• European indices are modestly lower but off worst levels, Euro Stoxx 50 -0.5%, with US futures exhibiting similar performance; ES -0.4%, NQ -0.1% & YM -0.4%
• Brexit updates have largely been downbeat, prompting a GBP sell-off to the benefit of USD, with PM Johnson & Commission President von der Leyen to speak once again today
• As such, DXY has been lifted to 91.241 at best but is off this high presently with major peers subdued but again off lows
• 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; China has pledged to retaliate if this occurs
• US Health Secretary Azar said he believes the FDA authorization of first coronavirus vaccine could occur within days
• 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 the schedule has no Tier 1 data releases

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 (-0.8%) initially gained but then faltered on the pressure of the recent currency strength and KOSPI (+0.5%) swung between gains and losses in a retreat from its record highs. Hang Seng (-1.2%) and Shanghai Comp. (-0.8%) 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. Subsequently, China said they will take firm countermeasures to any new sanctions. (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%)

US

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)

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 PM Johnson is reportedly ready to pull-out of discussions within hours, according to The Sun. (Twitter)

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. Subsequently, EU Chief Brexit Negotiator Barnier has told EU ambassadors that there has been no breakthrough on the fisheries question, and that reports to that effect were “completely untrue”, RTE's Connelly. Furthermore, in the briefing Barnier was 'relatively downbeat' on the prospect for a deal saying the ball is in PM Johnson's court. (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 and that no progress was made in yesterday's (Sunday) discussions. Subsequently, added that Gove and Sefcovic have made practical progress on many outstanding issues. (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. On the matter, Senior EU Diplomat says they need a signal from Poland & Hungary today/tomorrow that they could agree to the EU budget or we will move to a Plan B. (FT/Newswires)

EU Sentix Index* (Dec) -2.7 vs. Exp. -8.3 (Prev. -10.0)

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

GEOPOLITICS

German Foreign Minister Maas says here have been too many provocations in the Eastern-Mediterranean, will have to discuss consequences. (Newswires)

Senior EU diplomat says there haven't really been positive developments since October with Turkey. Asked if that means sanctions are inevitable, diplomat says "This is moving in a certain direction.", WSJ's Norman. (WSJ)

EQUITIES

European equities trade mostly lower as the region took its cue from a similar APAC handover, with Eurozone bourses all in the red (Euro Stoxx 50 -0.5%) whilst UK's FTSE 100 (+0.4%) bucks the trend. Meanwhile, US equity futures experienced some losses in lockstep with European counterparts but have since trimmed some of this downside. The sectoral performance in Europe sees a more defensive bias, with Healthcare and Staples outpacing peers, the former also aided by gains in AstraZeneca (+2.5%) following a broker upgrade at Morgan Stanley, and in turn providing the FTSE 100 with impetus as its largest weighted stock. Delving deeper into sectors, Oil & Gas and Financials reside as the straddlers amid lower oil prices and yields respectively. Meanwhile, Travel & Leisure retraces some of the recent gains seen in wake of the flurry of optimistic vaccine updates in recent sessions. Elsewhere, UK housing names reside at the foot of the Stoxx 600 amid Brexit jitters, which sees Berkeley Group (-7%), Persimmon (-5.8%), Barratt Developments (-5.0%), Taylor Wimpey (-4.0%) in deep negative territory. In terms of other individual movers, Micro Focus (+16%) catches a tailwind on a broker upgrade at Goldman Sachs. Deutsche Lufthansa (-0.7%) is modestly softer as the group is is expected to cut an additional 10k jobs in Germany next year alongside 20k jobs outside of Germany, according to sources. Finally, Pandora (+5.0%) is firmer after it stated that November had positive sell-out growth and organic growth, whilst reaffirming guidance assuming no lockdowns are imposed.

Apple (AAPL) are reportedly working on new Mac chips, aimed at outclassing Intel's (INTC) parts. (Newswires)

FX

GBP, DXY, EUR - A plethora of Brexit newsflow has seen renewed weakness in the British currency with the crux of headlines pointing to the remaining outstanding issues, with EU’s Chief Brexit Negotiator Barnier’s early-morning briefing to ambassadors seeing a mixed reception - with some pointing to a neutral briefing and other interpretations pointed to a gloomy prospect regarding an imminent trade deal, whilst he rebuffed weekend reports that a breakthrough has been made on fishing. On the domestic front, the Internal Market Bill (allowing ministers to override the WA) is poised to return to the House of Commons today – which could prove to be a sideshow given today’s crunch talks but seen in Brussels as an aggressive move heading into last-minute talks. Eyes will be on the phone call between UK PM Johnson and European Commission President von der Leyen, with the latest guidance pointing to a call in the afternoon (time TBC). In light of the developments above, and amid the UK PM ‘s threat of pulling out from talks within hours over EU demands, Cable retreated from best levels just shy of 1.3450, through the 1.3400 and 1.3300 psychological marks and below its 21 DMA (1.3294) to a current base sub-1.3250 ahead of 1.3200. The Sterling demise and lacklustre risk tone has fed into Dollar strength with DXY rebounding from its overnight base at 90.686 to a current peak at 91.241 – and with clean air seen ahead of the 91.500 psychological mark coinciding with the 2nd Dec high. As such, the Single Currency yielded its 1.2100 status (vs. 1.2140 at best), but with losses cushioned via the EUR/GBP cross which reclaimed a 0.9100 handle, with the current intraday band at 0.9021-9137.

