• Asian equity markets followed suit to the cautious performance in the US where sentiment was pressured by lockdown concerns
• The S&P 500 and DJIA reversed course whilst the Nasdaq remained afloat as stay-at-home tech names benefitted
• UK sources stated that Brexit talks remain difficult and they have not made significant progress in recent days despite efforts by the UK side to bring energy and ideas to the process
• In FX markets, the DXY remains sub-91.00, EUR/USD oscillated around 1.2150 and GBP/USD heads into the EU open mildly firmer
• Electoral College officially voted to confirm President-elect Biden's election victory with sufficient electors required to become President
• Looking ahead, highlights include UK labour market report, IEA MOMR, NY Fed manufacturing, industrial production, Australian PMIs, Japanese trade balance, ECB's Lane, BoC's Macklem

CORONAVIRUS UPDATE

US COVID-19 cases +181,032 (prev. +213,305) and deaths +1,448 (prev. +2,283), while a major newswire tally stated US cases rose by at least 209,021 to a total of 16.50mln and deaths rose by at least 1,596 to a total of 301.1k. Furthermore, Boston is to close gyms, museums and other businesses amid COVID-19 surge. (Newswires/Boston Globe)

US Operation Warp Speed Chief Slaoui said EUA submission for AstraZeneca (AZN LN) COVID-19 vaccine could come as early as February 2021, while it was separately reported the EU agency stated the Pfizer (PFE)/BioNTech (BNTX) vaccine decision may precede December 29th. (Newswires)

Dutch PM Rutte stated that tougher measures are needed to stop spread of the virus and confirmed that strict lockdown measures will last for at least five weeks. (Newswires)

ASIA

Asian equity markets followed suit to the cautious performance in the US where sentiment was pressured by lockdown concerns after New York City Mayor De Blasio warned of the possibility of a full shutdown for NYC which weighed on the overall market sentiment and saw the S&P 500 and DJIA reverse course with the blue-chip index falling from fresh record intraday highs, although the Nasdaq remained afloat as stay-at-home tech names benefitted, while some analysts noted this week’s looming FOMC, quad witching and portfolio rebalancing heading into the holiday season were also headwinds for stocks. ASX 200 (-0.4%) and Nikkei 225 (-0.3%) declined with Australia dragged by underperformance in mining names and losses in the largest weighted financials sector despite the industry regulator announcing it will no longer hold banks to a minimum level of earnings retention from 2021, while the Japanese benchmark also languished with ANA Holdings the worst hit on news that Japan is to suspend the Go To Travel subsidy campaign. Hang Seng (-0.8%) and Shanghai Comp. (-0.4%) were subdued with a substantial CNY 950bln 1-year MLF operation by the PBoC failing to spur risk appetite and as participants digested the latest activity data in which Industrial Production printed in line with estimates at 7.0% but Retail Sales missed at 5.0% vs exp. 5.2% although was still an increase in pace from the prior month’s growth of 4.3%. Finally, 10yr JGBs were flat above the 152.00 level with only minimal gains seen despite the cautious risk tone in stocks and slightly better demand at the enhanced liquidity auction for 10yr, 20yr & 30yr JGBs.

PBoC injected CNY 10bln via 7-day reverse repos for a net daily drain of CNY 50bln and announced a CNY 950bln 1-year MLF operation at rate of 2.95%. PBoC set USD/CNY mid-point at 6.5434 vs exp. 6.5409 (prev. 6.5361). (Newswires)

China's National Bureau of Statistics stated the economy still faces many challenges although later noted that China Q4 economic growth is expected to quicken from Q3 and it anticipates full year growth to be relatively sound but cannot say if there will be significant changes to China's economy next year due to a lower base. (Newswires)

• Chinese Industrial Production (Nov) Y/Y 7.0% vs exp. 7.0% (prev. 6.9%)
• Chinese Industrial Production YTD (Nov) Y/Y 2.3% vs exp. 2.3% (prev. 1.8%)
• Chinese Retail Sales (Nov) Y/Y 5.0% vs exp. 5.2% (prev. 4.3%)
• Chinese Retail Sales YTD (Nov) Y/Y -4.8% vs exp. -4.9% (prev. -5.9%)

UK/EU

UK source stated that Brexit talks remain difficult and we have not made significant progress in recent days despite efforts by the UK side to bring energy and ideas to the process. Furthermore, a source stated the UK will not sign up to a dynamic alignment through the back door and that there was simply no truth in suggestions UK has shifted on fishing. (Sky/BBC)

EU diplomats are reported to privately play down the idea the entire EU-UK future relationship negotiation would be derailed by the fishing issue although it remains acutely sensitive for coastal nations such as France and Belgium, while it is unclear currently how long negotiations would last in Brussels and whether they would switch to London later this week. (FT)

The UK furlough scheme could be used to support firms hit hardest by a no-deal Brexit. (Telegraph)

FX

In FX markets, the DXY consolidated south of 91.00 after yesterday’s choppy price action in which initial losses were reversed as risk appetite soured throughout the Wall Street trading session, with this week’s looming risk events including the FOMC, helping to keep price action contained. In terms of the latest developments in Congress, negotiators were said to be closing in on a USD 1.4tln omnibus spending deal to avert a government shutdown which could be voted on this Wednesday and the bipartisan group of senators unveiled details of its USD 908bln relief plan which is split up into two separate parts including a USD 748bln package and a USD 160bln plan that includes aid for states and liability protections. EUR/USD oscillated around 1.2150 after its recent swings from YTD highs of 1.2178 and nearby EUR 1bln option expiry at 1.2175, set to roll off at today’s New York cut, while GBP/USD traded sideways amid ongoing uncertainty with the latest Brexit related headlines providing a mixed picture as although both sides remained hopeful for a deal, reports suggested there has been minimal progress and sticking points remain unresolved. USD/JPY held above 104.00 after yesterday’s rebound and antipodeans were eventually pressured as Chinese commodity prices eased, while the RBA Minutes provided little to spur AUD as it reiterated that the board is prepared to do more if required with policy focused on bond buying and that it does not expect to raise the cash rate for at least 3 years.

