• Asian equities traded mixed following the mostly constructive lead from the US which saw the NQ outperform
• FOMC minutes showed that some policymakers wished for a faster pace of purchases
• In FX, the DXY has marginally retreated after approaching 97.00, EUR/USD briefly lost 1.12 status
• Looking ahead, highlights include German GDP, Riksbank Rate Decision, ECB Minutes, ECB's Elderson, Schnabel, Lagarde, supply from Italy. US market closures for Thanksgiving Holiday
• The desk will operate a normal service on Thursday 25th November until 18:00GMT/13:00EST, upon which the desk will close and then re-open later at 22:00GMT/17:00EST for the beginning of the Asia-Pacific session

FOMC MINUTES

FOMC Minutes stated that various participants noted FOMC should be prepared to adjust pace of asset purchases and raise target range for FFR sooner than participants currently anticipated if inflation continued to run higher than levels consistent with Fed objective. Participants generally supported the plan to implement reductions in the pace of net purchases of Treasury securities and agency MBS by USD 10bln and USD 5bln per month, respectively, over the upcoming intermeeting period and judged that similar reductions in the pace would likely be appropriate in each subsequent month. Minutes stated that some participants preferred a somewhat faster pace of reductions that would result in an earlier conclusion to net purchases and participants noted that beginning to scale back the pace of net asset purchases was not intended to convey any direct signal regarding adjustments to the target range for the federal funds rate. Furthermore, a number of participants discussed the risk that, in light of recent elevated levels of inflation, the public's longer-term expectations of inflation might increase to a level above that consistent with the Committee's longer-run inflation objective. (Newswires)

CORONAVIRUS UPDATE

Italy’s Cabinet approved COVID curbs for the unvaccinated in which new tougher COVID rules for the unvaccinated will run from December 6th to January 15th and Italy will also make booster jabs for health workers mandatory from December 15th. Furthermore, they are to make a COVID green pass mandatory to use urban public transport from December 6th and confirmed the unvaccinated cannot access, cinemas, restaurants, hotels and gyms from December 15th. (Newswires)

ASIA

Asian equities traded mixed following on from the tentative mood in the US where the major indices headed into the Thanksgiving holiday with a slight positive bias although upside was capped as participants digested a deluge of mixed data releases and hawkish leaning FOMC Minutes which suggested an increased likelihood of a taper adjustment. ASX 200 (+0.1%) was choppy as outperformance in tech and miners was counterbalanced by losses in consumer stocks, energy and the top-weighted financials sector, while mixed capex data which showed a larger than expected contraction for Q3 further added to the headwinds. Nikkei 225 (+0.7%) outperformed and reclaimed the 29,500 level after the recent favourable currency flows and stimulus optimism with Japan considering offering a JPY 5k inbound travel subsidy and is planning a JPY 22.1tln government bond sale as part of economic stimulus and extra budget. KOSPI (-0.4%) softened amid a widely expected 25bps rate hike by the BoK and with BoK Governor Lee suggesting the potential for another hike in Q1 next year. Hang Seng (+0.1%) and Shanghai Comp. (-0.1%) lacked direction amid ongoing frictions including issues related to Taiwan and after the US Commerce Department placed 12 Chinese companies/entities on its entity list due to national security concerns, while EU ambassadors approved to renew sanctions on four Chinese officials and one Chinese entity for human rights abuses. However, the downside for Chinese bourses was limited after another tepid PBoC liquidity effort and with a local press report noting that China is to use more fiscal policy to support growth. There were also reports that Chengdu city launched measures to help developers with cash problems in obtaining funds, while Kaisa Group shares saw a double-digit percentage jump on reopen from a three-week trading halt after it offered to exchange bonds for new bonds with an extended maturity in an effort to improve financial stability and remain afloat. Finally, 10yr JGBs were rangebound after the sideways price action seen in global counterparts and cautious risk tone in Asia, while the results of the latest 40yr JGB auction were also inconclusive with a weaker b/c offset by an increase in the low price.

