• Asia-Pac bourses traded positively as the region took impetus from the record highs on Wall St
• US Treasury Secretary Mnuchin presented a USD 916bln coronavirus relief proposal, although key Democrats have since labelled it as unacceptable
• EU Commission President von der Leyen confirmed that a meeting will take place with UK PM Johnson this evening
• Sources noted a growing list of EU states are concerned that EU Commission President von der Leyen is willing to give away too much on the level playing field
• In FX, the DXY remains contained by 91.00, EUR/USD maintains 1.21+ status and GBP/USD trades sub-1.34
• Looking ahead, highlights include BoC and BCB rate decisions, German trade balance, DoEs, supply from the UK, Germany and the US

CORONAVIRUS UPDATE

US COVID cases +186,215 (prev. +174,387) and deaths +1,532 (prev. +1,118), while a major newswire tally stated US cases rose by at least 223,564 to a total of 15.16mln and deaths rose by at least 2,652 to a total of 286.5k. (Newswires)

US President Trump said he expects news very shortly on other vaccines and that he would use the defense production act if needed for vaccine distribution to Americans, while hopes the FDA will authorize Pfizer (PFE) vaccine within days. (Newswires)

Dutch PM Rutte announced the Netherlands will extend its partial lockdown, while it was separately reported that the Swiss Government said the COVID situation is worsening and has prepared additional coordinated measures to restrict the spread of the virus. (Newswires)

UAE said Sinopharm (1099 HK) inactivated vaccine has 86% efficacy rate against COVID-19 infection and that it has officially registered the vaccine. (Newswires)

ASIA

Asia-Pac bourses traded positively as the region took impetus from the record highs on Wall St with sentiment underpinned by ongoing vaccine optimism and amid stimulus hopes which were also spurred after US Treasury Secretary Mnuchin presented a USD 916bln coronavirus relief proposal, although key Democrats have since labelled it as unacceptable as it cuts unemployment insurance from the bipartisan proposal. ASX 200 (+0.6%) was led higher by outperformance in the healthcare sector amid firm gains in Healius following its performance update and share buyback announcement, with an improvement in Westpac Consumer Sentiment contributing to the tailwinds. Nikkei 225 (+1.2%) was lifted after stronger than expected Machinery Orders which jumped 17.1% for the month of October and as exporters found reprieve from a pause in the recent currency appreciation, while SoftBank shares surged on reports that the Co. was said to be in discussions on going private through a slow burn buyout in which it could gradually repurchases shares until its founder can squeeze out other investors. Hang Seng (+1.0%) and Shanghai Comp. (-0.4%) were mixed with Hong Kong conforming to the overall upbeat mood, although the mainland lagged amid currency strength and ongoing tensions after China’s Vice Foreign Minister summoned the US embassy representative over US sanctions on Chinese officials and reiterated to take reciprocal countermeasures. The release of Chinese inflation data was also discouraging as CPI printed in negative territory at -0.5% and its lowest since 2009 which although was mostly due to a 2% drop in food inflation and in particular a 12.5% slump in pork prices, it still highlighted a weak consumer profile given that non-food CPI also contracted by 0.1%. Finally, 10yr JGBs were flat with the prior day’s upside losing steam amid gains in stocks and an overnight pullback in T-notes, with demand also sapped by the lack of BoJ presence in the market today.

PBoC injected CNY 20bln via 7-day reverse repos at a rate of 2.20% for a net daily injection of CNY 10bln. (Newswires) PBoC set USD/CNY mid-point at 6.5311 vs exp. 6.5338 (prev. 6.5320)

• Chinese CPI (Nov) Y/Y -0.5% vs exp. 0.0% (prev. 0.5%); first decline since 2009
• Chinese PPI (Nov) Y/Y -1.5% vs exp. -1.8% (prev. -2.1%)
• Japanese Machinery Orders (Oct) M/M 17.1% vs exp. 2.8% (prev. -4.4%)
• Japanese Machinery Orders (Oct) Y/Y 2.8% vs exp. -11.3% (prev. -11.5%)

UK/EU

A UK government source said if we can make progress at a political level, it could allow UK Chief Brexit Negotiator Frost and his team to continue negotiations over the coming days, while the government source added that we must be realistic that an agreement may not be possible as we will not compromise on reclaiming UK sovereignty. (Newswires)

EU Commission President von Der Leyen confirmed that a meeting will take place with UK PM Johnson this evening where they will continue discussions on the Partnership Agreement. There were separate comments from Irish Foreign Minister Coveney that hopefully the side can reach a Brexit agreement today, although sources noted a growing list of EU states are concerned that EU Commission President von der Leyen is willing to give away more on the level playing field than they are prepared to swallow at this late stage. (Newswires/Daily Express)

More member states are reportedly calling for No Deal contingency measures to be brought forward and there is some suggestion, but not confirmed, that these measures could go before the College of Commissioners on Wednesday morning. (RTE)

UK Trade Minister Truss said Britain will suspend retaliatory tariffs on US goods related to the Boeing-Airbus dispute from January 1st and that she wants to de-escalate the conflict for the US, but added they may reimpose tariffs if there is no progress towards settlement with US and will the keep tariffs on US goods related to the steel and aluminum row. (Newswires)

Hungarian PM Orban said there is a good chance of an EU budget deal this week. (Newswires)

