• Sentiment is supported this morning on fiscal hopes and after firmer EZ PMI data, Euro Stoxx 50 +0.9% & ES +0.3%, with focus on the looming FOMC decision
• US Senate Minority Leader Schumer said negotiators are continuing work on COVID-19 relief and government funding, while he thinks there is a genuine desire to reach a deal
• EU Commission President von der Leyen says there is a very narrow path to a deal, and cannot say whether we will have a deal or not; fisheries remains difficult, way forward on most issues
• EZ flash PMIs beat expectations but composite & services remains in contractionary territory as the manufacturing expansion continues; UK was mixed with services slipping just below 50.0
• EUR is bolstered post-PMIs to the detriment of the DXY while debt remains depressed in Europe but comparatively steady stateside
• Looking ahead, highlights include Canadian inflation, US flash PMIs, US retail sales, DoEs, FOMC rate decision & press conference, ECB's de Guindos, Schnabel

CORONAVIRUS

Pfizer (PFE) CEO said they expect to get the vaccine from its manufacturing facilities to anywhere in the US within two days. Panama authorized the use of Pfizer COVID-19 vaccine. Furthermore, Shanghai Fosun Pharmaceutical (2196 HK) entered a supply agreement BioNTech (BNTX) for a COVID-19 vaccine in China in which the latter will supply China with at least 100mln vaccine doses if the vaccine gets approval, while Fosun said it will receive 60% of profit from doses made using imported ingredients and 65% of profit from imported doses that are ready for use. (Newswires)

ASIA

Asian equity markets traded higher as the region received a tailwind from Wall Street where all major indices were lifted amid stimulus hopes after House Speaker Pelosi invited fellow congressional leaders for a meeting to discuss government funding and COVID-19 relief, while Senate Majority Leader McConnell suggested that they would not leave Washington without a package no matter how long it takes. ASX 200 (+0.7%) outperformed for most of the session led by tech, mining names and financials which helped push the ongoing tensions with China to the backseat for now, although dozens of ships carrying Australian coal remain blocked from unloading at Chinese ports and Trade Minister Birmingham is to request formal consultations with China at the WTO regarding Australian barley. Nikkei 225 (+0.3%) was also positive but pared the majority of its initial gains amid recent currency inflows, as well as disappointing data in which trade figures underwhelmed including a surprise contraction in exports for its 24th consecutive month of declines and PMI data also remained in contraction territory. Hang Seng (+1.0%) and Shanghai Comp. (U/C) were somewhat varied with the mainland the laggard as ongoing US-China tensions continued to take its toll with MSCI announcing to delete the securities of 7 Chinese companies due to the US blacklisting and which follows similar action by FTSE Russell, S&P Dow Jones Indices and Nasdaq. Finally, 10yr JGBs were lacklustre with demand contained by gains across stocks and with the BoJ to begin its 2-day policy meeting tomorrow, although downside was also stemmed by the BoJ’s presence in the market today for nearly JPY 1.5tln of JGBs with up to 10yr maturities and the central bank also announced to purchase USD 6bln directly from the MoF for the first time ever for smoother execution of its operations.

PBoC injected CNY 10bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 10bln. (Newswires) PBoC set USD/CNY mid-point at 6.5355 vs exp. 6.5341 (prev. 6.5434)

China Foreign Ministry spokesperson Wang said he was not aware of an official coal ban related to Australia. In related news, Australian Trade Minister Birmingham said they will request formal consultations with China on dumping and other duties regarding Australian barley and will make a formal request to WTO tonight, while he added that the risk profile of trading and conducting business with China has increased throughout the year. (Newswires)

MSCI announced to delete securities of 7 Chinese companies named in the US Presidential Executive Order, including SMIC (981 HK), China Communication Construction H & A shares (1800 HK/601800 CH), China Spacesat (600118 CH), China Railway Construction H & A shares (1186 HK/601186 CH), CRRC H & A shares (1766 HK/601766 CH), Hangzhou Hikvision (002415 CH) and Dawning Info (603019 CH). (Newswires)

• Japanese Trade Balance (JPY)(Nov) 366.8B vs exp. 529.8B (prev. 872.9B, rev. 871.7B)
• Japanese Exports (Nov) Y/Y -4.2% vs exp. 0.5% (prev. -0.2%)
• Japanese Imports (Nov) Y/Y -11.1% vs exp. -10.5% (prev. -13.3%)