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 6.3980 vs exp. 6.3924 (prev. 6.3929)

China is to use more fiscal policy support to help growth and the domestic economy is anticipated to have a solid start next year amid fiscal support, according to reports citing analysts. (China Securities Journal)

China securities regulatory official said China is in open communication with US authorities to resolve delisting threat and that delisting is not good for companies, global investors or relations between US and China. Furthermore, the official added that they are working hard to prevent delisting of Chinese companies in US and support Chinese companies choosing Hong Kong or other listing venue. (Newswires)

China's Global Times tweeted that China opposes UK's ignorant smears on Human Rights in Xinjiang, Xizang and Hong Kong citing the Chinese Embassy in UK. Furthermore, it questioned how is the UK entitled to preach on human rights given its own rising poverty, worsening minority situation, frequent racism cases and shameful records in Iraq and Afghanistan. (Twitter)

US encouraged the west to continue and deepen relations with Taiwan, while it added that they have made clear the risks of China's approach to the region, according to a senior US official. (Newswires)

Japan will compile an extra budget with spending worth JPY 36tln to fund stimulus to cushion the blow from COVID-19 and will issue new bonds worth JPY 22tln in FY21/22 budget, according to a draft. (Newswires)

Bank of Korea raised the 7-Day Repo rate by 25bps to 1.00%, as expected, with the decision not unanimous as board member Joo dissented. BoK stated that consumption is to improve gradually and that both exports and investments will sustain buoyancy, but added that it will monitor the build up of financial imbalances, pace of growth and inflation, as well as foreign monetary policies and coronavirus spread. Furthermore, BoK Governor Lee said the policy interest rate is still accommodative and below the neutral interest rate, while he added that it is difficult to say when interest rates will increase again and shouldn't rule out a rate hike in Q1 next year. (Newswires)

UK/EU

UK PM Johnson raised concerns regarding the 'substantial distance' between the UK and EU on the Northern Ireland protocol during a call with Irish PM, according to a spokesperson. (Newswires)

Irish Foreign Minister Coveney said he believes the remaining issues on Brexit talks can be resolved but it requires a more trusting relationship. (Newswires)

ECB's Schnabel said inflation will slowly start to normalise from January onwards and she doesn't see serious risk of stagflation. (Newswires)

ECB's Makhlouf said his view today is that increases in interest rates are not needed, but added that if the evidence changes, his view is likely to change and the ECB should act without delay. ECB's Makhlouf added that if inflation persists, they will be looking at the complete toolkit and that the likelihood is they will reduce asset purchases before increasing interest rates. (Newswires)

FX

In FX markets, the DXY extended on gains on Wednesday and approached just shy of the 97.00 handle before retracing some of the advances as participants digested a flurry of mixed data releases. Focus then shifted to the FOMC Minutes which stated they should be prepared to adjust the pace of asset purchases and raise target range for FFR sooner if inflation continued to run higher than levels consistent with the Fed objective and some participants preferred a somewhat faster pace of reductions. However, the Minutes release had little impact on the dollar which continued to marginally pullback amid some profit taking and with volumes thinning due to the Thanksgiving holiday. EUR/USD nursed some of its losses overnight after briefly slipping beneath the 1.1200 handle as the EU contends with the deteriorating COVID-19 situation which prompted Italy’s cabinet to approve curbs for the unvaccinated. GBP/USD rebounded overnight to test 1.3350 although Brexit uncertainty lingers with UK PM Johnson raising concerns regarding the 'substantial distance' between the UK and EU on the Northern Ireland protocol during a call with the Irish PM. USD/JPY held on to most of yesterday’s gains above the 115.00 level after the recent dollar uplift and with Japan planning a JPY 22.1tln government bond sale, while antipodeans were steady with price action in AUD/USD and NZD/USD contained after mixed capex data from Australia and despite the mostly improved trade figures from New Zealand.

Swedish PM Andersson said she will resign after the Green Party quit the coalition, while the process of forming a new government is now in the hands of the Parliament Speaker. (Newswires)

RBNZ Governor Orr said there are capacity pressures everywhere in the country and the economy is running above its potential, while he added that rate hikes will slow desire to buy houses. Furthermore, he stated that the OCR is the bank's preferred tool to deal with inflation and that it is better to take small steps with OCR and observe how things go. (Newswires)

• Australian Capital Expenditure (Q3) -2.2% vs. Exp. -2.0% (Prev. 4.4%)
• Australian Private Capital Expenditure 2021-2022 (AUD)(Est. 4) 138.6B (Prev. 127.7B)
• New Zealand Trade Balance (Oct) -1286M (Prev. -2171.0M, Rev. -2206M)
• New Zealand Exports (Oct) 5.35B (Prev. 4.4B, Rev. 4.36B)
• New Zealand Imports (Oct) 6.64B (Prev. 6.57B)

