• Initial momentum for APAC equities was faded; European stocks remain under pressure
• This sentiment has seeped into US equity futures; RTY lags, NQ is cushioned by softer yields
• Moderna chief predicts that existing vaccines will be much less effective against the Omicron variant
• WSJ reported Regeneron's and Eli Lilly's COVID antiviral cocktails had lost efficacy vs the Omicron variant
• Oxford University said there is no evidence so far that vaccines will not provide high levels of protection against severe disease from Omicron
• Fed Chair Powell said in prepared testimony to the Senate Banking Committee that the rise in COVID cases and Omicron variant pose downside risks to employment and increased uncertainty for inflation
• Looking ahead, highlights include Canadian GDP, US Consumer Confidence, Fed’s Powell, Williams, Clarida

CORONAVIRUS UPDATE

Moderna (MRNA) chief predicts that existing vaccines will be much less effective against the Omicron variant. (FT) Regeneron's (REGN) and Eli Lilly's (LLY) COVID antiviral cocktail lose efficacy vs Omicron variant, WSJ reports, will be able to quantify the impact of variant in the coming weeks. If final testing shows antibody drugs are less effective, Regeneron has developed alternative antibodies it can push into clinical trials and thinks will retain efficacy vs the variant. (WSJ) Oxford University said there is no evidence so far that vaccines will not provide high levels of protection against severe disease from Omicron; has tools and processes in place for "rapid" development of an updated COVID-19 vaccine if necessary. (Newswires)

German Constitutional Court rules that the COVID "emergency brake" lockdown law is constitutional. (Newswires) European Economic Commissioner Gentiloni notes the conditions for a full lockdown are not met. (Newswires)

Head of EU Public Health Agency said the severity of the disease in Omicron cases is "mild". (Newswires) Dutch Authorities suggest the Omicron variant was detected in the Netherlands on Nov 19th, before South African flights. (Newswires)

EU Drug Regulator Chief does not know if new vaccines will be needed against the Omicron variant, but EU is preparing for that, according to a briefing; There has been "very promising" news from clinical trials on oral antivirals for COVID; Novax vaccine may be approved in the coming weeks. (Newswires)

Chinese Foreign Ministry, when asked about the Omicron variant, believes the Winter Olympics (4-6th Feb 2022) can be held successfully. (Newswires)

ASIA

Asian equities traded mixed with early momentum seen following the rebound on Wall Street where risk assets recovered from Friday’s heavy selling pressure as liquidity conditions normalized post-Thanksgiving and after some of the Omicron fears abated given the mild nature in cases so far, while participants also digested a slew of data releases including better than expected Chinese Manufacturing PMI. However, markets were later spooked following comments from Moderna's CEO that existing vaccines will be much less effective against the Omicron variant. ASX 200 (+0.2%) was underpinned by early strength across its sectors aside from utilities and with gold miners also hampered by the recent lacklustre mood in the precious metal which failed to reclaim the USD 1800/oz level but remained in proximity for another attempt. In addition, disappointing Building Approvals and inline Net Exports Contribution data had little impact on sentiment ahead of tomorrow’s Q3 GDP release, although the index then faded most its gains after the comments from Moderna's CEO, while Nikkei 225 (-1.6%) was initially lifted by the recent rebound in USD/JPY but then slumped amid the broad risk aversion late in the session. Hang Seng (-1.6%) and Shanghai Comp. (Unch) were varied in which the mainland was kept afloat for most the session after a surprise expansion in Chinese Manufacturing PMI and a mild liquidity injection by the PBoC, with a central bank-backed publication also suggesting that recent open market operations demonstrates an ample liquidity goal, although Hong Kong underperformed on tech and property losses and with casino names pressured again as shares in junket operator Suncity slumped 37% on reopen from a trading halt in its first opportunity to react to the arrest of its Chairman. Finally, 10yr JGBs were initially contained following early momentum in stocks and somewhat inconclusive 2yr JGB auction which showed better results from the prior, albeit at just a marginal improvement, but then was underpinned on a haven bid after fears of the Omicron variant later resurfaced.

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 6.3794 vs exp. 6.3793 (prev. 6.3872)

• Chinese Manufacturing PMI (Nov) 50.1 vs. Exp. 49.6 (Prev. 49.2)
• Chinese Non-Manufacturing PMI (Nov) 52.3 (Prev. 52.4)

CENTRAL BANKS

Fed Chair Powell said in prepared testimony to the Senate Banking Committee that the rise in COVID cases and Omicron variant pose downside risks to employment and increased uncertainty for inflation, while he noted that factors pushing inflation upward will linger well into next year but continues to expect inflation will recede significantly over the next year. Powell also stated that wages are rising at a brisk pace and conditions in the labour market have continued to improve although there is still ground to cover to reach maximum employment and he expects that progress will continue. Furthermore, he noted greater concerns about the virus could restrain labour supply and that strong demand for goods has exacerbated supply-chain problems. (Newswires)

