World stock hit a record high as did Emini S&P equity futures, which topped 3,900 on Monday, while the 30Y TSY hit 2.00% and Brent surpassed $60 a barrel for the first time since January amid a wholesale rush in reflation trades on hopes that a $1.9 trillion COVID-19 aid package will be passed by U.S. lawmakers as soon as this month after Janet Yellen pushed for rapid stimulus and coronavirus infections slowed across the globe. Gold, bitcoin and dollar all rose as well amid a "buy everything" wave. MSCI’s index of world stocks hit its ninth record high of 2021 overnight as Tokyo’s Nikkei jumped on talk of Japan relaxing emergency restrictions and as China’s markets got busy before the start of the lunar new year. Investors chased risk assets, comforted by the continued rollout of vaccines and data showing a collapse in new hospitalizations and infections in countries like the U.S. Optimism was boosted after Treasury Secretary Yellen said on Sunday that the U.S. could return to full employment in 2022 if it enacts a robust enough relief package. “That’s a big call, given full employment is 4.1%, but one that will sit well with the market at a time when the vaccination program is being rolled out efficiently in a number of countries,” said Chris Weston, Melbourne-based chief strategist at Pepperstone. On Friday, Joe Biden and his Democratic allies in Congress forged ahead with their stimulus plan on Friday as lawmakers approved a budget outline that will allow them to muscle through in the coming weeks without Republican support. Weaker-than-forecast U.S. jobs data Friday reinforced economic risks as the pandemic lingers, but also highlighted the case for further stimulus. Even news that South Africa had halted the rollout of AstraZeneca’s vaccine after a study showed it gave only limited protection against the country’s more contagious variant of the virus wasn’t going to put equity markets off. “The vaccine roll-out programs certainly suggest that the reflation trade has legs but central banks seem to want to ensure that expectations are kept in check,” Jane Foley, head of foreign exchange strategy at Rabobank, said on Bloomberg TV. “This suggests a choppy ride” even though UniCredit analysts said that "A generalised risk-on tone is pushing stocks higher." Meanwhile, the Citigroup index of global risk aversion dropped to its lowest since the pandemic first roiled markets last year. Europe made a strong start with Italian equities outperforming regional peers as Mario Draghi is on track to form a new national government. Higher oil prices and inflation expectations lifted basic resource and banking shares, and France’s Veolia launched a hostile 11.3 billion-euro takeover bid for waste and water rival Suez. Semiconductor shares also jumped after Dialog Semiconductor agreed to be acquired by Renesas Electronics Corp, send its shares soaring. The Stoxx Europe 600 rose 0.5%; with some of the the biggest European movers listed below:

• Dialog Semi shares jump as much as 18% after the Apple supplier agreed to the terms of a EU67.50/share offer from Renesas Electronics. Analysts praised the strategic rationale of the transaction, noting that the two companies are already involved in a partnership, with Oddo saying that the deal multiple is “acceptable.”
• Shares in 1&1 Drillisch rise as much as 8%, their biggest intraday jump since March 2020, on an improved roaming offer from Telefonica Deutschland following an EU Commission ruling.
• Schaeffler gains as much as 8.5% to highest intraday level since June 10 after Automobilwoche newspaper cites the head of the company’s auto technology business as boosting annual orders forecast tied to e-mobility starting in 2022.
• Shares of Assa Abloy rise as much as 4.9%, most since Jan. 7, after both Nordea and Societe Generale said it’s time to buy the stock.

