• US futures are modestly firmer but somewhat mixed contrasting European indices which are supported amid the broader risk tone, Euro Stoxx 50 +0.3%; albeit, off highs
• UK PM Johnson and European Commission President Von der Leyen dinner tonight is due to start at 19:00GMT/14:00EST
• Poland, Hungary, and Germany have agreed on an EU deal, according to the Polish Deputy Premier.
• US Treasury Secretary Mnuchin said he spoke with House Speaker Pelosi and presented a USD 916bln coronavirus relief proposal; dismissed by some officials
• 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
• FX features a softer USD given the general tone and as GBP leads the G10's ahead of the UK/EU high-level meeting tonight
• Looking ahead, highlights include BoC and BCB rate decisions, DoEs & supply from the US

CORONAVIRUS UPDATE

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)

French Gov't spokesperson on COVID-19 says there is a risk of a 3rd wave, and if the unwinding of lockdown needs to be adapted this is possible. (Newswires)

UK Medicine Regulator Chief expects to receive further vaccine data from AstraZeneca (AZN LN)/Oxford University in the coming days, but cannot give a firm date on when the regulatory review will be completed; expects mature data package from Moderna (MRNA) in a week or two. (Newswires)

Two UK NHS staff members who received the Pfizer (PFE)/BioNTech (BNTX) vaccine on Tuesday - first day of the mass vaccination programme - suffered an allergic reaction, NHS England has confirmed; UK regulators issued a warning that people who have a history of "significant" allergic reactions should not currently receive the jab following the incident. (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 (+1.3%) 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 (+0.8%) and Shanghai Comp. (-1.1%) 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%)

Chinese M2 Money Supply YY* (Nov) 10.7% vs. Exp. 10.5% (Prev. 10.5%)

• Outstanding Loan Growth* (Nov) 12.8% vs. Exp. 12.9% (Prev. 12.9%)
• New Yuan Loans* (Nov) 1430B vs. Exp. 1400.0B (Prev. 689.8B)

US

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 USD 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 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)

UK/EU

UK PM Johnson and European Commission President Von der Leyen dinner tonight is due to start at 19:00GMT, according to BBC's Kuenssberg. Seperately, ITV's Peston notes there is a growing view in Brussels that UK PM Johnson's conception of the sovereignty he wants for the UK is not compatible with a zero tariff/zero quota trade deal, according to ITV's Peston. (Twitter)

UK Cabinet Minister Gove says there can be scope for a compromise on fisheries, in Brexit discussions.(Newswires)

Irish PM is on the pessimistic side regarding the prospect of an EU/UK free-trade agreement in the coming days, via Irish Times; subsequently, says the level playing field is probably where the real difficulty in negotiations is, believes the UK PM is probably willing to make concessions. (Newswires)

Government sources say exit declarations & export declarations for goods crossing Irish sea from NI to GB have been scrapped, Guardian's O'Carroll. Additionally, the EU and UK have agreed a trusted trader scheme that would mean exemptions from tariffs for up to 98pc of goods flowing between Great Britain and Northern Ireland from January 1, according to RTE's Connelly (Twitter)

Poland, Hungary and Germany have agreed on an EU deal, according to the Polish Deputy Premier. Subsequently reported that the EU is generating an interpretative declaration on the rule of law mechanism with Poland & Hungary; to insist the mechanism applies to the new budget, judicial recourse at ECJ and mention an emergency brake for the process, FT's Khan. (Newswires/Twitter)

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)

GEOPOLITICAL

Turkish President Erdogan says any EU sanctions against the country will not impact Turkey much; adds, if Greece is honest then they are open to discussions. (Newswires)

EQUITIES

European equities (Eurostoxx 50 +0.5%) are on the front-foot following on from an upbeat Asia-Pac handover and further record highs on Wall St. Sentiment has been underpinned by ongoing vaccine optimism and stimulus hopes with the latter spurred after US Treasury Secretary Mnuchin presented a USD 916bln coronavirus relief proposal which included money for state and local governments, as well as liability protections for businesses. The proposal was later deemed as unacceptable by House Speaker Pelosi and Senate Minority Leader Schumer as it cut unemployment insurance, however, they noted that Senate Majority Leader McConnell agreeing to the White House proposal was progress. Closer to home in Europe, beyond the ongoing Brexit stalemate, attention is firmly fixated on tomorrow’s crunch ECB meeting in which policymakers have set the bar for a “dovish surprise” particularly high (a full preview of the event can be found in the Newsquawk research suite). From a sectoral standpoint all sectors, with the exception of IT names trade firmer with the tech sector hampered by losses in STMicroelectronics (-9%) after the Co. abandoned its EUR 1bln sales target by a year to 2023; Infineon (-0.5%) are seen lower in sympathy. In terms of broader follow-through to equities in the US, the tech-heavy e-mini Nasdaq is flat on the session, lagging the e-mini S&P and Russell 2000 which trade higher by 0.2% and 0.7% respectively. To the upside, energy names are the clear outperformers, supported by modestly firmer crude prices with other cyclically exposed sectors such as autos and banks also near the top of the leaderboard. Corporate updates are once again on the light side with two standouts being German-listed Covestro (+4.6%) after upgrading its FY 20 EBITDA and FCF guidance, whilst Signify (-5.4%) are a noteworthy loser after announcing it expects the COVID-19 pandemic to impair sales by 13-13.5%.

