• European bourses are subdued after initial firmer/mixed performance faded on German COVID-19 concerns, DAX -0.9%, ES -0.4%
• German coalition announcement due ~14:00GMT/09:00EST, focus on any COVID commentary given recent outgoing-government rhetoric
• DXY has risen to fresh YTD highs though JPY retains a modest bid while Bunds have whipsawed on COVID and poor issuance, USTs comparably more contained pre-data
• RBNZ hiked the OCR by 25bps to 0.75% as expected and vowed to take a steady approach going forward; NZD underperforms post-decision
• Looking ahead, highlights include US GDP, PCE and Core PCE, Durable Goods, Initial Jobless Claims, Uni. of Michigan (Final), New Home Sales, DoEs, FOMC Minutes, ECB's Schnabel, BoE's Tenreyro

CORONAVIRUS

NIH's Fauci said the vast majority of vaccinated Americans should get boosters and noted that the definition of fully vaccinated could change to three doses of the Pfizer (PFE) or Moderna (MRNA) vaccines and two doses for the Johnson & Johnson (JNJ) vaccine. (Newswires)

AstraZeneca's (AZN LN) COVID-19 vaccine could be providing longer protection than other vaccines and could be the reason the UK has avoided a new virus wave, according to scientists. (The Telegraph)

The European Commission is preparing new COVID travel recommendations for the whole of the EU. Measures could be announced as soon as Thursday. (Politico)

German Economy Minister Altmaier says Germany is to extend COVID aid to firms, able to cope with the economic impact of a fourth wave. (Newswires)

New Zealand COVID-19 response minister said fully vaccinated New Zealanders and other travellers from Australia can enter New Zealand from January 16th, while fully vaccinated foreign travellers can enter from April 30th in a staged way. (Newswires)

South Korea reported a record 4,116 new COVID-19 cases and stated that the coronavirus situation in Seoul area is a serious situation. (Newswires/Yonhap)

ASIA

Asia-Pac equity indices were mixed following the choppy performance of their US counterparts where energy rallied despite the SPR announcement and tech lagged as yields continued to gain, with the latest RBNZ rate hike, as well as looming FOMC Minutes and US data releases adding to the tentative mood. ASX 200 (-0.2%) was rangebound with the index subdued by losses in tech and gold miners which suffered from the rising yield environment, but with downside cushioned by strength in the largest weighted financials sector and with outperformance in energy after oil prices rallied in the aftermath of the widely anticipated SPR announcement. The strength in oil was attributed to several reasons including a “sell the rumour/buy the news” play and expectations of a response from OPEC+, while an administration official kept the prospect of an oil export ban on the table which is seen as bullish as it would remove US supply from the global market. Nikkei 225 (-1.6%) was the laggard on return from holiday amid flows into the local currency and with reports also suggesting the BoJ is considering tweaking its pandemic relief program. Hang Seng (+0.1%) and Shanghai Comp. (+0.1%) swung between gains and losses with early indecision due to the broad tech weakness tech which was not helped by reports that Chinese cyberspace regulators and police summoned Alibaba (9988 HK) and Baidu’s (9888 HK) cloud unit for telecoms network fraud, although the losses for Chinese bourses were eventually reversed amid gains in the energy heavyweights and after a mild PBoC liquidity injection. Finally, 10yr JGBs opened lower on spillover selling from global peers but gradually pared some of the losses after rebounding from support at 151.50 and with the BoJ in the market for nearly JPY 1.5tln of JGBs with up to 10yr maturities.

PBoC injected CNY 100bln via 7-day reverse repos with the rate at 2.20% for a CNY 50bln net injection. (Newswires) PBoC set USD/CNY mid-point at 6.3903 vs exp. 6.3903 (prev. 6.3929)

Singapore GDP QQ (Q3 F) 1.3% (prelim. 0.8%); YY (Q3 F) 7.1% (prelim. 6.5%)

UK/EU

A Conservative whip stated that it was now an assumption that some unhappy MPs have submitted no confidence letters in PM Johnson to the 1922 committee. (Telegraph)

German 'traffic light' parties are in discussions to form a government plan announcement at 14:00GMT today; Scholz (current finance minister) is set to become Chancellor; FDP leader Linder is set to be appointed as Finance Minister, Green's Baerbock as Foreign Minister and Green's Habeck will run the Economy and Climate Ministry, according to Economist's Nuttall. (Newswires/Twitter)

EU's Sefcovic said EU-UK talks on Northern Ireland trade rules will probably drag into 2022. Separately it was reported that French Trawlermen were putting together plans to blockage cross-Channel trade amid the ongoing Brexit dispute. (Politico/Telegraph)