Earlier in the session, Asian stocks climbed, extending gains after their best week since November. The MSCI Asia Pacific Index rose 0.7%, as Japanese shares led the rally amid reports the government may lift its state of emergency early for some areas, while Chinese blue-chip shares advanced 1.3% and Australian shares finished 0.6% higher. The Topix jumped 1.8% to its highest close since 1991, with SoftBank Group contributing most to the gains. The shares closed up 4.5% as the group reported a record profit in its Vision Fund. The Nikkei 225 index climbed more than 2% to top the 29,000 mark for the first time since 1990. Meanwhile, South Korea’s Kospi fell 0.9%, dragged down by Hyundai Motor companies after they said they weren’t holding any discussions with Apple on developing self-driving cars. Vietnam’s stock gauge plunged and was the biggest loser in Asia amid concerns over new local coronavirus cases. Hong Kong stocks pared gains to end the day up just 0.1%, ahead of a closure from Tuesday of trading links that mainland traders use to buy domestic stocks. The links will be halted through Feb. 17 due to the Lunar New Year holiday. After trading hours, Hong Kong’s market regulator proposed to tighten rules for brokerages handling stock and bond sales to clamp down on inflated orders "Appetite for risk is not showing any signs of ebbing away,” said Hussein Sayed, the chief markets strategist at FXTM. “Slowing coronavirus infections, continued rollout of vaccines, and anticipation of President Biden’s $1.9 trillion rescue package is keeping the bull market well and truly alive." In FX, the Bloomberg Dollar Spot Index edged up, after its biggest drop in more than three weeks Friday, and the greenback was higher against all of its Group-of-10 peers.  Commodity currencies performed well, with Norway’s krone gaining against the euro as oil in London advanced above $60 a barrel for the first time in more than a year. The pound edged lower while gilts slumped; attention turned to a speech by Bank of England Governor Andrew Bailey later. The yen resumed its slump and neared a 4-month low versus the greenback. Expectations of a U.S. economic recovery have not boosted the dollar, though, “because this shift in prospects is seen by the market as part of a global recovery,” Westpac economists wrote in a note. “Investors therefore favor risk taking, and so value the safety of the U.S. dollar less.” Indeed, the dollar came off a four-month high against the Japanese yen to be last at 105.50. The euro was weaker at $1.2027 after rising 0.7% on Friday to a one-week high. The risk-sensitive Australian dollar eased from a one-week high to $0.7675 while South Africa’s rand fell nearly 0.5% after its vaccine troubles. In rates, 10-year Treasury yields climbed to 1.2%, their highest since the peak of coronavirus uncertainty last March. Break-even rates, which are designed to account for inflation, traded as high as 2.21%, their highest since 2014. Yields on the 30-year U.S. benchmark bond topped 2% for the first time in close to a year, fueled by advancing talks on U.S. fiscal stimulus and rising expectations for inflation. In Europe, Germany’s 10-year yields were up 3 basis points at -0.415%, near five-month highs. “It will be hard not to see inflation in something when we get what is likely to be a short-term stimulus boost,” Deutsche Bank’s Jim Reid said, referring to planned U.S. stimulus. “Whether that will be in goods, wages or asset prices or all three remains to be seen, but it seems inevitable there will be an impact.” In commodities, Bitcoin soared on news that Tesla had bought $1.5BN in bitcoin, while Brent crude touched an intraday high of $60.06 a barrel, the highest since January last year.  Saudi Arabia’s pledge of extra supply cuts in February and March on the back of reductions by other OPEC members its allies, including Russia, is helping to balance global markets and support prices. In a sign that supplies are tightening, the six-month Brent spread hit its highest in more than year, $2.45. OCBC’s economist Howie Lee said the Saudis had sent another “very bullish signal” last week by keeping its Asian prices unchanged. “I don’t think anybody dares to short the market when Saudi is like this,” he said. Looking at today's session, it's a quiet day as usually happens the day after payrolls, with Global Payments, Chegg and KKR are among companies reporting earnings. The Senate begins Donald Trump’s second impeachment trial.  ECB's Lagarde and Villeroy and Fed’s Mester speak Market Snapshot