ECB's de Guindos said he is watching the Omicron variant closely and recommended that banks be cautious with provisions, while he added that the COVID-19 situation is different from last year in which he emphasised that there are vaccines now. de Guindos is confident that net asset purchases will carry on throughout 2022, but 2023 remains unclear; there is a risk inflation will not decline as much as the ECB predicted. (Newswires)

ECB's Weidmann said the ECB should be wary of any pressure to maintain loose policy longer than inflation dictates; broad interpretation of mandate risks entangling ECB in politics. (Newswires)

US

US Treasury Secretary Yellen said in prepared remarks to the Senate Banking Committee that she is confident at this point the US recovery remains strong and cannot overstate importance for Congress to deal with the debt limit, while she warned that a failure to deal with the debt limit would eviscerate the US economic recovery. (Newswires)

US Senator Manchin said he wouldn't commit to Senate Majority Leader Schumer's Christmas timeframe regarding the Build Back Better bill and wouldn't commit to voting to proceed to the bill, while he stated "we will wait to see what we have", according to CNN's Manu Raju. There were also separate reports that the US House intends to go first on a short-term spending bill to avoid a shutdown this week in which the bill will likely run through January. (CNN/Fox)

UK/EU

• EU HICP-X F&E Flash YY (Nov) 2.6% vs. Exp. 2.3% (Prev. 2.1%). (Newswires)
• EU HICP Flash YY (Nov) 4.9% vs. Exp. 4.5% (Prev. 4.1%)
• German Unemployment Chg SA (Nov) -34k vs. Exp. -25.0k (Prev. -39.0k). (Newswires)
• German Unemployment Rate SA (Nov) 5.3% vs. Exp. 5.3% (Prev. 5.4%).

EQUITIES

Major European bourses are on the backfoot (Euro Stoxx 50 -1.5%; Stoxx 600 -1.5%) as COVID fears again take the spotlight on month-end. APAC markets were firmer for a large part of the overnight session, but thereafter the risk-off trigger was attributed to comments from Moderna's CEO suggesting that existing vaccines will be much less effective against the Omicron COVID strain. On this, some caveats worth keeping in mind - the commentary on the potential need for a vaccine does come from a vaccine maker, who could benefit from further global inoculation, whilst data on the new variant remains sparse. Meanwhile, WSJ reported Regeneron's and Eli Lilly's COVID antiviral cocktails had lost efficacy vs the Omicron variant - however, the extent to which will need to be subject to further testing. Furthermore, producers appear to be confident that they will be able to adjust their products to accommodate the new variant, albeit the timeline for mass production will not be immediate. Nonetheless, the sullied sentiment has persisted throughout the European morning and has also seeped into US equity futures: the cyclically bias RTY (-1.7%) lags the ES (-1.0%) and YM (-1.3%), whilst the tech-laden NQ (-0.5%) is cushioned by the slump in yields. Back to Europe, broad-based losses are seen across the majors. Sectors tilt defensive but to a lesser extent than seen at the European cash open. Travel & Leisure, Oil & Gas, and Retail all sit at the bottom of the bunch amid the potential implications of the new COVID variant. Tech benefits from the yield play, which subsequently weighs on the Banking sector. The retail sector is also weighed on by Spanish giant Inditex (-4.3%) following a CEO reshuffle. In terms of other movers, Glencore (-0.9%) is softer after Activist investor Bluebell Capital Partners called on the Co. to spin off its coal business and divest non-core assets. In a letter seen by the FT, Glencore was also asked to improve corporate governance. In terms of equity commentary, analysts at JPM suggest investors should take a more nuanced view on reopening as the bank expects post-COVID normalisation to gradually asset itself over the course of 2022. The bank highlights hawkish central bank policy shifts as the main risk to their outlook. Thus, the analysts see European equities outperforming the US, whilst China is seen outpacing EMs. JPM targets S&P 500 at 5,050 (closed at 4,655.27 yesterday) by the end of 2022 with EPS at USD 240 – marking a 14% increase in annual EPS.

FX

DXY/JPY/EUR/CHF/GBP - The Greenback may well have been grounded amidst rebalancing flows on the final trading day of November, as bank models are flagging a net sell signal, albeit relatively weak aside from vs the Yen per Cit’s index, but renewed Omicron concerns stoked by Moderna’s CEO casting considerable doubt about the efficacy of current vaccines against the new SA strain have pushed the Buck back down in any case. Indeed, the index has now retreated further from its 2021 apex set less than a week ago and through 96.000 to 95.662, with only the Loonie and Swedish Krona underperforming within the basket, and the Antipodean Dollars plus Norwegian Crown in wider G10 circles. Looking at individual pairings, Usd/Jpy has reversed from the high 113.00 area and breached a Fib just below the round number on the way down to circa 112.68 for a marginal new m-t-d low, while Eur/Usd is back above 1.1350 having scaled a Fib at 1.1290 and both have left decent option expiries some distance behind in the process (1.6 bn at 113.80 and 1.3 bn between 1.1250-55 respectively). Elsewhere, Usd/Chf is eyeing 0.9175 irrespective of a slightly weaker than forecast Swiss KoF indicator and Cable has bounced firmly from the low 1.3300 zone towards 1.3375 awaiting commentary from BoE’s Mann.