NZD, AUD, CAD, SEK NOK - The Dollar’s revival has pressured other G10s to varying degrees, with non-US Dollars the laggards notwithstanding the Sterling’s performances. The overall risk tone and lower Chinese import figures sees AUD/USD back under 0.7400 (vs. 0.7436 at best) and losing ground below the figure as the pair eyes its 21 DMA at 0.7332. NZD/USD threatens a break below 0.7000 having had fallen from 0.7050. The Loonie has trimmed some gains against the Buck seen in wake of last Friday’s jobs numbers, with softer oil prices also proving to be headwinds – and with clean air up to 1.2900. Similarly, EUR/NOK eclipsed last week’s ~8.900 high whilst the SEK side-lined the Riksbank minutes which largely consisted of reiterations and no new information. EUR/SEK makes headway above 10.2500 having had tested 1.3000 to the upside earlier.

JPY/CHF - The traditional safe-havens have seen resilience despite the firmer DXY with losses seemingly cushioned by haven inflows. USD/JPY sees modest gains as the pair attempts to recoup some recent lost ground, with eyes from a technical standpoint on the 21 and 50 DMAs at 104.42 and 104.77 respectively. USD/CHF meanwhile focuses on Thursday’s 0.8954 high as the pair errs higher from its 0.8896 base.

Notable FX Expiries, NY Cut:

• EUR/USD: 1.2000 (583M), 1.2045-55 (800M) 1.2100-15 (621M)
• USD/JPY: 103.45-50 (550M), 104.00-05(515M) 104.25-30(517M) 104.50 (700M), 105.00(605M)

FIXED

A firmer start to the session with Bunds eclipsing last Friday’s peak of 177.36 early-on in the session with the fixed income space gaining impetus after tepid/cautiously firmer APAC trade. Currently, Bunds are in proximity to the sessions peak of 177.92 with resistance at the psychological 178.00 mark and then 178.10 & 178.23-27. Debt was bolstered this morning amidst the pessimistic updates on the Brexit front with attention turning to today’s gatherings between Gove & Sefcovic and then, more pertinently, another call between PM Johnson and Commission President von der Leyen. Price wise, Gilts have led the upside for much of the morning and unsurprisingly are in proximity to their session high just shy of 134.50; little is present in the near-term in the way of resistance. However, the 10-yr yield has near-term support at 0.267%, November 30th low, a level which could see a test if the tone we have seen throughout the morning continues. Returning to Germany, and incorporating the periphery, attention resides on the BTP-Bund spread this week given the plethora of European events in the latter half, presently, the spread is ~115bps and is holding above the ~112.5bps low from April’2018 and August’2016 respectively. Stateside, USTs have been following the action of their European counterparts throughout the morning and as such are firmer by ~6ticks and near the session peak but is yet to mount a test towards Friday’s high of 137.27 in a week set to be dominated by fiscal updates and supply – from a US perspective at least.

COMMODITIES

WTI and Brent front month futures kicked the week off on a softer footing following the rally seen last week on the back of OPEC+ expressing unanimity and flexibility with regards to future oil policy, with the next ministerial meeting planned for the 4th of January. Fresh catalysts for the complex have been light in early European trade with prices influenced by overall risk sentiment and Dollar action. Meanwhile, over the weekend Saudi Aramco released its OSPs for January whereby 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. Further, Friday saw the release of the Baker Hughes rig count which showed active oil rigs increasing by five whilst active natgas rigs fell by two. WTI Jan resides around USD 45.50/bbl having earlier fallen to a base around USD 45.40/bbl from best levels at USD 46.25/bbl. Brent Feb 21 briefly dipped below USD 48.50/bbl (vs. high 49.25/bbl). Elsewhere, precious metals were uneventful overnight before succumbing to the Buck, with spot gold meandering around USD 1830/oz after a short-lived dip below 1825/oz (vs. USD 1842/oz) whilst spot silver loses ground below USD 24/oz (vs. high 24.23.oz). In terms of base metals, LME copper prices dipped from eight-year highs amid the overall tone in markets alongside a decline of the red metal imports by China, whilst iron ore imports fell for a second consecutive month, dropping some 8.1% MM.

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)