RBA Minutes from December meeting reiterated that the board is prepared to do more if required and policy is focused on bond buying, while it will review the size of program and its impact to the economy in future meetings. RBA also reaffirmed that it does not expect to raise the cash rate for at least 3 years and will not raise rates until inflation sustainably within 2%-3% target band. Furthermore, it stated that stated that substantial support will be needed for a considerable period and it is prepared to buy bonds in whatever amount needed to maintain 3yr yield target. (Newswires)

COMMODITIES

WTI crude futures trickled lower from resistance around the USD 47.00/bbl level with prices subdued by the cautious risk tone, lockdown concerns and with the latest OPEC MOMR. In addition, OPEC+ announced the next JTC and JMMC meeting has rescheduled to early January from this week which shifts focus for the complex to the upcoming inventory reports beginning with the private sector data later today. Gold eked mild gains amid the cautious tone in stocks and an indecisive greenback, while copper languished to test USD 3.50/lb to the downside as the recent hot run in Chinese commodity prices cooled before catching a bid ahead of the EU open.

OPEC+ are to hold next JTC and JMMC meetings on January 3rd and 4th (previously had said December 16th and 17th). (Newswires)

EIA expects US total shale regions oil production for January to be down 136k BPD at 7.439mln BPD (vs 125k BPD fall in December). (Newswires)

GEOPOLITICAL

US imposed CAATSA sanctions on Turkey's Presidency of Defense Industries and agency President Ismail Demir. There were later comments from Turkish Foreign Ministry that the US sanctions will harm ties and that Turkey will retaliate as necessary, while reports Russian Foreign Minister Lavrov said the sanctions are illegitimate and show a sign of arrogance towards international law. (Newswires/Interfax)

US

Treasuries were little changed after reversing an earlier steepener as risk assets hit a snag, particularly in light of a pending New York lockdown. By settlement, 2s -0.4bps at 11.7bps, 10s +0.4bps 89.5bps, 30s +0.6bps at 163.1bps; real yields were lower by a few bps; T-Note futures volumes were lacklustre. USTs had been offered overnight and out of Europe after risk assets got off on the front foot, seeing yields rise off the monthly lows made at the end of last week. Some of the factors driving the risk appetite include the roll-out of vaccines in the US and recent "positive" Brexit developments (Gilts were sold particularly hard). But, a shaky open for cash equities in New York saw yields drift lower (one desk noted algo buy programmes were triggered after the 90bps and 164bps resistance levels were drifted through in cash 10s and 30s), only to accelerate as NYC Mayor De Blasio said New York should prepare for a full lockdown. Meanwhile, with the FOMC coming up on Wednesday, there is likely a degree of caution that duration sellers face amid expectations for a "twist" of the Fed's asset purchases to focus more in the longer end. T-note (H1) futures settled half a tick lower at 138-02+.

US congressional negotiators were reportedly closing in on a USD 1.4trln omnibus spending deal to ward off a government shutdown on Friday at midnight, while reports later noted US Congress reached an agreement on some of the issues after it cleared a Veterans Act hurdle on the Missions Act and are planning to file legislative text on Tuesday and could be ready for a vote on Wednesday. (Newswires/Politico/Roll Call)

US bipartisan group lawmakers announced the details of their relief proposal in which they offer liability compromise and bill sets gross negligence standard, while lawsuit protections would last a year. Furthermore, the two-part COVID plan is split up into a USD 748bln package and a USD 160bln plan with state/local aid plus liability protections, while the relief plan includes an extra USD 300/week unemployment assistance for 16 weeks. (Newswires/Fox)

US House Speaker Pelosi and Treasury Secretary Mnuchin conducted a phone call earlier in which Pelosi stated that remaining items in spending bill can be resolved easily and she reiterated Democratic concerns about liability provisions in COVID-19 relief, according to an aide. (Newswires)

US Senate Majority Leader McConnell said it is time for GOP and Democrats to find consensus on COVID-19 relief and that the need consensus before the holidays. McConnell also earlier reiterated that PPP, vaccine funds and extending unemployment provisions should be included in the COVID bill. (Newswires/Politico)

Electoral College officially voted to confirm President-elect Biden election victory with sufficient electors required to become President, while Biden commented after the announcement that the will of the people prevailed and criticized attempts by President Trump to challenge the results. (Newswires/BBC)

US President Trump tweeted that Attorney General Barr will be stepping down before Christmas and Deputy AG Rosen will be acting AG, while there were also comments from Barr that the DoJ will continue to pursue voter fraud allegations. (Twitter)

Apple (AAPL) is reportedly planning a 30% Y/Y increase in iPhone output for H1 next year to 96mln units. Apple is also said to be preparing an aggressive 2021 production schedule for its high-end computers, including the MacBook Pro and iMac Pro, sources added. (Nikkei)