US

US House Speaker Pelosi stated they will be back early Wednesday and on schedule to get the job done. (Politico/NYT/Twitter)

US Senate Majority Leader McConnell stated that negotiators are making significant progress on COVID-19 relief as well as government funding and that he anticipates an agreement will be reached sometime soon. (Newswires)

US Senate Minority Leader Schumer said negotiators are continuing work on COVID-19 relief and government funding, while he thinks there is a genuine desire to reach a deal and House GOP leader McCarthy also commented after the meeting that the negotiations on COVID-19 relief and spending bill were moving in the right direction. (Newswires)

US GOP Senator Thune said that the list of differences for a COVID package has narrowed. There were also comments from US Democrat Senator Manchin that the bipartisan group of Senators have received assurances from Senate GOP leadership that their USD 748bln proposal will be used as the framework for a relief package. (Fox/Axios)

Multiple sources say Congressional Progressive Caucus is considering taking a hardline and voting to oppose any proposal which doesn't include stimulus checks, according to Politico's Caygle. (Politico)

Politico's Sherman is "pretty" confident that there will be a US stimulus deal reached in the next 24 hours. While, Fox's Pergram tweets, "No deal yet. But the sides are determined to get there. They say they are closer". (Twitter)

US President-elect Biden has reportedly chosen Pete Buttigieg for Transportation Secretary role and is to nominate former Michigan Governor Granholm as Energy Secretary, while he is also said to be considering some well-known Republicans for Commerce Secretary position. (Newswires/Axios)

UK/EU

EU Commission President von der Leyen says there is a very narrow path to a deal, and cannot say whether we will have a deal or not; adds, the good news is a way has been found forward on most issues; fisheries remain very difficult - sometimes feel that we will not be able to resolve this. Glad to report that issues linked to governance are largely being resolved. In response, a UK source says we have made some progress but still very far apart on key areas. (Newswires)

Gov’t sources have insisted there has been no more progress to report in Brexit negotiations, but would be prudent to plan days for Parliament to sit if a deal is struck and nothing more should be read into this, Politico.

UK Treasury is moving ahead with reforms of the way specialist vehicles used by private equity and infrastructure funds are taxed to boost London's appeal. In other news, UK is reportedly devising plans to transform London into a shipping hub to rival Singapore by attracting more vessels to register in the UK with reforms to tonnage tax. (FT)

UK Ministry of Housing, Communities and Local Government announced new measures to help cities recover from COVID-19 and confirmed over GBP 12bln of investment in affordable housing over next 5 years as announced in spending review. (Newswires)

EU Markit Composite Flash PMI (Dec) 49.8 vs. Exp. 45.8 (Prev. 45.3)

• Manufacturing Flash PMI (Dec) 55.5 vs. Exp. 53.0 (Prev. 53.8)
• Services Flash PMI (Dec) 47.3 vs. Exp. 41.9 (Prev. 41.7)

German Markit Composite Flash PMI (Dec) 52.5 vs. Exp. 50.4 (Prev. 51.7)

• Manufacturing Flash PMI (Dec) 58.6 vs. Exp. 56.4 (Prev. 57.8)
• Services Flash PMI (Dec) 47.7 vs. Exp. 44.0 (Prev. 46.0)

French Markit Composite Flash PMI (Dec) 49.6 vs. Exp. 42.9 (Prev. 40.6)

• Manufacturing Flash PMI (Dec) 51.1 vs. Exp. 50.1 (Prev. 49.6)
• Services Flash PMI (Dec) 49.2 vs. Exp. 40.0 (Prev. 38.8)

UK Flash Composite PMI (Dec) 50.7 vs. Exp. 51.3 (Prev. 49.0)

• Services PMI (Dec) 49.9 vs. Exp. 50.5 (Prev. 47.6)
• Manufacturing PMI (Dec) 57.3 vs. Exp. 55.9 (Prev. 55.6)

UK CPI YY (Nov) 0.3% vs. Exp. 0.6% (Prev. 0.7%); MM* (Nov) -0.1% vs. Exp. 0.1%

• Core CPI YY* (Nov) 1.1% vs. Exp. 1.4% (Prev. 1.5%); MM* (Nov) -0.1% vs. Exp. 0.2% (Prev. 0.2%)
• RPI YY* (Nov) 0.9% vs. Exp. 1.3% (Prev. 1.3%); MM* (Nov) -0.3% vs. Exp. 0.2%
• Falling prices for clothing, and food and non-alcoholic beverages resulted in the largest downward contributions

