Yen through 105.50 after hitting a sub-105.60 trough.
• SCANDI/EM – Similar theme of Nok outperformance relative to the Sek, almost irrespective of Norwegian and Swedish fundamentals, like a decline in manufacturing output vs pronounced pick-up in Swedish new industrial orders, as the former continues to track oil in the main and latter run into resistance circa 10.1000 against the Eur. Conversely, the Try has breached 7.1000 vs the Usd following yet more hawkish statements from the CBRT as Governor Agbal pledges to take action before any rise in inflation beyond the forecast path, noting upside risks via January CPI and adding that policy will have a strong inflationary bias. All this in contrast to an unchanged RBI with guidance to maintain and accommodative stances as long as requited, and the PBoC staying neutral in terms of daily liquidity operations ahead of China’s Lunar New Year holidays, keeping the Inr and Cny/Cnh steady 72.9000 and 6.4700 respectively.

In commodities, WTI and Brent front-month futures trade on a firmer footing with gains of some USD 0.5-0.6/bbl seen across the benchmarks as WTI eyes USD 57/bbl to the upside (vs low USD 56.43/bbl) and Brent meanders on either side of USD 59.50/bbl (vs. low USD 50/bbl). The complex is seemingly garnering strength from the stock market performance, whilst also being underpinned on vaccine hopes and OPEC+ flexibility. Fresh catalysts have remained light during early European hours, with markets awaiting the Jan US jobs report for the next scheduled impetus. Elsewhere, spot gold and silver trade in positive territory in what seems like a breather from the recent volatility and losses seen in the complex, whilst a softer dollar helps keep prices afloat, with spot gold marginally north of USD 1800/oz after rebounding from yesterday’s USD 1784/oz low – and spot silver trades on either side of USD 26.50/oz after briefly dipping below USD 26/oz yesterday. In terms of base metals, LME copper is back on the rise and steadily making its way towards USD 7,500/t as the softer Dollar and risk-on tilt in the markets support the sentiment-influenced metal. Meanwhile, industrial metals overnight saw gains heading into the Chinese Lunar New Year, with Dalian iron ore futures ending the session over 4% higher as higher demand expectations after the Chinese New Year propped up prices.

US Event Calendar

• 8:30am: Jan. Change in Nonfarm Payrolls, est. 105,000, prior -140,000
• 8:30am: Jan. Average Hourly Earnings YoY, est. 5.0%, prior 5.1%; MoM, est. 0.3%, prior 0.8%
• 8:30am: Jan. Unemployment Rate, est. 6.7%, prior 6.7%
• 8:30am: Dec. Trade Balance, est. – $65.7b, prior -$68.1b
• 3pm: Dec. Consumer Credit, est. $12b, prior $15.3b

DB’s Jim Reid concludes the overnight wrap

Global risk assets advanced for a 4th day running yesterday, as positive sentiment among investors was supported by continued progress on the vaccine rollouts, hopes for further fiscal stimulus, as well as strong economic data. By the close, the S&P 500 had risen a further +1.09% to close at a fresh all-time high, in an advance that saw 387 companies in the index rise on the day. Small-caps outperformed with the Russell 2000 gaining +1.98% to reach a record high itself, and while the NASDAQ (+1.23%) similarly reached new highs, it was banks that saw the strongest performance on a sector basis. The S&P 500 Banks industry group was up a further +2.77%, as the Europe’s STOXX Banks index also rose +2.68%. Meanwhile the VIX index of volatility continued to fall from last week’s peak, down -1.1pts to 21.8pts, and European bourses shared in the rally, as the STOXX 600 (+0.56%), the DAX (+0.91%) and the CAC 40 (+0.82%) all moved higher. As an aside, GameStop fell -42.11%, while AMC pulled back -20.96%, as the deflation of this bubble continues. GameStop is now -89% lower than its intraday day highs, but is also remarkably still up roughly +200% YTD.

Yesterday I put out a CoTD comparing the run up of some tech stocks today with radio stocks of the 1920s. See here for more but the parallels are there. Both share common features like being in sectors that were/are likely long-term winners but at elevated and rapidly increasing valuations, both saw huge retail participation and were also helped by very loose monetary conditions. So is history repeating itself? Maybe with fresh stimulus cheques coming any potential bubbles could intensify further first.