• S&P 500 futures up 0.3% to 3,890.25
• SXXP Index up 0.4%
• MXAP up 0.7% to 214.35
• MXAPJ up 0.3% to 719.43
• Nikkei up 2.1% to 29,388.50
• Topix up 1.7% to 1,923.95
• Hang Seng Index up 0.1% to 29,319.47
• Shanghai Composite up 1.0% to 3,532.45
• Sensex up 1.1% to 51,314.88
• Australia S&P/ASX 200 up 0.6% to 6,880.68
• Kospi down 0.9% to 3,091.24
• Brent futures up 1.2% to $60.05/bbl
• Gold spot little changed at $1,813.15
• U.S. Dollar Index up 0.2% to 91.18
• German 10Y yield up 2 bps to -0.425%
• Euro down 0.1% to $1.2028

Top Overnight News From Bloomberg

• The pace of U.S. inflation implied by the bond market has accelerated to the fastest since 2014, as crude oil prices rallied along with rising expectations for an economic recovery
• A number of prominent economists and former policy makers -- from Democrat Lawrence Summers to Republican Douglas Holtz-Eakin -- have raised questions in the past week about the size of the U.S. economic relief package. So too have some economy watchers in the financial markets
• German industrial production failed to grow for the first time in eight months in December, adding to signs that the economy is being weakened by the second wave of the coronavirus pandemic. Output stagnated at the end of last year as gains in manufacturing were offset by weaker construction. Economists had expected a 0.3% gain
• 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
• Taiwan penalized Deutsche Bank AG, ING Groep NV, Australia & New Zealand Banking Group Ltd. and Citigroup Inc. after a probe into speculation on the surging local currency last year involving grain companies

A look at global markets courtesy of NewSquawk Asian equity markets were mostly higher and US equity futures resumed last Friday’s advances on Wall St where the S&P 500 and Nasdaq extended on record levels on stimulus momentum and despite the slight miss in NFP jobs data. ASX 200 (+0.6%) was lifted from the open in which the mining sector spearheaded the gains after recent reprieve in metal prices and as M&A news also contributed to the risk mood after Macquarie Infrastructure made an approach for Vocus Communications which boosted the latter’s shares by around 15%. Nikkei 225 (+2.1%) surged with upside exacerbated after the index broke through the 29,000 level for the first time since 1990 with a deluge of earnings results and corporate updates in focus including SoftBank which announced total dividend from SoftBank Group Capital Limited of USD 4bln. There were also reports that Japan is mulling lifting the state of emergency in some areas amid an incoming law that would permit fines for those in violation of social distancing rules, while KOSPI (-0.9%) severely lagged with heavy losses in Hyundai Motor and Kia Motors after the automakers stated there was no ongoing cooperation talks with Apple regarding electric vehicles. Hang Seng (+0.1%) and Shanghai Comp. (+1%) conformed to the positive tone in the region but with upside limited after the PBoC continued with its reserved liquidity efforts heading into this week’s Lunar New Year holidays and opted for a net CNY 10bln injection through 7-day reverse repos although it did conduct CNY 50bln of 14-day reverse repo operations on Sunday, while large tech names were tentative after China issued new anti-monopoly rules targeting its tech giants. Finally, 10yr JGBs were weaker amid a surge in Japanese stocks with the Nikkei 225 at its highest in over 3 decades, while the subdued mood for bonds also coincided with weaker demand at the 10yr inflation-indexed JGB auction and downside in USTs which lifted the US 30yr yield towards 2.00% and the US 10yr yield to its highest since March. Top Asian News

• Asian Stocks Climb as Topix Surges to Highest in Three Decades
• China Set to Unload Some Stranded Australian Coal Amid Ban
• Largest Saudi Chain of Dental Clinics Is Said to Explore Sale
• Turkish Energy Firm Weighs Partners for $3.2 Billion Gas Project