German Ifo: expects the economy to shrink by 5.1% in 2020 vs prev. -5.2%; cuts 2021 GDP growth to 4.2% vs prev. 5.1%; upgrades 2022 GDP growth to 2.5% vs prev. 1.7%. Production of goods and services won't reach pre-crisis levels until end-2021. (Newswires)

EQUITIES

European majors kicked off the mid-week session by taking their cue from the modest gains seen in APAC, but thereafter sentiment was lifted following a string of Flash PMI beats across the Eurozone, in turn providing stocks with tailwinds (Euro Stoxx 50 +1.0%), but that being said, some of the PMI metrics could prove to be stale given the re-imposition of lockdown measures - namely in Germany which take effect today through to Jan 10th. Further adding to the risk-on narrative, the positive noise out of the US regarding stimulus has also underpinned broader sentiment, whilst State-side futures also eke mild gains: ES +0.2%, NQ +0.3% and RTY +0.5%. Back to Europe, sectors are all in positive territory but do not portray a specific risk bias amid some idiosyncratic factors. Banks are among the laggards despite the high-yield environment following the ECB's decision for banks to refrain from or limit dividends until September 2021 with dividends to remain below 15% of cumulated 2019-20 profits and not higher than 20bps of CET1 ratio. Analysts at Goldman Sachs suggest "the ECB delivered beyond our expectations – an introduction of a hard deadline, set for 30 September, will trigger a near automatic 'repeal' of current measures, and a return to a 'normal supervisory cycle'". Elsewhere, the Auto sector is leading the gains, with Volkswagen (+4.0%) the driving force for the sector as its CEO is looking to upgrade their Wolfsburg HQ with the latest electric vehicle technology to compete with Tesla’s Berlin facility and aiming to reduce the production time per car to 10-hours vs the current projected 20+ hours, according to sources. Meanwhile, Continental (+4.7%) resides at the top of the DAX (+1.6%) as it targets an adj. EBIT margin of 8-11% in the medium term and organic annual growth of 5-8% and intends to undertake planned spin-off of Vitesco tech as scheduled in 2021. Finally, the Travel & Leisure sectors also remains supported by vaccine hopes as testing is underway in the UK and US, whilst EU could have its first vaccinations before year-end.

FX

DXY - The Dollar may yet get a fillip from US data, Markit’s flash PMIs and/or the Fed, but for now there is little or no let-up in the negative forces bearing down on the Greenback, both internal and external. On the one hand, risk sentiment is being buoyed by more apparent determination in Washington to deliver fiscal stimulus, while the Brexit saga is showing signs of reaching a positive conclusion assuming the still contentious fishing rights issue can be resolved, and preliminary Eurozone PMIs have lifted some of gloom surrounding the ongoing spread of COVID-19. On top of all that, the Buck could be prone to selling for portfolio rebalancing and perhaps more pronounced given recent record peaks in benchmark equity indices, not to mention the fact that December 31 aligns with the end of Q4 and 2020 as well. Looking at the index, 90.000 is just about holding for now as the DXY hovers within a 90.126-544 band awaiting the busy pm agenda that culminates in the FOMC and chair Powell’s final post-meeting presser of the year – for a full preview of the event check out the Newsquawk Research Suite.

EUR/GBP/NZD - As noted from the outset, all probing round numbers and significant or psychological marks against their US counterpart, with the Euro extending its y-t-d high through 1.2200 in the process on the back of flash French, German and pan PMIs that beat consensus across the board. Meanwhile, the Pound has inched closer to its current 1.3539 best for the year following latest UK-EU reports on trade negotiations suggesting that 2 out of the 3 most contentious issues may now have been resolved, leaving London and Brussels (or perhaps Paris to be precise) still searching for a compromise on fisheries. Note, relatively weak UK inflation data and somewhat disappointing PMIs (outside of manufacturing) have been largely ignored. Elsewhere, the Kiwi has reclaimed 0.7100+ status ahead of NZ Q3 GDP with assistance from a decent half year Economic and Fiscal update overnight, an upward revision to ASB’s milk price forecast and marginally better than expected current account metrics.