ECB's Panetta says continued monetary policy stimulus is necessary, an inappropriate, sharp reduction of purchases would be tantamount to a tightening of the policy stance. (Newswires)

German Ifo Business Climate New (Nov) 96.5 vs. Exp. 96.6 (Prev. 97.7); Current Conditions New (Nov) 99.0 vs. Exp. 99.0 (Prev. 100.1, Rev. 100.2)

• Expectations New (Nov) 94.2 vs. Exp. 95.0 (Prev. 95.4)

GEOPOLITICAL

Ukrainian Air Force carried out practice drills which included air strikes. (Newswires/Interfax)

Taiwan is said to be considering an entry ban on senior Chinese officials. (Newswires)

Talks between the IAEA and Iran did not seize when IAEA Director General Grossi left for Vienna, WSJ's Norman, talks are ongoing; however, the IAEA Chief said negotiations with Iran proved inconclusive, according to a statement. (Twitter/Newswires)

Iran has reported potential cyber attacks on its dams, via State TV. (Newswires)

EQUITIES

European equities attempted to claw back some of the week’s losses (Euro Stoxx 50 -0.2%; Stoxx 600 -0.2%) at the open with Monday and Tuesday’s session dominated by ongoing COVID angst in the region. Lockdown measures were enough to see investors shrug off yesterday’s better-than-expected PMI metrics for the Eurozone with today’s slightly softer than hoped for German Ifo report having little sway on price action. Despite the upside seen at the open, optimism has faded throughout the session as speculation mounts over whether the announcement of the German coalition deal (set to be unveiled at 14:00GMT) could prompt further lockdown measures for the nation. Furthermore, reports note that the Italian government is debating potential restrictions on the unvaccinated; measures could be approved as soon as today. On a more positive footing French Finance Minister Le Maire says at the moment he does not see any need for further COVID-related restrictions in France. However, it remains to be seen how long this viewpoint can be sustained. Stateside, futures are a touch softer with losses across the majors of a relatively equal magnitude (ES -0.1%) in the final full session of the week ahead of the Thanksgiving Holiday. Given the shortened week, today sees a deluge of data from the US with releases including key personal income, spending and PCE data for October, a second look at Q3 GDP, final Michigan consumer sentiment data, as well as weekly jobless claims and energy inventory data. All of which is followed by the FOMC minutes from the November meeting. In a recent note, BNP Paribas stated it is of the view that equities will go on to provide the highest returns across asset classes in 2022 with the French bank targeting 5100 (currently 4690) for the S&P 500 by the end of next year. From a European perspective, BNP expects the Euro Stoxx 50 to close 2022 out at 4500 (currently 4300) with the market “too pessimistic” on margins; albeit the Bank concedes that the resurgence of COVID presents a risk to its view. Sectors in Europe are mostly constructive with Oil & Gas and Basic Resources underpinned by gains in the underlying commodities with the former continuing to garner support post-yesterday’s SPR announcement. The Travel & Leisure sector lags peers with the Travel element of the group hampered by reports that the European Commission is preparing new COVID travel recommendations for the whole of the EU. For Leisure names, Entain (-5.0%) and Flutter Entertainment (-3.0%) have been hit by news that over 160 UK MPs and peers are said to be demanding that online gambling limits are lowered. Finally, Telecom Italia (+9.7%) is the best performer in the Stoxx 600 after source reports suggesting that KKR is considering a higher bid for the Co. in an attempt to win over support from Vivendi.

FX

DXY - The Dollar index has gained traction and continued its gains above 96.500+ status in early European hours before eclipsing resistance at 96.700 to a fresh YTD peak at 96.758, with US players also preparing to wind down for the long weekend. Before that, the Buck will be facing a plethora of Tier 1 US data, including Prelim GDP (Q3), weekly Jobless Claims, and monthly PCE in the run-up to the FOMC Minutes – which will be eyed for clues on what could warrant an adjustment of the pace of tapering (Full preview available in the Newsquawk Research Suite). On the downside, immediate support will likely be at yesterday’s 96.308 low before this week’s current 96.035 trough. In terms of early month-end FX flows (on account of the holiday-shortened week), Morgan Stanley’s model points towards USD weakness against most G10 peers.

