• European bourses/US futures diverge with Europe firmer after a mixed APAC session while US peers remain tentative ahead of retail/IP data
• Opening remarks at the Biden-Xi virtual meeting set a friendly tone although expectations had been lowered ahead of the event
• Chinese President Xi said both sides must increase communication and cooperation
• German Energy Regulator has temporarily suspended certification for Nord Stream 2; subsequently, TASS reports that Nord Stream has taken steps to meet regulatory requirements
• The DXY reclaimed 95.50 with G10 peers subdued across the board ex-GBP after UK jobs data while EGBs are rebounding but lag USTs
• Looking ahead, highlights include Hungarian Rate Decision, US Retail Sales, Industrial Production, Business Inventories, ECB's Lagarde, Fed's Barkin, Daly.

CORONAVIRUS UPDATE

South Korea's serious cases of COVID-19 were said to have reached a new high, while there were separate reports that Novavax (NVAX) and SK Bioscience (302440 KS) submitted to the Ministry of Food and Drug Safety for the first protein-based COVID-19 vaccine candidate in South Korea. (Newswires/Yonhap)

ASIA

Asia-Pac stocks traded mixed in a slight improvement on the inconclusive handover from Wall Street where the major indices ended a choppy session flat as yields grinded higher led by inflation breakevens, while focus shifted to the Biden-Xi virtual meeting in which the opening remarks set a friendly tone although the expectations had been lowered beforehand as tariffs were unlikely to be on the agenda and with the meeting not expected to yield further deliverables or dialogues. ASX 200 (-0.7%) and Nikkei 225 (+0.1%) were mixed with the Australian benchmark pressured by broad weakness across most its sectors and with the declines led by the mining and materials industries, while Tokyo stocks were just about kept afloat amid a choppy currency and after the recent draft details of the incoming stimulus plan but with upside capped by resistance on approach to the 30k level. Hang Seng (+1.3%) and Shanghai Comp. (-0.3%) were both initially encouraged after the warm start to the Biden-Xi meeting in which President Biden stated that he hopes the leaders meet face to face next time and that their responsibility as leaders is to ensure ties do not veer into open conflict, while Chinese President Xi said that he was happy to see his 'old friend’ and suggested that they must increase communication and cooperation. The advances in Hong Kong were led by gambling names and tech, although gains were capped for the mainland as the tempered expectations for the meeting came to fruition and with the PBoC draining liquidity, as well as lingering default concerns with Kaisa Group so far failing to make payments to its dollar bond investors due last week, but still has a grace period. Finally, 10yr JGBs declined as Japanese stocks remained afloat and with spillover selling from the bear steepening stateside which was led by inflation breakevens and amid corporate supply in the long-end, while the latest 5yr JGB auction did little to spur prices despite a higher b/c as all other metrics printed relatively inline with the previous.

PBoC injected CNY 50bln via 7-day reverse repos with the rate at 2.20% for a CNY 50bln net daily drain. (Newswires) PBoC set USD/CNY mid-point at 6.3924 vs exp. 6.3921 (prev. 6.3896)

US President Biden said at the start of the virtual meeting with Chinese President Xi that he hopes the leaders meet face to face next time and added their responsibilities as leaders of China and US are to ensure ties do not veer into open conflict, while he also suggested that common sense guardrails are needed. Furthermore, Biden said the US will always stand up for its values and countries must play by rules and that they will discuss areas US has concerns from human rights to Indo-Pacific. At the start of the meeting, Chinese President Xi said he was very happy to see his 'old friend' and that both sides face multiple challenges together, while they must increase communication and cooperation. Chinese President Xi also stated that a sound and steady relationship between their countries is required and the countries should both respect each other. while he suggested that China and US should cooperate and deal with their own domestic affairs while taking up international responsibilities. (Newswires)

