• Asian equity markets were mixed despite the region initially taking its cue from the fresh record levels last Friday on Wall Street in which all major indices posted all-time highs
• In FX, the DXY was rangebound beneath 91.00, EUR/USD retains 1.21 status and GBP/USD was choppy amid a flurry of Brexit-related headlines
• In Brexit talks, both sides noted that significant differences on three issues remained and underlined that no agreement is possible if the issues are not resolved
• A report initially suggested there was a major breakthrough regarding rights of European fleets to fish in UK waters but a UK government source later refuted this
• French President Macron and German Chancellor Merkel reportedly agreed to soften EU demands regarding the level playing field
• A bipartisan group of US Senators is to unveil legislation, as early as Monday, for additional fiscal stimulus worth ~USD 908bln, according to the FT
• Looking ahead, highlights include EZ Sentix Index, German Industrial Production and Riksbank Minutes

CORONAVIRUS UPDATE

US CDC reported total COVID-19 cases rose to 14.46mln from 14.26mln and total deaths rose to 280.1k from 277.8k the prior day, while a major newswires tally stated that US cases rose by at least 167,056 to a total of 14.73mln and deaths rose by at least 1105 to a total of 282.3k. (Newswires)

Several San Francisco Bay Area counties tightened virus restrictions and implemented stay-at-home rules earlier than the state, with the restrictions including shutting down personal care services, outdoor restaurant operations and entertainment centres effective form December 6th to January 4th. (Newswires)

US President Trump announced that his lawyer Rudy Giuliani has tested positive for COVID-19. (Newswires)

US Health Secretary Azar said he believes the FDA authorization of first coronavirus vaccine could occur within days. There were also comments from Operation Warp Speed Chief Adviser Slaoui that he expects life to return to normal in April or May after the vaccine is administered and still expects first vaccine shipment to go out a day after approval, while he added that there were no serious adverse effects associated with the Pfizer or Moderna vaccines. (Newswires)

US President-elect Biden is expected to nominate Massachusetts General Hospital Chief of Infectious Diseases Rochelle Walensky to run the CDC, while he is also to nominate California Attorney General Becerra as HHS Secretary, according to sources. (Newswires)

China's Sinovac said it secured approximately USD 500mln in funding for COVID-19 vaccine development and expects to be able to manufacture 300mln COVID-19 vaccine doses annually, while it seeks to complete the construction of a 2nd facility by year-end which its targets to double its capacity. (Newswires)

UK COVID-19 cases +17,272 (prev. +15,539) and deaths +231 (prev. +397), France cases +11,022 (prev. +12,923) and deaths +174 (prev. +216), Italy cases +18,887 (prev. +21,052) and deaths +564 (prev. +662). (Newswires)

ASIA

Asian equity markets were mixed despite the region initially taking its cue from the fresh record levels last Friday on Wall Street in which all major indices posted all-time highs. ASX 200 (+0.6%) was positive with strength in mining names and tech more than compensating for the early sluggishness in the financials sector after the RBA announced the Payments System Board began periodic review of retail payments and noted that the cap on what banks can charge merchants was too high and needs to come down. Nikkei 225 (-0.6%) initially gained but then faltered on the pressure of the recent currency strength and KOSPI (+0.2%) swung between gains and losses in a retreat from its record highs. Hang Seng (-1.5%) and Shanghai Comp. (-0.5%) gave up opening gains with sentiment dampened by several factors including another substantial PBoC liquidity drain and continued tensions between the world’s top two economies as President Trump's administration is preparing sanctions on at least a dozen Chinese officials over Beijing's move to disqualify elected legislators in Hong Kong, while FTSE Russell announced it is to remove 8 Chinese companies including Hangzhou Hikvision, China Railway Construction Corp. and China Spacesat from several products following the US blacklisting announcement. Participants also digested mixed Chinese trade data and Hong Kong underperformed as the rejig of its main index took effect in which the total number of constituents was increased to 52 from 50 with the inclusion of Anta Sports (2020 HK), Budweiser APAC (1876 HK) and Meituan Dianping (3690 HK), while the benchmark’s founding member Swire Pacific (87 HK) was removed. Finally, 10yr JGBs began softer after the recent retreat beneath 152.00 amid the bear-steepening in USTs post-jobs data, although prices have rebounded off their lows with some support from the soured risk appetite and with the BoJ present in the market for JPY 580bln of JGBs predominantly concentrated in 1yr-3yr maturities, while it also offered to purchase JPY 300bln of corporate bonds from Thursday.