European stocks kicked off the session with modest gains across the board (Euro Stoxx 50 +0.5%) as the region sees some positive vibes emanating from a firm APAC session, with the prospect of a fast-tracked US stimulus package and vehement comments by US Treasury Secretary Yellen holding up sentiment. However, the reflationary playbook is not distinctly reflected across the US futures whereby the ES, NQ, YM and RTY see broad-based gains of 0.3-0.4% ahead of another busy week of corporate updates. Back to Europe, the gains across bourses are relatively broad-base with the exception of Italy’s FTSE MIB (+1.1%), which outperforms as Italy's League and 5SM, signalled over the weekend that they could support former ECB chief Mario Draghi as the head of a new government. Sectors are mostly higher and portray a cyclical bias, with Basic Resources leading the charge amid the inflation-induced gains across base metals (Anglo American +3.6%, BHP +2.6%, Glencore +2%). Banks follow a close second due to the higher yield environment as the US 30yr topped 2% for the first time since Feb 2020 and the 10yr is in proximity to 1.20%. The IT sector also resides as a gainer amid Monday M&A whereby Dialog Semiconductor (+16%) confirmed that Renesas is offering EUR 67.50/shr in cash for its buyout- representing a premium of some 20% to Dialog’s Friday closing price. Travel & Leisure also benefits from the ramp-up in inoculations, albeit the South African variant could hinder vaccine efficacy and may prompt the release of a third dose by some vaccine developers; with participants awaiting an update from AstraZeneca on this today. Turning to individual movers, Rolls-Royce (-2%) trades softer as the Co. is to shut down its jet engines factory this summer amid a lack of work and due to heavy pandemic-related losses. The measures will affect all 19,000 staff in Co’s international civil aerospace division, including 12,500 in the UK. On the flip side, Carlsberg (+2.1%) is firmer as the Co. is expecting a surge in demand this summer similar to that seen in the 1920’s. In terms of bank commentary, a note by Credit Suisse highlights some scenarios which could see an unwind in equity gains – 1) disappointing EZ GDP (medium risk and rising), 2) Fed turning less dovish (high risk in 2H21), 3) slowing Chinese economy (low to medium risk) and 4) profit margin squeeze (low risk). The bank also highlights virus resilience to vaccines as a low-risk event as re-calibrated vaccines can be rolled out in 3-6 months. Top European News

• PPG Sees Off Rival Akzo in Bidding War Over Finnish Paint Maker
• Castellum Quits Bidding War for $4 Billion Entra of Norway
• German Industrial Production Stagnates on Virus Restrictions

In FX, the Greenback is grinding higher after extending its post-NFP retreat to 90.966 in index terms, and it seems like an even more pronounced reversal in US Treasuries and several more specific technical factors have helped the Buck to stop the rot. 10 year cash has touched 1.2% again, while the 30 yield is probing the psychological 2% level to lift the Dollar off lows and DXY back above 91.000 at 91.216, as certain Usd/G10 pairs test or breach key chart and significant levels. However, the Greenback also appears to be benefiting from waning risk appetite and signs that stocks are getting a bit twitchy about the rise in long term rates and bear steepening.

• JPY - In keeping with the norm, higher UST yields and by inference wider divergence to JGBs, have undermined the Yen more than most, while Usd/Jpy is also eyeing the 200 DMA after what proved to be a false break above last Friday. To recap, the pair spiked to 105.77, but closed just shy of the aforementioned technical level, which incidentally remains at 105.57 today, and is currently back above within a 105.2-67 range following a mixed Japanese Economy Watchers survey and reports that the state of emergency may be lifted in some areas.
• CHF/AUD/EUR/GBP/CAD/NZD - All weaker vs their US counterpart, as the Franc slips below 0.9000 and takes note of another rise in Swiss bank sight deposits rather than unemployment data showing an unchanged sa jobless rate vs uptick in the nsa measure, while the Aussie fades from around 0.7682 and Euro from circa 1.2054 amidst decent option expiry interest at 0.7650 and between 1.2050-35 (1 bn and 1.2 bn respectively). Note, however, Aud/Usd and Eur/Usd are both holding comfortably above further expiries near round numbers at 0.7600-05 and 1.2000-05 in 1.1 bn and 1.25 bn that look safe ahead of the NY cut. Elsewhere, the Pound has lost momentum into 1.3750 yet again, the Loonie just shy of 1.3750 in spite of further gains in oil prices after Friday’s disappointing Canadian labour report and the Kiwi has failed to retain 0.7200+ status even though the Aud/Nzd cross is drifting back down to through 1.0650 on NZ National Day.
• SCANDI/EM - The Nok is deriving more traction from crude’s exploits to consolidate recovery gains beyond 10.3000 vs the Euro and has approached 10.2550 in contrast to the Sek that looks cautious in the run up to the Riksbank and has not been able to clear 10.1000 convincingly. Meanwhile, the broad trend in EMs is weakness vs the Usd, but a firmer PBoC midpoint fix for the Cny and net liquidity injection at the start of Chinese Lunar New Year has underpinned the Cnh either side of 6.4500. Conversely, the Zar has been undermined by news that Astra’s vaccine is not effective against mild and moderate symptoms caused by SA’s coronavirus strain, and us struggling to stay above 15.0000.