Chinese state media noted after the meeting that Chinese President Xi and US President Biden discussed strategic and fundamental issues during talks and that President Xi said US and China should abandon zero-sum games with the earth big enough for development of both China and the US. Chinese state media also stated that President Biden told Chinese President Xi that the US does not back Taiwanese independence and seeks peace and stability in the Taiwan Strait, while President Xi said that China will have to take decisive measures if Taiwan independence forces cross the red line. However, the White House statement noted the US remains committed to One China policy but opposed to efforts to change status of Taiwan and that President Biden raised concerns about China's practices in Xinjiang, Taiwan, Tibet and Hong Kong, while Biden stressed the importance of freedom of navigation and safe overflight with Xi and the discussed taking measures to address global energy supplies. (Newswires)

China's EU envoy says China's position on Taiwan will never change, there is only one China. Desire for the complete reunification of China and Taiwan is growing stronger. (Newswires)

US

Fed's Barkin (2021, 2024 voter) said he does not think the infrastructure bill is a near-term stimulant and anticipates supply chain issues will last well into next year. Barkin also stated that he will watch wages and labour market for signs inflation is becoming more persistent, while he added that household and market indicators suggest inflation expectations in medium to longer term are still in line. Furthermore, Barkin noted that if the need is there, the Fed will act to curb inflation but added that it is good to have a few more months to see where reality is. (Newswires)

Fed's Kashkari (2023 voter) said the FOMC should not overreact to probable temporary factors and that he has not seen anything that indicates a shift in long term expectations. Kashkari also stated that COVID-19 remains the biggest issue for the economy, while he added that inflation is only half of the mandate and that there are millions of jobless. (Newswires)

US Senate Banking Chair Brown said he was told by White House officials that President Biden's decision for Fed Chair was imminent. (Newswires)

US President Biden signed the USD 1tln infrastructure bill into law, as expected. (Newswires)

US Senate Majority Leader Schumer said he will add legislation to boost US competitiveness with China to the defence policy bill which the Senate are set to begin considering this week. (Newswires)

UK/EU

UK ILO Unemployment Rate (Sep) 4.3% vs. Exp. 4.4% (Prev. 4.5%); Employment Change (Sep) 247k vs. Exp. 185k (Prev. 235k)

• Average Week Earnings 3M YY (Sep) 5.8% vs. Exp. 5.6% (Prev. 7.2%); Ex-Bonus (Sep) 4.9% vs. Exp. 5.0% (Prev. 6.0%)
• Claimant Count Unemployment Change (Oct) -14.9k (Prev. -51.1k)

EU Parliament and Council have reportedly reached an agreement for the 2022 budget. (Newswires)

EQUITIES

Stocks in Europe are predominantly trading with marginal gains (Stoxx 600 +0.2%) as the Stoxx 600, CAC 40 and DAX have all made incremental new ATHs. The handover from the APAC session was a mixed one with focus on the Xi-Biden virtual meeting which struck a conciliatory tone although, expectations were pared back ahead of the event with tariffs not an item on the agenda. Stateside, futures trade with minor losses ahead of US Retail Sales at 13:30GMT/08:30EST with expectations looking for a 1.2% M/M increase for October. The corporate slate has seen earnings from Home Depot (HD) who are firmer by 0.5% in the pre-market after above forecasts earnings, ahead of Walmart's update due at 12:00GMT/07:00EST. In bank commentary, Goldman Sachs forecasts the S&P 500 climbing by 9% to 5,100 at year-end 2022; sees S&P 500 EPS +8% to USD 226 in 2022, and +4% to USD 236 in 2023. Elsewhere, the latest BofA Fund Manager Survey revealed that investors are ending the year "risk-on" with the largest overweight of US stocks since August 2013. Back to Europe, sectors are mostly firmer with Telecoms the best performer as Vodafone (+5.8%) sits at the top of the FTSE 100 after the Co. upgraded FCF guidance for the year following a solid H1. Auto names have been supported by Renault (+1.6%) announcing two new hydrogen-powered vehicles, whilst the CFO of Daimler’s (+0.8%) Truck unit cautioned that there will need to be significant price increases. Elsewhere, Oil & Gas names have been led higher by advances in the crude complex, whilst a broker upgrade for Kering (+2.7%) at HSBC has supported the retail sector. Diageo (+2.4%) lifts the Food & Beverage sector after noting that it anticipates the strong momentum in H1 to continue through the remainder of FY22. To the downside, Imperial Brands (-0.2%) and Bouygues (-1.5%) are both lower post-earnings.

