• Asian equity markets traded mostly positive as regional bourses atoned for the prior day’s losses
• US equities closed lower (S&P 500 -1.9%) amid ongoing COVID concerns and comments from Fed Chair Powell
• Chinese Caixin Manufacturing PMI fell short of estimates and slipped back into contraction territory
• The DXY is back below 96.00 with activity currencies leading gains against the greenback
• Looking ahead, highlights include German Retail Sales, EZ, UK, US Markit Final Manufacturing PMIs, US ADP National Employment and ISM Manufacturing PMI, JTC and OPEC meetings, BoE's Bailey and Fed's Powell, supply from the UK and Germany

CORONAVIRUS UPDATE

US plans stricter COVID testing and will require tests for all travellers to the US, while administration officials are also discussing additional measures including a seven-day quarantine and retesting several days after arrival amid Omicron concerns, while the CDC later confirmed it is working to shorten the timeline for required COVID-19 testing for all international travellers to one day prior to the departure. (Newswires/Washington Post)

NIH’s Fauci says that Omicron has not yet been detected in the US and it is difficult to know if the Omicron variant will lead to severe disease. (Newswires)

US FDA advisers narrowly voted (13-10) to recommend authorisation of Merck's (MRK) oral pill for treatment of mild-to-moderate COVID-19 in adults with high risk of progressing to severe diseased, while it was separately reported that Pfizer (PFE) submitted a request to expand the EUA for COVID-19 booster doses to include people aged 16-17 years old. (Newswires)

Japan expanded its travel ban to include foreigners with resident status entering from 10 countries including South Africa, while it was separately reported that South Korea is considering conducting a COVID-19 variant test on all arrivals. (Newswires)

UK PM Johnson said another lockdown is unlikely, but will keep everything under review. (Newswires)

ASIA

Asian equity markets traded mostly positive as regional bourses atoned for the prior day’s losses that were triggered by Omicron concerns, but with some of the momentum tempered by recent comments from Fed Chair Powell and mixed data releases including the miss on Chinese Caixin Manufacturing PMI. ASX 200 (-0.3%) was led lower by underperformance in consumer stocks and with utilities also pressured as reports noted that Shell and Telstra’s entrance in the domestic electricity market is set to ignite fierce competition and force existing players to overhaul their operations, although the losses in the index were cushioned following the latest GDP data which showed a narrower than feared quarterly contraction in Australia’s economy. Nikkei 225 (+0.7%) was on the mend after yesterday’s sell-off with the index helped by favourable currency flows and following a jump in company profits for Q3, while the KOSPI (+2.2%) was also boosted by strong trade data. Hang Seng (+1.1%) and Shanghai Comp. (+0.1%) were somewhat varied as a tech resurgence in Hong Kong overcompensated for the continued weakness in casinos stocks amid ongoing SunCity woes which closed all VIP gaming rooms in Macau after its Chairman's recent arrest, while the mood in the mainland was more reserved after a PBoC liquidity drain and disappointing Chinese Caixin Manufacturing PMI data which fell short of estimates and slipped back into contraction territory. Finally, 10yr JGBs were lower amid the gains in Japanese stocks and after the pullback in global fixed income peers in the aftermath of Fed Chair Powell’s hawkish comments, while a lack of BoJ purchases further contributed to the subdued demand for JGBs.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a CNY 90bln net daily drain. PBoC set USD/CNY mid-point at 6.3693 vs exp. 6.3706 (prev. 6.3794)

• Chinese Caixin Manufacturing PMI (Nov) 49.9 vs Exp. 50.5 (Prev. 50.6)
• Japanese Business Capex YY (Q3) 1.2% (Prev. 5.3%)
• Japanese Q3 Recurring Profits rose 35.1% Y/Y, Q3 Company Sales rose 4.6% Y/Y

UK/EU

UK officials are set to tell Brussels that the EU's ban on British sausages must be overturned. (Telegraph)

• UK BRC Shop Price Index YY (Nov) 0.3% (Prev. -0.4%)