EUR, GBP - The single currency dipped a 16-month low just before the release of the German Ifo survey, which unsurprisingly voiced cautiousness against the backdrop of COVID and supply chain issues – with Ifo forecasting a growth stagnation this current quarter, whilst ING believe that today’s Ifo signals that “The risk of stagnation or even recession in the German economy at the turn of the year has clearly increased.” The currency came under further pressure in what coincided with reports that Germany is mulling a full COVID lockdown and mandatory vaccinations, although the piece failed to cite any sources nor officials and seemed to be more an extrapolation of recent remarks from the German Health Minister. EUR/USD fell through pivotal support at 1.1210 to a current low at 1.1206 ahead of 1.1200. Traders should also be cognizant of several chunky OpEx clips including EUR 1.3bln between 1.1195-1.1200. Ahead, the SPD, Greens and FDP set to unveil their coalition deal at 14:00GMT. ECB speak today include from the likes Schnabel after Panetta and Holzmann failed to spur action across EU assets. Elsewhere, the GBP/USD is flat intraday and saw little reaction to BoE Governor Bailey yesterday, suggesting he does not think the MPC will go back to a hard form of guidance and stated that it is not off the table that they give no guidance at all on rates. Bailey also stated that decisions are made meeting by meeting and that they have a very tight labour market. From a political standpoint, European Commission VP Sefcovic said EU-UK talks on Northern Ireland trade rules will probably drag into 2022. Cable remains within a 1.3353-89 range whilst EUR/GBP trades on either side of 0.8400. Looking ahead, BoE’s Tenreyro speaking at the Oxford Economics Society – with early-Nov commentary from the MPC member suggesting that monetary policy will have to bite if there are signs of second-round inflation effects, but policy cannot fix energy price spikes.

NZD, AUD - The Kiwi stands as the G10 laggard following a dovish 25bps hike by the RBNZ, with the board citing optionality. Desks suggest that FX was clearly gearing for a hawkish surprise from the central bank, with markets pricing some 35% of a 50bps hike heading into the meeting given the inflation survey earlier this month. Money markets were also disappointed, with participants flagging that the 2yr swap fell over 15bps despite the RBNZ upping its 2023 OCR forecast to 2.3% (prev. 1.7%). NZD/USD fell further beneath the 0.7000 mark to a current 0.6957 low. AUD meanwhile sees its losses cushioned from another day of firm gains in iron ore, whilst cross-currency flows help the AUD/NZD test 1.0450 to the upside. Nonetheless, the cautious market mood keeps AUD/USD around the flat mark after the pair found support at 0.7200.

JPY - The traditional haven outperforms as risk aversion creeps into the market. USD/JPY pivots the 115.00 market after hitting an overnight high of 115.23. Some desks suggest that offers are seen from 115.30 on Wednesday, with more around the 115.50 area, according to IFR citing Tokyo sources. In terms of notable OpEx, USD/JPY sees USD 1.7bln between 115.00-10.

RBNZ hiked the OCR by 25bps to 0.75%, as expected. RBNZ committee noted that a further removal of monetary policy stimulus is expected over time and that it is appropriate to continue reducing monetary stimulus, while it judged that considered steps in the OCR were the most appropriate way to reduce stimulus for now and expects OCR would need to be progressively increased. RBNZ added that conditional on the economy evolving as anticipated, the OCR would likely need to be increased to above its neutral rate and that headline CPI is expected to increase to above 5% in the near term before returning towards 2% mid-point in the next two years. Furthermore, it stated that household spending and business investment will be dampened in the near-term by ongoing COVID health uncertainties and that capacity pressures continued to tighten, although it upped its forecast with the OCR seen at 0.94% in March 2022 (prev. 0.86%) and at 2.14% in December 2022 (prev. 1.62%), while the OCR is forecast at 2.30% in March 2023 (prev. 1.77%) and at 2.61% in December 2024. (Newswires)

RBNZ Governor Orr said that the border reopening does not impact their policy outlook and that a 25bps hike gives more optionality, while he added that they can take their time at this point and had considered a 50bps rate hike today amid a range of options. Furthermore, Orr said they are taking cautious steps with the cash rate and sees steady steps of 25bps as a balanced approach this time. (Newswires)

Notable FX Expiries, NY Cut:

• USD/CAD: 1.2580-1.2605 (1.3BLN), 1.2615-25 (292M), 1.2710-15 (250M)
• USD/JPY: 113.95-114.05 (1.5BLN) , 114.10-15 (686M), 114.40-55 (787M), 114.75 (446M), 115.00-10 (1.7BLN),115.25 (387M), 115.50-60 (1.6BLN)
• EUR/NOK: 9.90 (1.1BLN)