FX

In FX markets, the DXY was subdued after recently being contained by resistance at the 91.00 level and with headlines stateside focused on stimulus updates with some mild encouragement seen after Senate Majority Leader McConnell suggested setting aside liability, as well as state and local aid to pass the things they agree on, knowing that they will return to discussions in the new year. Furthermore, US Treasury Secretary Mnuchin presented a USD 916bln coronavirus relief proposal which included liability protections for businesses and money for state and local governments, although this was later dismissed by House Speaker Pelosi and Senate Minority Leader Schumer. The greenback’s major counterparts eked mild gains in which EUR/USD bounced off support at 1.2100 but with upside contained ahead of this week’s ECB and European Council meetings, while there was also mixed commentary from the vetoers of the EU budget as the Polish PM stated their position has not changed and that there could be many more months of talks on the budget although Hungarian PM Orban later commented that there is a good chance of an EU budget deal this week. GBP/USD traded with tentative gains after EU Commission President von Der Leyen confirmed that a meeting will take place with UK PM Johnson this evening where they will continue discussions on the Partnership Agreement and with mild encouragement after the UK announced to drop the controversial clauses in the Internal Market Bill following an agreement in principle on implementation of the Withdrawal Agreement concerning the Northern Ireland protocol. USD/JPY was steady at the 104.00 handle and antipodeans were eventually lifted amid the positive risk tone and strength in CNH which breached 6.5000 against USD for the first time in more than 2 years which in turn, helped AUD/USD extend on its rebound from a floor at 0.7400.

• Australian Westpac Consumer Sentiment Index (Dec) 112.0 (prev. 107.7). (Newswires)
• Australian Westpac Consumer Sentiment (Dec) M/M 4.1% (prev. 2.5%)

COMMODITIES

Commodities were mostly rangebound with WTI crude futures oscillating around the 45.50/bbl level as the pressure from a bearish private sector inventory report, which showed a surprise build in headline crude and larger than expected build to gasoline stockpiles at 6.4mln (exp. 2.3mln), was partly offset by the positive risk tone although cuts to global oil demand growth forecasts in the latest EIA STEO contributed the lacklustre trade. Gold marginally retraced some of its recent upside despite the weaker greenback and copper prices were lifted by the broad constructive mood.

US Private Inventory Data (bbls): Crude +1.1mln (exp. -1.4mln). (Newswires)

EIA STEO cut 2020 world oil demand growth by 240k BPD to -8.85mln BPD Y/Y and cut 2021 world oil demand growth by 110k BPD to +5.78mln BPD Y/Y, while it sees 2020 US crude output to fall 910k BPD to 11.34mln BPD (prev. -860kbpd) and 2021 US crude output to fall 240k BPD to 11.1mln BPD (prev. -290kbpd). (Newswires)

GEOPOLITICAL

Iranian official said some of those involved in the assassination of the Iranian nuclear scientist have been arrested, according to ISNA news agency. (Newswires)

US

Treasuries extended their bull-flattener from Monday, although impending duration supply and a turn-around in stocks brought yields off the lows. By settlement, 2s +0.8bps at 15.1bps, 10s -1.3bps at 91.5bps, and 30s -2.7bps at 166.1bps; real yields were down by just under 5bps in 5s and 10s, and 2.5bps in 30s; T-Note futures volumes were lacklustre. The upside in bonds catalysed as US participants came into the fray, there wasn't anything too incremental for participants to dig into, rather just a continuation of the pull away from the post-COVID high yields seen last Friday, with the overarching concerns of a lack of stimulus/rising virus cases/Brexit supporting the move. Yields found their lows shortly after the US cash equity open before paring some of their strength into latter trade amid a turn around in stocks (particularly cyclicals), in addition to looming Treasury supply; one desk noted "small algo sell programs" were triggered after the unconvincing break beneath the 90bps level in 10s, dealers were also on the offer. The 3-year note auction today was lacklustre, although Tuesday's 10s and Wednesday's 30s are expected to lure in more demand amid the juicy, FX-hedged yield pick up foreign bond buyers can attain. T-note (H1) futures settled 3 ticks higher at 137-26.

US Treasury Secretary Mnuchin said he spoke with House Speaker Pelosi and presented a USD 916bln coronavirus relief proposal which includes money for state and local governments, as well as liability protections for businesses, while he added that the proposal would tap USD 140bln in unused paycheck protection program funds and USD 429bln in Treasury funds. (Newswires)

US House Speaker Pelosi and Senate Minority Leader Schumer said Senate Majority Leader McConnell agreeing to the White House proposal of CNY 916bln relief is progress, but added that bipartisan talks are the best hope for a solution and that the Trump administration's proposal to cut unemployment insurance from the figure proposed in bipartisan talks is unacceptable. (Newswires)

US Senate Majority Leader McConnell said we should set aside liability and set aside state and local aide and pass the things we agree on, knowing we will be back at this after the first of the year. It was also separately reported that Senate Minority Leader Schumer criticised McConnell's proposal to drop state and local aid provisions from COVID aid relief, while House Speaker Pelosi said the bipartisan negotiations on COVID relief have made good progress although she accused Senate Majority Leader McConnell of undermining bipartisan relief discussions. (Newswires)

It was also reported that White House was negotiating with GOP's regarding USD 600 stimulus cheques and that President Trump favours USD 600 or much higher, while were separate comments from Democrat Senator Durbin that he received some signals from the White House that President Trump wants USD 1,200 of stimulus cheques. (Washington Post/CNN)

US President-elect Biden reiterated the bipartisan COVID relief package is only a start, while he added that urgent action is needed to put resources in place for COVID vaccine distribution and more action will be needed next year to fund the rest of the distribution effort. (Newswires)

US President-elect Biden's national security team plans a wide review of sanctions operations at the Treasury Department, including an evaluation of current programs, staffing and budgets. In other news, Biden is reportedly mulling a high-profile ambassadorship for Pete Buttigieg such as possibly sending him to China. (Newswires/Axios)