In commodities, WTI and Brent front month futures kicked the week off in positive territory with the former topping USD 57.50 (vs low USD 56.95/bbl ) whilst the latter surpassed USD 60/bbl (vs low USD 59.50/bbl) in early European/late APAC trade as the benchmarks nurse their pandemic-related losses. The driving force behind the gains remains the supportive inflationary backdrop coupled with OPEC+ supply constraints, while US President Biden also suggested that the US will not lift sanctions on Iran to bring them to the negotiating table. Delving deeper into the fundamentals; US Senate voted to pass the budget measures to adopt the fast-track Biden stimulus plan and which starts the reconciliation process, whilst Treasury Secretary Yellen also noted that the US could reach full employment in 2022 under Biden’s stimulus package. Eyes also turn to OPEC+ amid the risk that higher oil prices could cause a rift among the oil producers, who could be tempted to call for output to be increased despite the clouded short term COVID outlook as the South African variant is seen dampening vaccine efficacy. Finally, markets have been flirting with expectations that the Biden admin could take a more sanguine approach to Iran over its sanctions and the nuclear deal, although President Biden responded with a firm “no” when he was asked if he will lift economic sanctions against Iran until it complies with the terms agreed under a 2015 nuclear deal. Precious metals meanwhile are little impacted by the rangebound Dollar, although gains in the yellow metal are hampered by rising real rates – with spot gold meandering around USD 1815/oz. Spot silver meanwhile sees marginally more pronounced gains as it trades on either side of USD 27/oz – BofA Global Research sees silver averaging USD 28.74/oz in 2021 and USD 31.00/oz in 2022. The reflationary backdrop has also propped up base metals ahead of the Chinese Lunar New Year, with LME copper rising some 1% in early trade and Dalian iron ore futures climbing almost 3%. US Event Calendar