PBoC injected CNY 50bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 100bln. (Newswires) PBoC set USD/CNY mid-point at 6.5362 vs. Exp. 6.5376 (Prev. 6.5507)

US President Trump's administration is preparing sanctions on at least a dozen Chinese officials over Beijing's move to disqualify elected legislators in Hong Kong, according to sources. There were also comments from US Secretary of State Pompeo on Friday that the US sanctions Chinese CCP officials engaged in "coercive influence activities" and called on China to end the use of coercion and intimidation to suppress freedom of expression. (Newswires)

FTSE Russell announced it is to remove 8 Chinese companies including Hangzhou Hikvision, China Railway Construction Corp. and China Spacesat from several products following the US blacklisting announcement. (Newswires)

The White House gave ByteDance more time again to satisfy national security concerns regarding TikTok rather than initiating legal action, according to a source familiar with the situation. (Axios)

• Chinese Trade Balance (USD)(Nov) 75.42B vs. Exp. 53.5B (Prev. 58.44B)
• Chinese Exports (USD)(Nov) Y/Y 21.1% vs. Exp. 12.0% (Prev. 11.4%)
• Chinese Imports (USD)(Nov) Y/Y 4.5% vs. Exp. 6.1% (Prev. 4.7%)
• Chinese Trade Balance (CNY)(Nov) 507.1B vs. Exp. 373.2B (Prev. 401.8B)
• Chinese Exports (CNY)(Nov) Y/Y 14.9% vs. Exp. 5.7% (Prev. 7.6%)
• Chinese Imports (CNY)(Nov) Y/Y -0.8% vs. Exp. 0.6% (Prev. 0.9%)

UK/EU

UK PM Johnson and EU Commission President Von der Leyen said there were significant differences on three issues and that both sides underline that no agreement is possible if the issues are not resolved, while they agreed to speak again on Monday evening and welcome that progress was made in many areas. (Newswires)

UK PM Johnson told the EU that Britain must have the freedom to set its own rules, while it was also reported that cabinet ministers said he should pursue a no-deal if Brussels does not back down. It was also reported that a senior No. 10 official warned the possibility of achieving a deal were no greater than 50% and UK sources also warned that the process could finish without an agreement. (Newswires/Times/Sky)

UK PM Johnson will personally decide on whether the law-breaking clauses in the Internal Market Bill will ultimately be kept or dropped, according to reports which cited a government official that stated the PM is forceful about the need for a safety net in the form of law-breaking clauses and that the safety net can be removed when not required. (Newswires/FT) In terms of the order of play, the HoC will vote to reject the Lords amendments; on Wednesday peers may put them, or a version of them, back in again, and on Thursday MPs will take them out for a second time. (BBC) Reports also note that as early as Tuesday, PM Johnson will publish new legislation that rips up part of the Withdrawal Agreement if a deal has not been reached. (Telegraph)

UK Chief Brexit Negotiator Frost arrived in Brussels on Sunday to meet with EU counterparts and said they will be working very hard to get a deal, while there were separate comments from an EU official that a deal was definitely not happening on Sunday as all three contentious issues are open. (Newswires) There was reportedly a major breakthrough in Brexit negotiations regarding rights of European fleets to fish in UK waters as both sides have all but finalized terms of the level of access to seas within the UK’s 200-mile exclusive economic zone. However, a UK government source later stated there was no breakthrough on fishing and nothing has been achieved on Sunday regarding this. (Newswires/The Guardian)

UK Farming Minister Eustice stated that they will continue to work on negotiations until there is no point in continuing and will know in the next couple of days if this is all theatrics by the EU, while he added UK is prepared to give undertakings on standards to help resolve issue on level playing field and can offer multi-year agreements on fishing such as three years but cannot provide long-term guarantees because that would amount to giving access in perpetuity. Furthermore, he stated UK has made a lot of preparations to leave without an agreement and will be ready for a no-deal if that is what transpires. (Newswires)

French President Macron and Germany Chancellor Merkel reportedly agreed to soften EU demands regarding a level playing field in a bid to reach a deal, according to an EU diplomatic source although French President Macron reiterated the warning that they are ready to abandon talks to prepare for a no-deal. (The Times)

Irish PM Martin stated that his gut instinct is it is 50-50 right now on whether there will be a deal and that three issues remain with the level playing field particularly difficult, while he added things are on a knife-edge and there is every chance talks could last until EU Council meeting on December 10th-11th. (Newswires)

Irish Foreign Minister Coveney stated he has a very strong view that an agreement can be reached, while he suggested that a post-Brexit deal was 97% or 98% done and that the sides are more likely to get a deal done than not. However, Coveney separately commented that he thinks it is very difficult to be definitive on how likely a deal is and stated a no-deal would be dangerous, as well as make compromise more difficult. (Newswires/Irish Independent)

BoE's Haldane said a nationwide spending spree could support a faster recovery in the economy than forecasters predicted and that consumer spending has come back at real pace after the loosing of COVID-19 restrictions last week. (Daily Mail)

German Chancellor Merkel stated that the country can keep spending large amounts in 2021 to support the economy through the impact from coronavirus. (Newswires)