NZD/AUD/CAD - As noted above, the tables have turned for the Kiwi, Aussie and Loonie along with risk sentiment in general, and Nzd/Usd is now pivoting 0.6800 with little help from a deterioration in NBNZ business confidence or a decline in the activity outlook. Similarly, Aud/Usd has been undermined by much weaker than forecast building approvals and a smaller than anticipated current account surplus, but mostly keeping hold of the 0.7100 handle ahead of Q3 GDP and Usd/Cad has shot up from around 1.2730 to top 1.2800 at one stage in advance of Canadian growth data for the prior quarter and month of September as oil recoils (WTI to an even deeper trough only cents off Usd 67/brl). Back down under, 1 bn option expiry interest at 1.0470 in Aud/Nzd could well come into play given that the cross is currently hovering near the base of a 1.0483-39 range.

SCANDI/EM - The aforementioned downturn in risk appetite after Monday’s brief revival has hit the Sek and Nok hard, but the latter is also bearing the brunt of Brent’s latest collapse to the brink of Usd 70/brl at worst, while also taking on board that the Norges Bank plans to refrain from foreign currency selling through December having stopped midway through this month. The Rub is also feeling the adverse effect of weaker crude prices and ongoing geopolitical angst to the extent that hawkish CBR rhetoric alluding to aggressive tightening next month is hardly keeping it propped, but the Cnh and Cny continue to defy the odds or gravity in wake of a surprise pop back above 50.0 in China’s official manufacturing PMI. Conversely, the Zar is struggling to contain losses sub-16.0000 vs the Usd on SA virus-related factors even though Gold is approaching Usd 1800/oz again, while the Try is striving to stay within sight of 13.0000 following a slender miss in Turkish Q3 y/y GDP.

FIXED INCOME

Technical resistance and support may well have contributed to the retracement in Bunds, but a lukewarm, if not cold reception for 2028 issuance is also a factor as the 10 year cash yield bounces off through -35 bp and what appears to have been a false break of a key Fib level. Moreover, the core Eurozone bond pulled up just 5 ticks shy of the next upside target at 172.76 on several charts and the loss of bullish momentum has spilled over to an extent with Gilts fading at 126.60 and the T-note after extending gains to just over a full point on the day at 131-10, or a fraction away from 1.40% and 80 bp in cast terms respectively. Still to come, NA data and plenty more global Central Bank speeches from the BoE, ECB and Fed.

COMMODITIES

WTI and Brent front month futures are once again under pressure amid the aforementioned COVID jitters threatening the demand side of the equation, albeit the market remains in a state of uncertainty given how little is known about the new variant ahead of the OPEC+ confab. It is still unclear at this point in time which route OPEC+ members will opt for, but seemingly the feasible options on the table are 1) a pause in output hikes, 2) a smaller output hike, 3) maintaining current output hikes. Energy journalists have suggested the group will likely be influenced by oil price action, but nonetheless, the findings of the JTC and JMMC will be closely watched for the group's updated forecasts against the backdrop of COVID and the recently coordinated SPR releases from net oil consumers – a move which the US pledged to repeat if needed. Elsewhere, Iranian nuclear talks were reportedly somewhat constructive – according to the Russian delegate – with working groups set to meet today and tomorrow regarding the sanctions on Iran. This sentiment, however, was not reciprocated by Western sources (cited by WSJ), which suggested there was no clarity yet on whether the teams were ready for serious negotiations and serious concessions. WTI Jan resides around session lows near USD 67.50/bbl (vs high USD 71.22/bbl), while Brent Feb dipped under USD 71/bbl (vs high USD 84.56/bb). Over to metals, spot gold remains underpinned in European trade by the cluster of DMA's under USD 1,800/oz – including the 100 (USD 1,792/oz), 200 (USD 1,791/oz) and 50 (1,790/oz). Turning to base metals, LME copper is modestly softer around the USD 9,500/t mark, whilst Dalian iron ore futures meanwhile rose over 6% overnight, with traders citing increasing Chinese demand.

Italy PM Draghi said government stands ready to set aside further resources to curb increases in energy bills. (Newswires)

Equinor (EQNR NO) CEO does not see a big impact from new COVID variant on oil and gas demand, believes vaccination levels should keep societies open. (Newswires)

GEOPOLITICAL

US Secretary of State Blinken said any renewed Russian aggression would trigger serious consequences; escalatory actions by Russia would be of great concern to the US; will consult NATO allies in the coming days on any other steps to take. (Newswires)

Iranian Nuclear JCPOA working group meetings on sanctions lifting and nuclear issues will take place today and tomorrow, according to the Russian delegate. (Twitter)

China's envoy to Iran talks said the US should lift all sanctions inconsistent with the 2015 nuclear deal including those against China. (Newswires)

Saudi-led coalition carries out airstrikes on military targets in Yemen's Sanaa and asked civilians to not gather or approach the target sites, while it later stated that it targeted a secret site belonging to Iran's IRGC experts in Yemen's Sanaa. (Newswires)

UK Foreign Secretary said a Russian incursion into Ukraine would be a strategic mistake. (Newswires)