COMMODITIES

Commodities were flat overnight amid the mixed risk appetite in Asia and as the US heads into Thanksgiving holiday with WTI crude futures little changed beneath the USD 78.50 level. Oil prices finished with mild losses yesterday following the surprise build in EIA crude inventories and increase in the latest Baker Hughes Rig Count, while participants continue to await the response from OPEC+ to the US-led SPR release. Furthermore, there were initial reports that Saudi Arabia and Russia are considering a move to pause their planned production increases after the SPR announcement, although sources then noted that other cartel members including the UAE aren’t convinced a pause is necessary and journalists also suggested that a pause in the hike was just an idea from Saudi and ministers have not yet discussed options, while both UAE and Kuwait have both suggested no prior stance ahead of next week's meeting. Gold prices languished beneath the 1800/oz level with the precious metal contained after the FOMC Minutes suggested Fed members should be prepared for a further tightening of policy if inflation continues to run high, and copper was uninspired alongside the indecisive risk sentiment.

Baker Hughes US rig count (W/E 23rd Nov): Oil +6 at 467, Natgas unchanged at 102, total at 6 at 569. (Newswires)

US Energy Department said deliveries of 32mln bbls of crude oil from SPR release will take place January through April 2022, with early deliveries accepted in late December. (Newswires)

OPEC Economic Commission Board predicts that the SPR release will increase oversupply by 1.1mln bbls every day and sees a 400k BPD surplus in December, according to a document. (Newswires)

UAE is fully committed to the OPEC+ agreement and has no "prior stance" ahead of the meeting, according to State News citing the Energy Ministry. There were also earlier comments from a Kuwait energy official that OPEC+ discussions ahead of the meeting next week have not yet started and as such, Kuwait does not yet have any position. (Newswires)

GEOPOLITICAL

Iran said it reached agreement in principle with IAEA on tech issues and will pursue a joint statement with IAEA ASAP. There were later comments from Iran Foreign Minister said they reached a good agreement on continuing cooperation with IAEA's Grossi, but reaching an agreement on a text with IAEA still needs work on a few words and a meeting to finalise text will be held soon with IAEA. (Newswires)

Israel warned the White House over striking a partial nuclear deal with Iran and said it would be a gift to the new hard-line government in Tehran. (WSJ)

US Treasury issued a general license for Venezuela authorising transactions involving PDVSA needed for maintenance or wind down of operations of certain entities. (Newswires)

US

Treasuries flattened on Wednesday after Daly turned more hawkish, mixed US data and hawkish Fed minutes. At settlement, 2s +3.4bps at 0.642%, 3s +2.7bps at 0.964%, 5s +0.8bps at 1.342%, 7s -1.4bps at 1.573%, 10s -2.7bps at 1.638%, 20s -5.0bps at 2.022%, 30s -6.4bps at 1.959%. 5yr TIPS -2.7bps at -1.716%, 10yr TIPS -3.2bps at -0.992%, 30yr TIPS -3.3bps at -0.390%. 2s5s -2.2bps at 72.1bps, 2s10s -5.5bps at 104.9bps, 2s30s -9.1bps at 140.6bps, 5s10s -3.2bps at 32.6bps, 5s30s -6.8bps at 68.3bps, 10s30s -3.6bps at 35.5bps. Flattening persisted after Fed's Daly took a U-Turn from recent remarks and said she sees a case for accelerating the taper and that if the economy continues as it is, she would support it. Traders also had to deal with the front-loaded data due to the Thanksgiving holiday, which saw the latest PCE report in line with expectations, jobless claims posted the lowest since 1969, GDP missed on the headline, Durable goods fell short of expectations and UoM was revised up with the 5-10yr inflation expectations ticking higher, also. The latest Fed minutes highlighted that discussions about the taper pace from the Fed was discussed at the November meeting, and some preferred a faster approach while various participants noted they should be prepared to adjust pace of asset purchases and raise target range for FFR sooner than participants currently anticipated, if inflation continued to run higher than levels consistent with the Fed's objectives. The minutes saw little reaction to Treasuries, although combined with recent Fed commentary, it appears more likely there will be a taper adjustment at the December 15th meeting and that inflation prints heading into that will be key; CPI is due on 10th December, although PCE is not until 23rd December. T-note (Z1) futures settled 1+ ticks higher at 129-26+.