On the topic of fresh stimulus, the US Senate started voting last night on a budget resolution for the 2021 fiscal year, following the House passing its version on Wednesday evening. This would allow President Biden’s Covid-19 relief package to pass with a simple party line vote. The topic of the minimum wage hike to $15/hr came up again yesterday, with the White House saying that President Biden “feels strongly” that it should go into effect. However it is unclear whether it would fit the rules of budget reconciliation. Regardless, Speaker Pelosi said that even if it does not make this bill, Democrats will try to rally support for it in the follow on recovery package that is expected later in the year.

Asian markets are following Wall Street’s lead this morning with the Nikkei (+1.24%), Hang Seng (+0.55%), Shanghai Comp (+0.53%) and Kospi (+0.68%) all up. Futures on the S&P 500 are also up +0.20%.

So with reflation being the trade of the week and with equities climbing to new highs yesterday, some big moves actually came from selected sovereign bond markets, where a number of fresh milestones were reached on both sides of the Atlantic. In the UK, gilt yields jumped and sterling rose after the Bank of England struck a hawkish tone. Most notably, although the BoE signalled that negative rates “might become desirable at some point, they said they weren’t likely to happen anytime soon. The MPC stating that they would require at least six months preparation to get it operational thus meaning August was the earliest we could see it. By then we should be in full reopening mode.

Furthermore, though the BoE forecast that the economy would contract by around -4% in Q1, they projected that it would bounce back strongly after that, with CPI inflation above the BoE’s 2% target by Q1 2022. In response, gilts noticeably underperformed other sovereign bonds, with 10yr yields rising +6.9bps to 0.44%, their highest level since March, while sterling was the strongest G10 currency yesterday, with a +0.19% gain against the US dollar.

At the other end of the spectrum, the biggest outperformer yesterday were Italian BTPs once again, which reached a big milestone as the spread of their 10yr yields over bunds fell a further -5.1bps to 1.0%, falling beneath the 1% mark for the first time in over 5 years. The moves came as former ECB President Mario Draghi began consultations in order to form a new government, with a number of senior political figures sounding a conciliatory note towards the idea. The outgoing foreign minister and former Five Star leader Luigi Di Maio said that his party had a “duty” to hear Draghi, while former PM Silvio Berlusconi said that the decision to give Draghi a mandate to form a government “goes in the direction we’ve advocated for weeks”.

As well as the UK and Italy, there were some reasonably notable levels seen elsewhere, with yields on 10yr bunds up +1.0bps to -0.45%, a level not seen since back in September. Treasury moves were more subdued however, with 10yr yields around unchanged at +0.2bps to 1.139%, which came as the dollar strengthened +0.39% to a fresh 2-month high.

Later today, markets’ attention will be on the US jobs report for January, which is also the first of the Biden presidency. In terms of what to expect, our US economists are now forecasting a +200k increase in nonfarm payrolls, after total jobless claims fell by 1.73 million since the last report and the ADP print surprised to the upside (+174k). This comes after the -140k decrease in jobs back in December (which was the first monthly decline since the height of the pandemic). However, that increase likely won’t be enough to shift the unemployment rate, which they think will remain unchanged at 6.7%, so it would be no surprise if the Biden administration seize upon the jobs report to pressure Congress to act swiftly on their stimulus proposal. Ahead of the jobs report, there were some promising signs from the latest weekly initial jobless claims, with the numbers for the week through January 30 falling to a 9-week low of 779k (vs. 830k expected), while the continuing claims figure for the week through January 23 fell to a post-pandemic low of 4.592m (vs. 4.7m expected). That said, both figures remain well above pre-pandemic levels.

In terms of the pandemic, restrictions were relaxed all over the US yesterday as case counts continue to fall as the holiday wave is squarely behind us in many states. Here in the UK, the Times reported that officials are working on a “vaccine passport” to facilitate tourism.

Looking at yesterday’s other data, US factory orders for December rose by +1.1% (vs. +0.7% expected), while the November data was also revised up three-tenths. Separately, Euro Area retail sales rose by +2.0% in December (vs. +2.8% expected), and the January construction PMIs from Germany (46.6) and the UK (49.2) were both beneath the 50-mark in contractionary territory.

To the day ahead now, and the aforementioned US jobs report for January is likely to be the highlight. Other data releases include December data on German factory orders, Italian retail sales and the US trade balance. Separately, central bank speakers include BoE Governor Bailey and the ECB’s Vice President de Guindos.