• 12pm: Fed’s Mester Discusses the Economy

DB's Jim Reid concludes the overnight wrap Vaccines will get a huge amount of focus today as one of the more worrying stories over the weekend was the FT scoop on Saturday night suggesting that a paper to be released today (there was a detailed webinar on it yesterday afternoon) will show that the Oxford/AstraZeneca vaccine does not protect against “mild/moderate” illness from the South African Covid mutation. It was only a small trial (just over 2000 people) but there was enough in it to be a big disappointment and headache for policymakers. I must admit when I read the article on Saturday night I felt quite down, not because it guarantees bad news ahead, but the doubts it raises will potentially slow the process of returning to more normal life. On the plus side there was no hospitalisations or deaths from those receiving the vaccine, albeit from a relative young cohort (median age 31, maximum 40). This smaller, younger cohort is probably why the report suggests no conclusions had been reached about the efficacy against severe disease or hospitalisations. The study did only chose a 4-week interval between doses though and last week we discovered that antibody levels and protection is stronger after leaving the second dose to 12-weeks with this vaccine. So we can’t completely jump to conclusions. The problem is that even if it does prevent serious illness we won’t be able to tell from this study and therefore doubts will linger. In response the South African authorities have suspended use of the vaccine pending more info. I’m sure there will be a huge media focus now on government officials in various parts of the world as to whether this vaccine should now be relegated behind others. This would be a big blow to EM countries but less of one to the US which has other supplies. Europe will be a bit in between as in the short-term AstraZeneca is going to be a workhorse (especially in the excellent U.K. roll out program). To be fair all of the very limited vaccine trials seen so far that have covered the SA variant have shown notably weaker protection against it (albeit still above 50% efficacy) but note they have also not seen any illnesses requiring hospital treatment, which is very good news, albeit on limited sample bases. If we do see a new dominant mutation of covid that vaccines can significant reduce hospitalisations for but not low level illness, will governments be prepared to tolerate this? Or will a much more risk averse approach take over until vaccines can be adapted. I suspect it will be a combination with international travel the biggest victim as countries will be paranoid about introducing new strains and will prioritise opening up their domestic economy. This will cause complications though as a reasonable amount of goods come into a country by commercial travel so if you reduce such travel it may make trade more expensive and complicated. This is something we’ve seen in recent weeks with shipping costs (see recent CoTD here) and food inflation spiking higher. Although I’m still very bullish on growth once we get into Q2 out to year end, this is still going to be a complicated year with lots of unintended consequences. Onto markets now and overnight in Asia, the vaccine news hasn't had much impact as last week’s risk rally has continued with the Nikkei (+1.86%), Hang Seng (+0.60%), Shanghai Comp (+1.05%) and Asx (+0.59%) all up. An exception to this pattern is the Kospi (-0.49%) which is likely getting weighed down by news that Hyundai (-5.01%) and Kia (-13.50%) are not in talks with Apple to develop an autonomous vehicle. Meanwhile, the outperformance of the Nikkei is coming on the back of news that Japan is considering an early end to the state of emergency in 10 prefectures. Elsewhere Brent crude oil prices are also up +1.06% this morning. Futures on the S&P 500 are up +0.42% while yields on 10yr USTs are up +2.5bps to 1.190%. US 10yr breakevens are also up +0.6bps to 2.205%, after Friday’s +2.8bps move up. At one point in overnight trading they were up +1bps to 2.21%, the highest since 2014. All this is coming as the US Treasury Secretary Yellen’s pushed hard for fiscal stimulus and said that the US can return to full employment in 2022 if the country enacts a robust enough relief package. On this, the US stimulus debate has heated up in recent days with many prominent economists debating whether a stimulus package the size that Mr Biden is targeting is a good or bad idea. One of the most vocal is Larry Summers who has no issue with an even larger stimulus if it is more targeted to improving long-term performance of the economy but worries about the risks of one more aimed at a short-term injection of spending power into the economy. Paul Krugman on the other side thinks this is more about fighting a war and disaster relief and thinks a high amount of stimulus will be saved. For me it will be hard not to see inflation in something when we get what is likely to be a short-term stimulus boost. Whether that will be in goods, wages or asset prices (or all three) remains to be seen but it seems inevitable there will be an impact. So all eyes on how far Washington goes on this over the next few weeks. It is absolutely crucial but again the answer probably also depends on the