FIXED

A firmer start to the session for EGBs, taking impetus from the overnight UST performance after a strong 7yr sale which provided particular support to the short-end, a dynamic that was assisted further by block purchases in the area. However, EGBs did them come under some notable pressure with Bunds nearing yesterday’s trough at 170.56 (current low 170.64); this deterioration came without fresh fundamental driver(s) and was not seemingly a factor of either the Ifo release or German coalition updates; following Flash PMIs and very much in-line with expectations, respectively. Most recently, the Bund saw a pronounced ‘safe haven’ bid amid broader market pressure on reports that Germany is set to announce a COVID lockdown today. As it stands, we have not seen any definitive sources or similar indicating this is the case and it appears that reports may be extrapolating from the general expectation for a COVID update from the new coalition at today’s 14:00GMT announcement. Nonetheless, such reports did lift Bunds from near-lows to above the 171.00 mark, but remained shy of the earlier 171.18 high and resistance around the 171.44/45 region. Finally, Bunds came under pronounced pressure once more taking them back to the low-end of the day’s range following a very poor 2036 sale, with a retention in-excess of 50%, for instance. However, it is worth caveating that they above price action would have served to muddy the waters going into the sale. Europe aside, Gilts have been comparably contained throughout the morning with modest moves on the above themes but very little fresh newsflow occurring from a UK perspective to move the dial following late-doors commentary from Bailey and ahead of Dovish Tenreyro. Stateside, USTs are modestly firmer but have also been relatively contained throughout the morning as we await the last flurry of US data pre-Thanksgiving. Data aside, the session’s focus is on the FOMC Minutes which will be closely eyed for any clues into the pace of taper discussions, particularly around the pace following an increasing magnitude of discussion recently pertaining to a faster taper.

COMMODITIES

WTI and Brent Jan futures consolidate following yesterday’s gains post-SPR announcement. The release disappointed the oil bears given the widely telegraphed nature of the announcement coupled with relatively small contributions from members. Desks have also highlighted that the reserves will need to be replenished at some time in the future, and thus, analysts have passed the effects from the SPR release as temporary; although, cautioning that if the desired impact is not achieved, then further action can be taken – with a temporary export ban still on the table. Meanwhile, on the demand side, futures dipped after CNBC reported that Germany could head into a full lockdown, but the piece did not make a mention of officials nor sources but seemed to be more an extrapolation of recent comments from the Germany Health Minister, with an announcement on this matter potentially to come today. Further, tomorrow could see revised travel guidance for the whole of the EU, according to Politico sources, although "The biggest overall change will be a move away from a country-based approach and to a person-based one, which takes into account a citizen’s individual COVID status." Despite this month’s European COVID developments, JPMorgan sees global oil demand growing by another 3.5mln BPD next year to reach 99.8mln BPD (280k BPD above 2019 level); 2023 demand is expected to average around 101.5mln BPD (1.9mln BPD above pre-COVID levels) and suggested that global oil demand is on track to exceed 2019 levels by March 2022 and strengthen further. As a reminder, next week also sees the OPEC+ meeting whereby the group is expected to continue with plans of monthly output increases of 400k BPD, with a risk of a more dovish decision and/or commentary. WTI Jan trades around USD 78.50/bbl (vs high 79.23/bbl) and Brent Jan around USD 82.25/bbl (vs high 83.00/bbl). Elsewhere, spot gold is interestingly unfazed by the rampant Dollar as prices remain caged within a cluster of DMAs (100 around 1,793, 200 around 1,791 and 50 around 1,788). Copper prices are again on the grind higher with LME around USD 9,800/t at the time of writing – with participants citing underlying demand, particularly from China.

US Private Inventories (bbls): Crude +2.3mln (exp. -0.5mln), Distillates -1.5mln (exp. -1mln), and Gasoline +0.6mln (exp. -0.5mln). (Newswires)

US Energy Secretary Granholm stated the effects of the SPR release is to show in the next couple of months and that reducing gasoline taxes is a tool for President Biden and states. (Newswires)

Goldman Sachs said the US-led oil reserves release is a drop in the ocean and a release of 70mln-80mln bbls is smaller than what the market had been pricing. Goldman suggested the release is worth less than USD 2/bbl and significantly less than the USD 8/bbl decline since late October, while it added that Brent also priced in excessive concerns over EU demand from the virus wave. (Newswires)

Shell (RDSA LN) has lifted force majeure on Nigerian Bonny Light crude oil loadings, according to a spokesman. (Newswires)

International Energy Forum said oil prices will probably decline for the rest of the year and OPEC+ will be cautious in reacting to the SPR oil release. (Newswires)

Dubai set official crude differential to DME Oman at USD 0.20/bbl discount for February. (Newswires)

Indonesian President Widodo said they must halt exports of raw materials in the future and may halt bauxite exports next year, copper in 2023 and tin in 2024. (Newswires)