FX

In FX markets, the USD was rangebound as price action calmed from the fluctuations seen during the prior session where the currency was initially boosted by rhetoric from Fed Chair Powell who suggested it is a good time to retire the "transitory" reference for inflation, as well as noted that it is appropriate to consider wrapping up the taper a few months sooner and will talk about speeding up tapering at the approaching Fed meeting. However, the advances for the dollar gradually faded and the DXY reverted to beneath the 96.00 focal point. EUR/USD swung between gains and losses as a counterparty to the tumultuous mood in the greenback but has since quietened after reclaiming the 1.1300 handle. GBP/USD also clawed back losses to regain the 1.3300 status but with upside capped after BoE’s Mann recently noted that it is premature to talk about the timing and magnitude of rate hikes. USD/JPY and JPY-crosses were lifted amid the improved risk tone, while antipodeans also benefitted with AUD/USD helped after Q3 GDP data topped forecasts. Elsewhere, TRY continued to post fresh record lows against the dollar amid comments from Turkish President Erdogan that interest rates will fall significantly before the 2023 elections and so will inflation, while he added that Turkey is in need of legal regulation to combat extreme price hikes and stockpiling.

Turkish President Erdogan said he expects 10% economic growth in 2021 and they will boost investments, employment, production and growth by lowering interest rates, while he reiterated interest rates are the cause and inflation is the result. Erdogan also stated there is "no return" from Turkey's new economic policies and that the cost inflation is the biggest hurdle for new investments. Furthermore, he commented that a strong Lira on the back of "hot money" is not ideal and that it is time for long-term investments by foreign investors, while stability in exchange rates can only be possible with exports and tourism income. Turkish President Erdogan later added that interest rates will fall significantly before the 2023 elections and so will inflation, while he added that Turkey is in need of legal regulation to combat extreme price hikes and stockpiling. (Newswires)

• Australian Real GDP QQ SA (Q3) -1.9% vs. Exp. -2.7% (Prev. 0.7%)
• Australian Real GDP YY SA (Q3) 3.9% vs. Exp. 3.0% (Prev. 9.6%)

COMMODITIES

Commodities found reprieve as the overnight improvement in risk appetite helped WTI crude nurse some of the prior day's losses that were triggered by the Omicron concerns and Fed Chair Powell's hawkish rhetoric which briefly dragged WTI crude futures beneath USD 65/bbl, although WTI has since recovered some of the lost ground to trade firmly above the USD 67/bbl level as focus turns to today's JTC and OPEC meetings. In terms of latest rhetoric, IEA's Birol said he would be happy for OPEC+ to continue raising output and the White House also noted it was in frequent contact with the cartel which it hopes will release oil supplies to meet demand, while there was also comments from Goldman Sachs which suggested that the price drop in oil has far overshot the likely impact from the variant and attributed recent pressure to "capitulation flows and negative gamma effects". Furthermore, yesterday saw the release of the latest private sector inventory data although this had little sway on price action despite the slightly narrower than expected draw in headline crude stockpiles. Gold prices slumped on the comments from Fed Chair Powell regarding speeding up tapering which resulted in a flattening of the yield curve and lifted USD, although the greenback has since faded most the gains to provide some mild relief for the precious metal which rebounded off a base near USD 1770/oz, while copper traded firmer overnight as it reflected the brightened mood in Asia but with further gains capped as China lagged following disappointing Caixin Manufacturing PMI data.

US Private Inventories (bbls): Crude -0.7mln (exp. -1.2mln), Gasoline +2.2mln (exp. 0.0mln), Distillates +0.8mln (exp. +0.5mln), Cushing +1.0mln. (Newswires)

IEA's Birol said he would be happy to see OPEC+ continue output hikes. (Newswires)

White House said it is in frequent contact with OPEC+ member countries and it is hopeful that OPEC+ will release oil supplies to meet demand, while it is not aware of any consideration of scaling back the planned SPR release. (Newswires)

Algerian Energy Minister said OPEC+ will supply the global market with enough oil and take all necessary measures to maintain market balance due to Omicron worries, according to the state news agency. (Newswires)