path of reopenings and that in turn might depend on the mutations that are causing a lot of worry at the moment. Given all this uncertainty it will be near impossible to calibrate this perfectly from a stimulus point of view. Back to the current and the week after payrolls tends to be a quieter week for data with January’s CPI print (Wednesday) potentially the most interesting given that inflationary pressures are popping up everywhere. Elsewhere there are various sentiment surveys from the US, along with industrial production results for many of Europe’s largest economies. While it is a relatively slow week for central banks, we expect to hear from both ECB President Lagarde (today) and Fed Chair Powell (Wednesday) this week. Finally, we are past the earnings season hump but with 82 S&P 500 and 84 Stoxx 600 companies reporting still. The day by day week ahead is at the end but in terms of the earnings highlights to look out for, today we’ll hear from Global Payments and Simon Property Group , then tomorrow Cisco Systems, Dupont de Nemours, Twitter and Fiserv. Wednesday brings releases from Toyota, Coca-Cola Co., Uber, General Motors, Equinix, Deutsche Boerse, MGM Resorts, Vestas and AP Moller-Maersk. Then on Thursday, we’ll hear from Disney, PepsiCo, L’Oreal, AstraZeneca, Duke Energy, Illumina, Kraft Heinz and Credit Agricole. Elsewhere we could see Draghi become the next Italian PM this week as Bloomberg has reported overnight that Mr. Draghi has been able to secure support from parties across the political divide including from the Five Star Movement and Matteo Salvini’s League. Currently, it appears that only the far-right Brothers of Italy party may end up staying out of the coalition. Indicating the popular support for Draghi, La Repubblica published a poll yesterday that showed more than half of Italians would like Draghi to remain in power until 2023, when the next general election is due. In terms of the timetable ahead, Mr. Draghi will start a second round of talks with parties today and is expected to meet trade unions and business lobbies. If all goes well then Draghi could announce his cabinet picks this week before facing confidence votes in both houses of parliament. Recapping last week now and risk sentiment improved markedly as the previous week’s volatility subsided along with the stories of day-traders squeezing heavily shorted stocks. The turn toward optimism permeated every asset class and came even as worries over poor economic data, slower-than-anticipated vaccine deployments, and elongated economic restrictions persist. The S&P 500 gained +4.65% on the week (+0.39% Friday) while the NASDAQ composite rose a further +6.01% (+0.57% Friday) to new record highs in the best week for the indices since the week of the US elections. While technology stocks outperformed, there was renewed interest in the cyclical trade as rates rose and yield curves steepened. Bank stocks on both sides of the Atlantic rallied with US Banks rising +8.40% while their European counterparts gained +10.24%. Energy stocks similarly picked up as Brent crude increased +6.19% and WTI moved +8.91% higher with both futures contracts reaching new pandemic highs. In the risk-on environment, the VIX volatility index fell -12.2pts to 20.9. The STOXX 600 ended the week +3.46% higher (unchanged Friday) while Italian assets surged after former ECB President Draghi accepted a mandate from President Matteralla to try to form the next Italian government, an outcome that investors took extremely well. By the week’s end, the FTSE MIB had risen +7.00% to far outpace the other European bourses. Most havens fell on the week as investors opted for riskier assets. US Treasury yields climbed +9.8bps to 1.164%, their highest level since mid-March and the early days of the pandemic. At the same time the 2y10y yield curve steepened +10.4bps to 105.6bps, the steepest the curve has been since April 2017. 10Yr Bund yields rose as well, increasing +7.0bps to -0.45%, while 10yr Gilt yields rose +15.5bps to 0.48% after a reasonably hawkish Bank of England meeting towards the end of the week. With the news out of Italy, the spread of 10yr Italian yields over bunds tightened by -17.9bps, falling beneath the 1% mark for the first time since late 2015. Elsewhere in fixed income, high yield spreads tightened sharply on both sides of the Atlantic as US HY cash spreads were -21bps tighter, while in Europe they tightened -19bps. In terms of data from Friday the US jobs report for January showed the slowing momentum in the recovery of the labour market. Nonfarm payrolls in the US increased by just +49k – well below the +105k expected – and last month was downwardly revised by -87k to a -227k loss. Nonetheless, the unemployment rate fell to 6.3% (6.7% expected) as a number of residents left the workforce but average earnings increased so there were something for the hawks and doves. Elsewhere the US trade balance widened to $678.7bn in 2020 from $576.9bn in 2019, making last year the biggest annual trade deficit since 2008 as the pandemic depressed exports. Other data releases included German factory orders, which fell -1.9% (vs.-1.0%) in December, its first negative reading since April. Lastly, Italian retail sales outperformed versus expectations, rising +2.5% on the month (vs 1.6%).