JPY/CHF/AUD - All benefiting at the US Dollar’s expense more than specifics or independent impulses as the Yen eyes support protecting 103.00 from early November having breached 103.50 with a bit more resolve, while is above 0.8850 and still beyond 1.0800 against the Euro pre-SNB and Aussie comfortably over 0.7550, though unable to keep pace with its Antipodean peer as Aud/Nzd pulls back below 1.0650.

CAD/NOK/SEK - Downbeat/dovish comments from BoC Governor Macklem clearly weighing on the Loonie as it retreats from a fleeting foray through 1.2700 towards 1.2750 in advance of Canadian CPI in contrast to the Norwegian Krona that is deriving enough support from firm oil prices to match the Euro and even the Swedish Crown in face of similar remarks from Riksbank’s Jansson – see 10.15GMT and 9.49GMT posts on the Headline Feed for details. Indeed, Eur/Nok and Eur/Sek are sub-10.6000 and 10.2000 respectively.

EM - Broad gains vs the Usd, but the Try is actually outperforming through 7.8000 in wake of CBRT commentary underlining a tightening bias until inflation returns to target, efforts to gradually strengthen reserves and maintaining swap operations to support the Turkish banking system. Conversely, the Rub is lagging further behind after failing to build momentum alongside Brent and meeting solid resistance at 73.0000.

Notable FX Expiries, NY Cut:

• EUR/USD: 1.2000 (1.2BLN), 1.2070 (820M), 1.2100 (1.1BLN), 1.2150 (450M), 1.2200-10 (500M)
• AUD/USD: 0.7450-60 (1.2BLN), 0.7500 (1.2BLN)

CBRT Governor says domestic demand recovered in Q3, rapid recovery impacted negatively the current account balance and inflation; monetary stance can be tightened further if required - tightness will continue into 2021 until inflation falls in a lasting way. To continue swap transactions to support banks, see these facilities gradually falling in 2021. (Newswires)

New Zealand forecasts September quarter GDP at +10.5% vs -12.2% in Q2 and sees Q1 GDP at +1.5% vs budget forecast of -1.0%, while Net Debt Forecast for 2021 was at 39.7% vs prev. Budget forecast of 44.0%. (Newswires)

• New Zealand Current Account (NZD)(Q3) Q/Q -3.521B vs exp. -3.652B (prev. 1.828B). (Newswires)
• New Zealand Current Account/GDP (Q3) -0.8% vs exp. -0.9% (prev. -1.9%)

FIXED

The latest retreat in debt has been quite measured, albeit more assured than advances so far this week, with Gilts leading the way on heightened Brexit deal hype before Bunds and Eurozone peers picked up the baton following encouraging preliminary PMIs. The respective 10 year benchmarks have now been down to 177.70, 134.31 and 137-25+, as the latter also weighs up renewed if not revived US fiscal relief expectations, awaiting some primary data points in the run up to the FOMC. Note, however, the German bond has held at a Fib support level and its UK equivalent is off lows as UK-EU negotiations continue and the 2 sides remain at odds on fishing if not more issues.

COMMODITIES

WTI and Brent front-month futures eke mild gains in early European hours following a side-ways APAC session, with the complex deriving mild impetus from the overall sentiment bolstered via constructive (albeit stale) EZ PMI metrics. Prices last night were little reactive to the surprise build in private inventories (+1.97mln bbls vs exp. -1.90mln), with eyes on the DoE's later today following last week's substantial and surprise build of some 15.189mln bbls (vs. exp -1.424mln). WTI Jan 21 resides north of USD 47.75/;bbl (vs low 47.38/bbl) with Brent Feb 21 probing USD 51/bbl to the upside (vs low 50.48/bbl) having had seen a fleeting move above the level to a high of 51.19/bbl. Elsewhere, spot gold and silver remain elevated on the reflationary prospect emanating from positive noise regarding State-side stimulus, with the softer Buck also providing metals with a boost ahead of the FOMC decision. Spot gold extends gains above USD 1850/oz after finding support at the level overnight, whilst spot silver breached 25/oz to the upside (vs low 24.44/oz). LME copper meanwhile sees a firm session thus far on the back of overall sentiment and Greenback softness.

US Private Inventory Data (w/e Dec 11th): Crude +1.97mln (exp. -1.90mln). (Newswires)