Home Depot Inc (HD) Q1 2022 (USD): EPS 3.92 (exp. 3.40), Revenue 36.8bln (exp. 34.96bln)

Goldman Sachs (GS) forecasts S&P 500 will climb by 9% to 5,100 at year-end 2022; sees S&P 500 EPS +8% to USD 226 in 2022, and +4% to USD 236 in 2023. (Newswires)

FX

GBP/TRY/DXY - Hot on the heels of generally hawkish testimony from members of the BoE’s MPC to a TSC, UK labour data has cemented market expectations for a December hike and boosted Sterling in the process, as Cable probes the semi-psychological 1.3450 mark and the Eur/Gbp cross tests 0.8450 having already fallen through the 50 DMA and 0.8500 yesterday. However, the Turkish Lira continues to slide on prospects of further easing from the CBRT (among other things) this Thursday in stark contrast to the orthodox monetary policy approach when faced with rising inflation pressures. Indeed, Usd/Try has now been as high as circa 10.2240 and is extending a bull run that has seen the Lira plunge to successive daily all time lows for five sessions in the most recent phase, even when the Dollar paused for breath again more generally. Looking at the index as a proxy, 95.500 is now acting as a pivot after Monday’s rebound through the post-US CPI high to set a fresh 2021 peak, at 95.595 and minor subsequent breach to top 95.600 before attention turns to the demand side with retail sales on the agenda ahead of ip and more from the Fed via Barkin, Bostic, George and Daly.

NZD/CHF/CAD/AUD - All softer vs the Greenback, but the Kiwi also losing further ground closer to home as Aud/Nzd advances towards 1.0450 regardless of the fact that RBA minutes and Governor Lowe remained relatively dovish on the timing of a first rate hike overnight. Nzd/Usd has retreated through 0.7050 and Aud/Usd from above 0.7050 again in advance of NZ ppi and Aussie wages for Q3 that are expected to pick up pace, though still fall short of the 3% level required to boost overall inflation. Elsewhere, the Franc is under 0.9050, but still firmer against the Euro beyond 1.0550 and the Loonie has handed back some of its gains after briefly climbing over 1.2500 in the run up to Canadian housing starts and BoC’s Schembri on uncertainties in the jobs market and monetary policy, irrespective of a bounce in WTI.

JPY/EUR - The Yen has relinquished 114.00+ status again, but may derive some underlying support from hefty 1.6 bn option expiry interest at the 114.30 strike, while the Euro will be hoping for more dip-buyers into 1.1350 after losing grip of 1.1400 and no real or key technical prop until the next Fib retracement of the major reversal from 1.2349 to 1.0636 that comes in at 1.1290 and represents 61.8% of the move.

SCANDI/EM - Firmer Brent and perhaps an improvement in Q4 Norwegian consumer sentiment is keeping the Nok’s nose above 9.9000 vs the Eur, but the Sek has not derived sufficient impetus from higher Swedish money market expectations or comments from Riksbank’s Bremen in favour of a higher repo rate path to stay afloat of 10.0000. Conversely, early pleasantries between Chinese and US Presidents are underpinning the Cnh and Cny, while the Pln has taken on board hawkish guidance from NBP’s Gatnar who said two more rate hikes are needed and he will vote for back-to-back 50bp moves at both the December and January policy meetings.