FX

GBP, EUR- All eyes on Sterling as PM Johnson gears up for a make-or-break evening meeting with EU’s von der Leyen (19:00GMT/14:00EST) in the run up to the European Council meeting tomorrow. In terms of the lie of the land, optimistic omens came out of the UK’s Cabinet Minister Gove in early hours intimating scope for compromise on fisheries, whilst Irish Deputy PM Varadkar expressed a similar tone but noted the LPF remains the most difficult outstanding issue. Nonetheless, Cable garnered impetus from the comments whereby the pair rose to a fresh session high at 1.3460 (vs. low 1.3350) surpassing Monday’s peak and the psychological 1.3450 mark. Subsequently, flows into Sterling translated into pressure on the EUR/GBP cross which dipped below 0.9050 from 0.9081 at best to a current base at 0.9035. As such, EUR/USD fails to fully benefit from the softer Buck but retains its 1.2100+ status having had risen to a whisker away from 1.2150 before it side-lined the wider-than-expected German trade data for October.

DXY, Yuan - The broad Dollar and Index kicked off the mid-week session on the back foot, with some downside pressure seen in light of the Sterling bounce, but with attention remaining on State-side negotiations over government funding and the COVID relief bill. DXY remains sub-91.000 after printing an overnight base around 90.700 with the next immediate downside level comprising of Monday’s 90.612 low followed by the psychological 90.500 mark. Elsewhere, the strengthening Yuan garnered focus overnight whereby the offshore hit the firmest level against the Buck since June 2018 despite a relatively stable PBoC fix and discouraging Chinese CPI figures. USD/CNH printed a base at 6.4975 with bears now eyeing the 76.4% retracement of the 2018 low to the 2019 high at 6.4626.

AUD, NZD, CAD - The high-beta non-US Dollars see gains across the board amid tailwinds from the positive risk sentiment coupled with follow-through from the firmer Yuan. Sources overnight suggested Chinese trade officials are unlikely to reassess their bilateral free-trade agreement with Australia this month as outlined in the ChAfta deal. The news has seen varying interpretations, with one suggestion being the deal signed with goodwill remains intact despite the ever-deteriorating ties between the countries, whilst others suggests this takes away a platform for negotiations to improve ties. Nonetheless, the Aussie outpaces its peers vs. the USD following a breach of 0.7450 to the upside from its overnight low of ~0.7400 to a current peak at 0.7471 with the next level to the upside around 0.7486 marking the highs set on the 9th and 10th July 2018. NZD/USD meanwhile continues to gain ground above 0.7050 (vs. low 0.7036). The Loonie is also supported as USD/CAD remains sub-1.2800 (vs. high 1.2822) but remains cautious in the run up to the BoC policy announcement (full preview available in the Newsquawk Research Suite).

JPY - Contrary to its G10 peers, the Yen fails to glean support from the softer Dollar as haven outflows hamper gains. USD/JPY remains contained within a tight 104.07-25 band in early European trade with OpEx seeing USD 704mln rolling off between 104.40-50 and USD 750mln at strike 104.65.

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

FIXED

A subdued session for European debt thus far, with impetus being led by USTs this morning continuing overnight action following a more upbeat reception of proposals from US Treasury Secretary Mnuchin by House Speaker Pelosi on fiscal matters. As such, USTs are the laggard with the 10yr lower by ~7 ticks at present and in proximity to session lows; given the relatively devoid calendar for the session, from a US perspective, focus will likely continue to resonate around any further fiscal updates throughout the day – alongside the 10yr outing after the somewhat lacklustre 3yr note yesterday. Returning to Europe, where both Bunds and Gilts are at the lower end of the day’s range with losses of ~30 ticks each; within Europe, attention is on tomorrow’s EU Council Meeting as reports most recently note of EU Presidency holders Germany coming to a deal with both Poland and Hungary. While Gilts are lower on the general performance of the complex alongside perhaps some tentative optimism ahead of the high-level talks between PM Johnson & Commission President von der Leyen from 19:00GMT/14:00EST today. Technically, Bunds have near term support at 177.82 which is yesterday’s low with heightened selling pressure expected if this level gives way. Note, within Europe today has seen the last supply outings from both Germany and the UK with both the Schatz and 2035 supply well received.

COMMODITIES

WTI and Brent front-month futures have erased overnight losses as the complex piggy-backed on the positive risk tone in broader trade with gains of some USD 0.40/bbl apiece. Losses overnight stemmed from the 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), whilst the EIA STEO also cut its world oil demand growth forecasts for 2020 and 2021, with the OPEC and IEA's respective monthly reports due next week. Notwithstanding yesterday's bearish supply/demand side updates, WTI Jan hovered around USD 46/bbl (vs. low 45.33/bbl) before losing ground below the figure whilst Brent Feb sees itself just south of USD 49/bbl (vs. low 48.54/bbl). Looking ahead, the weekly DoE inventory figures will be released at the usual time, with headline crude stocks expected to see a draw of 1.424mln bbls. Elsewhere, precious metals are relatively uneventful and lacklustre with the former still north of USD 1850/oz, but off its overnight high of 1871/oz, whilst spot silver sees itself under USD 24.50/oz (vs high 24.58/oz). In terms of forecast, Commerzbank anticipates gold will approach USD 2100/oz by end-2021 whilst the German bank sees silver at USD 28/oz in the same timeframe. In terms of base metals, iron ore prices hit the highest level since March 2013 amid firm demand from steel plants coupled with woes surrounding the deteriorating Aussie-Sino relationship, prompting China's Dalian Commodity Exchange to limit non-future members' single day open position for iron ore futures for May 21 delivery to 5k lots from Dec 14th. Finally, LME copper is firmer on the day as the red metal sees tailwinds from the softer Buck and constructive risk tone.

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

Bombs have targeted two oil wells inside the Khabaz (15k BPD) oilfield in Kirkuk, Iraq resulting in a fire, according to security sources. (Newswires)