GEOPOLITICAL

Senior European diplomats warned if Iran were to produce weapons-grade enriched uranium, negotiations to revive nuclear talks would be seriously imperilled. (WSJ)

White House said it is deeply concerned about heightened rhetoric on reported Russian military build-up on Ukraine's border and that it has nothing to predict or preview regarding a potential meeting between Biden and Putin. (Newswires)

Saudi-led coalition said it destroyed an explosive-laden boat used by Houthis before carrying out an imminent attack in the southern Red Sea, while there were later reports of airstrikes that targeted an Iranian-backed Houthi drone base at Sanaa International Airport in Yemen. (Newswires)

US Air Force Secretary Kendall said China and US are engaged in new 'arms race' to develop hypersonic weapons. (Newswires)

US

Treasuries saw pronounced flattening as Powell tilted hawkish in his Congress remarks, laying the groundwork for a faster taper as the Fed's transitory view "retires". At settlement, 2s +1.8bps at 0.528%, 3s +0.2bps at 0.814%, 5s -3.3bps at 1.152%, 7s -6.0bps at 1.368%, 10s -8.5bps at 1.444%, 20s -8.5bps at 1.854%, 30s -8.8bps at 1.792%. 5yr TIPS +8.6bps at -1.685%; 10yr TIPS -0.1bps at -1.081%; 30yr TIPS -8.3bps at -0.507%. 5yr BEI -9.7bps at 2.886%, 10yr BEI -2.6bps at 2.493%, 30yr BEI +0.2bps at 2.313%. Volumes were already solid heading into the NY Tuesday session as the belly led a strong rates bid amid the Moderna CEO, making vaccine warnings, adding to risk aversion in European trade. T-notes surpassed the Friday 130-17+ peak, making new highs of 131-10, before paring into the NY handover. IFR wrote that dealers are suggesting considerably exaggerated price action before month-end (exp. +0.11yr month-end index extension), as “No one is willing to stand in the way of it”. The desk also highlighted that some accounts could be treating this as an effective year-end amid aversion to trading a choppy/volatile environment in December. However, some could be holding out until the end of the week to digest the November NFP report. Anyway, that all changed as Powell spoke, seeing the front and belly of the curve knee jerk lower on comments about the Fed retiring its transitory inflation description, and then accentuated by Powell saying the Fed would discuss a faster taper pace at the December (all but confirming such), in addition to the Fed Chair not showing an appetite to take much notice from the Omicron variant just yet. T-Notes fell to 130-08+, before paring gradually into the afternoon, with eyes on month-end buying likely adding, as was the pronounced duration grab at the long-end of the curve amid curve flattener bets. Wednesday sees ADP employment and ISM Manufacturing, which will be both used as proxies ahead of Friday's NFP. Meanwhile, Powell and Yellen are back in Congress, while NY Fed's Williams is due to speak again. T-note (H2) futures settled 17 ticks higher at 130-26.

Fed Chair Powell said there is still a three-part test for raising rates and that in the coming meetings, they will say that inflation conditions have been met, while he also commented that cyber risk is hard to quantify and that's the risk he tends to lose sleep over. (Newswires)

Fed Vice-Chair Clarida reiterated he would not consider a repeat next year of inflation at this level a success and that adverse supply shocks can be a challenge for monetary policy because they push up inflation and employment. Clarida added the labour market is a lot tighter than it was during the last two recessions and wage gains are healthy but not out of line with productivity. (Newswires)

Fed's Bullard (2022 voter) sees a 50% chance that high inflation will persist. (Newswires)

Fed Discount Rate Minutes stated that regional Fed directors expected inflation to subside over time and that directors saw inflation elevated longer than expected. (Newswires)

US CBO said the US Treasury could run out of cash before the end of December, while the timing and the amount of revenues raised in the next weeks are uncertain. (Newswires)

US Senate Majority Leader Schumer he is having good conversations with McConnell on the debt ceiling but have not come to an agreement and will address the debt limit before December 15th, while there were also comments from Senate Minority Leader McConnell that the US government will not default and is confident the government will not shut down this week. (Newswires)