RBA Minutes from the November 2nd meeting stated they remain committed to keeping highly supportive monetary conditions and that the economy is expected to bounce back as COVID-19 restrictions are eased further, while the RBA will not increase the Cash Rate until wage and inflation criteria are met. RBA stated that a further pick up in underlying inflation is expected but would only be gradual and members acknowledged that risks to the inflation forecast had changed. Furthermore, it stated that the main uncertainties are related to persistence of current disruptions to global supply chains and behaviour of wages, although the central scenario for the economy continued to be consistent with the Cash Rate remaining at the current level until 2024. (Newswires)

RBA Governor Lowe said the latest data and forecasts do not warrant a rate increase next year and it is still plausible that the first increase in the Cash Rate will not be before 2024, while he added that there could be a case for a rate increase before 2024 if inflation increases faster than expected and that the economy and inflation would have to turn out very differently for the Board to consider increasing rates next year. Lowe also commented that underlying inflation at the 2.5% mid-point would not warrant a rate increase and they need to see inflation well within 2%-3% range, as well as be confident it will stay there. Furthermore, he stated that inflation pressures in Australia are more muted than globally and they have yet to see a broad-based rise in wages. (Newswires)

Notable FX Expiry, NY Cut:

• USD/JPY: 113.40-50 (1.3BLN), 114.30 (1.6BLN)

FIXED

No obvious catalyst, but debt futures have rebounded further from worst levels in recent trade, and Gilts irrespective of a somewhat tepid 2046 DMO auction on top of the mostly upbeat UK labour metrics that are keeping December live as a rate hike meet for the BoE. The 10 year bond has popped above 126.00 to 126.02, just one tick shy of Monday’s Liffe close, while Bunds got to within 2 ticks of parity at 170.73, but the front-runners are clearly USTs that are now firmer on the day with the curve a tad flatter pre-retail sales data, ip and a host of Fed speakers.

COMMODITIES

WTI and Brent are firmer to the tune of USD 0.45/bbl this morning, with price action steady throughout the European morning in-spite of a number of fresh catalysts/commentary for the complex. Firstly, the IEA OMR rounded off the monthly releases and left their forecasts for 2021 and 2022 demand growth largely unchanged while noting that US oil production will not hit pre-COVID levels until end-2022. Additionally, there has been rhetoric from multiple energy officials with Russia’s Novak remarking that it’s too early to predict the December meeting’s outcome. While the Secretary General of OPEC says an oil surplus is already beginning in December, signalling that OPEC needs to be careful; commentary which strikes a similar tone to that from the UAE yesterday, albeit the timing is more aggressive with the UAE not expecting a surplus until Q1-2022. Elsewhere, nat gas has taken centre stage given the morning’s updates around Nord Stream 2. To surmise, the German energy regulator has halted the certification process for the pipeline until the operating company arranges German company status – updates that prompted notable upside in European gas benchmarks. However, the Nord Stream 2 operator has reportedly established a subsidiary in Germany to meet these requirements, an update that has seemingly tempered the gas upside; though it remains to be seen if this will be seen as sufficient from a German perspective. Moving to metals, spot gold and silver are moderately firmer benefitting from a brief upside-flurry that took place seemingly without a fundamental driver, sending spot gold above yesterday’s best to a high of USD 1874.75/oz. Finally, base metals remain softer in-fitting with APAC performance once it became clear that, as expected, the Biden-Xi summit would not result in any breakthrough(s).

IEA Monthly Oil Market Report: leaves forecast for oil demand growth largely unchanged at 5.5mln BPD in 2021 and 4.3mln BPD in 2022

• US oil production will not reach pre-COVID levels until the end of next year, US is expected to account for 60% of 2022 non-OPEC+ oil supply gains; forecast at 1.9mln BPD.
• IEA revises up assumptions for the average Brent price to USD 71.50/bbl in 2021 and USD 79.40/bbl in 2022.

Germany has temporarily suspended certification for Nord Stream 2 with the suspension attributed to changes in legal forms, certification process is to be suspended until such time that its operating company arranges German company status is compliant with national law. Updates that will delay the pipelines launch. Subsequently, TASS reports that Nord Stream 2 has established a subsidiary in Germany to meet regulatory requirements. (Newswires/TASS)

White House Press Secretary Psaki said the US will look at all options to reduce gasoline prices. (Newswires)

Russian Deputy PM Novak says it is too early to predict the December OPEC+ meeting outcome. (Newswires)