Poland's veto of the EU budget is reported to fuel chatter regarding 'Polexit', although reports have added there is very little chance of such a prospect in the near-term due to strong support for the EU with surveys suggesting 80% of Poles would prefer to stay in the bloc. (FT)

Fitch affirmed Italy at BBB-; Outlook Stable and affirmed Sweden at AAA; Outlook Stable, while DBRS affirmed Germany at AAA; Outlook Stable. (Newswires)

FX

In FX markets, the DXY was rangebound beneath the 91.00 level as the recent mixed jobs numbers and record highs for stocks stateside dampened appeal for the greenback, but with price action in Asia contained by the mixed trade in its major counterparts. EUR/USD recouped losses from Friday’s pullback with the single currency rebounding off a floor at 1.2120 ahead of this week’s ECB announcement in which the central bank has continually flagged it will recalibrate its monetary instruments at the meeting and GBP/USD was choppy amid temperamental Brexit-related headlines after the sides noted that significant differences on three issues remained and underlined that no agreement is possible if the issues are not resolved. Furthermore, a report initially suggested there was a major breakthrough in negotiations regarding rights of European fleets to fish in UK waters but a UK government source later refuted this, while French President Macron and German Chancellor Merkel agreed to soften EU demands regarding the level playing field in an effort to reach an agreement although Macron renewed a warning that they are ready to abandon talks to prepare for a no-deal. USD/JPY gradually trickled back beneath the 104.00 handle due to the uninspiring risk tone which has kept antipodean currencies sideways, and mixed Chinese trade data did little to spur prices as although Trade Balance and Exports topped estimates, Imports continued to underwhelm and suggest weak domestic demand.

COMMODITIES

WTI crude futures traded sideways around the USD 46.00/bbl level amid the mixed risk appetite and after the momentum from last week's OPEC+ agreement waned. In terms of the recent supply-side headlines, the latest Baker Hughes Rig Count show an increase in US oil rigs and Saudi Arabia took mixed action regarding official selling prices for January as it raised prices to Asia but lowered them for US. Gold was uneventful as it failed to benefit from the lacklustre greenback with the USD 1840/oz level providing a ceiling throughout most of the session and copper marginally declined to test the USD 3.50/lb to the downside amid underperformance in its largest buyer China.

Baker Hughes US Rig Count +3 to 323, oil rigs +5 to 246, natgas rigs -2. (Newswires)

Saudi Arabia set January OSP to Asia at a premium of USD 0.30/bbl over Oman/Dubai which is an increase of USD 0.80/bbl from December and it set OSP to US at a premium of USD 0.55/bbl over ASCI which is lower by USD 0.30/bbl from December. (Newswires)

Iraq Oil Minister stated exports are to average around 2.8mln bpd in December and that they will remain committed to the OPEC+ deal as it serves Iraq’s interests, while he praised the latest agreement and suggested it will help lift oil prices to more than USD 50/bbl at the beginning of 2021. (Newswires)

US

The Treasury curve bear-steepened on Friday, as duration took a hit after a mixed NFP report, seeing long-end yields/inflation breakevens hit new post-COVID highs. By settlement, real yields on 5s, 10s, and 30s were -7bps, -2bps and +1.5bps, respectively, compared to nominals +2bps, +5bps, and +7bps, respectively. Prior to the NFP print, Treasuries were little changed following the modest bull-flattening on Thursday; real yields were already moving lower ahead of such, however, accompanied by the latest BofA flow show noting a second-highest inflow into TIPS on the week "on record". The disappointing headline NFP print saw an initial knee-jerk higher (risk-off) in duration, although that swiftly reversed as traders digested the internals. There were a few narratives behind the wave of bond selling that followed. One that greater than expected wage growth figures and the promising decline in the unemployment print boosted the growth outlook; sceptics draw attention to the accompanying low participation rate that perhaps inflated the noise-to-signal ratio. On the other hand, the generally lacklustre report stoked chatter around more pressure in Congress to pass through a stimulus bill; Pelosi jawboned as much today too. This is all not to mention the likely added dealer concession as desks gear up for another chunky 3s, 10s and 30s auctions next week. It will be interesting to see if those auctions will allure foreign participation with the apparent sovereign spreads widening. If so, there could also be some unexpected dollar demand through the FX swap market interfering with year-end funding, possibly. T-note (H1) futures settled 9 ticks lower at 137-12. Note: Stories released over the weekend have been bolded to distinguish them from reports released during Friday's session.

Fed's Kashkari (voter, dove) said that we will probably be at near-zero rates for the next year or two and could be longer. (Newswires)

Sources familiar with spending bill discussions said there’s a growing sense that a one-week stopgap bill to December 18th may be necessary. (Newswires)

A bipartisan group of US Senators is to unveil legislation, as early as Monday, for additional fiscal stimulus worth ~USD 908bln; however, a Democrat involved acknowledged this is being hampered by the proposal for a 4-month emergency package. (FT)