• Asian equities traded tentatively following the declines on Wall St where major indices extended on losses
• Selling stateside was exacerbated on confirmation of the first Omicron case in the US
• DXY oscillates around 96.00, EUR/USD remains above 1.13 and GBP/USD eyes 1.33
• TRY was pressured again after Turkish President Erdogan replaced the Finance Minister
• Looking ahead, highlights include EZ Unemployment Rate, US IJC, Fed's Bostic, Quarles, Daly, ECB's Panetta, JMMC/OPEC+ meetings, supply from Spain and France

CORONAVIRUS UPDATE

US CDC identified the first case of Omicron COVID-19 in the US which was in California, while it noted that it was a fully vaccinated individual that returned from South Africa on November 22nd who had mild symptoms which are now improving and an all known contacts with the individual have been contacted and tested negative. (Newswires)

NIH’s Dr Fauci said a variant specific boost may not be needed and he is unsure if testing for air travel within the US is needed, while he added it is too early to say what will or won't happen with this variant and noted that everyone coming into country needs covid-19 test within 24 hours. Fauci later commented that Omicron should not alter travel plans and hopes the US can end travel restrictions soon. (Newswires)

South Africa NICD said the Omicron variant is able to get around some immune protection, although protection against severe disease and death from vaccines should be less affected. NICD noted signs from diagnostic laboratories that Omicron is likely to be present in all provinces, while it was also reported that South African COVID-19 cases almost doubled from Tuesday. Furthermore, there were later comments from South Africa's infectious disease expert Lessels who believes Omicron may be thwarted by T-cells and stated that it is too early to say Omicron only causes mild cases, while he added that previous infections and vaccines offer some protection. (Newswires)

UK Health Secretary Sajid Javid announced the UK secured 54mln additional doses of the Pfizer (PFE) / BioNTech (BNTX) jabs and 60mln additional doses of the Moderna (MRNA) vaccine for the next two years which he said will help the UK to "buy time" with the new variant. (Newswires)

South Korea's government is considering coronavirus measures including banning social gatherings and reducing business hours, while it was also reported that South Korea is considering halting its gradual return to normal life as COVID-19 infections rise and it also reported a fresh record daily increase in cases, as well as confirmed its first case of the Omicron variant. (Newswires/Yonhap)

Moderna (MRNA) said it could have an Omicron specific COVID-19 booster shot ready as soon as March. (Newswires)

ASIA

Asian equity markets traded tentatively following the declines on Wall St where all major indices extended on losses and selling was exacerbated on confirmation of the first Omicron case in the US, while the Asia-Pac region also contended with its own pandemic concerns. ASX 200 (-0.2%) was subdued amid heavy losses in the tech sector and with a surge of infections in Victoria state, although downside in the index was cushioned amid inline Retail Sales and Trade Balance, as well as M&A optimism after Woolworths made a non-binding indicative proposal for Australian Pharmaceutical Industries. Nikkei 225 (-0.3%) weakened after the government instructed airlines to halt inbound flight bookings for a month due to fears of the new variant and with auto names also pressured by declines in monthly sales amid the chip supply crunch. KOSPI (+1.3%) showed resilience amid expectations for lawmakers to pass a record budget today and recouped opening losses despite the record increase in daily infections and confirmation of its first Omicron cases, while the index also shrugged off the highest CPI reading in a decade which effectively supports the case for further rate increases by the BoK. Hang Seng (+0.3%) and Shanghai Comp. (+0.1%) were choppy following another liquidity drain by the PBoC and with tech pressured in Hong Kong as Alibaba shares extended on declines after recently slipping to a 4-year low in its US listing. Beijing regulatory tightening also provided a headwind as initial reports suggested China is to crack down on loopholes used by tech firms for foreign IPOs, although this was later refuted by China, and the CBIRC is planning stricter regulations on major shareholders of banks and insurance companies, as well as confirmed it will better regulate connected transactions of banks. Finally, 10yr JGBs were higher as prices tracked gains in global counterparts and amid the risk aversion in Japan, although prices are off intraday highs after hitting resistance during a brief incursion to the 152.00 level and despite the marginally improved metrics from 10yr JGB auction.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a CNY 90bln net daily drain. (Newswires) PBoC set USD/CNY mid-point at 6.3719 vs exp. 6.3648 (prev. 6.3693)

US and EU are expected to issue a robust joint statement from Thursday’s meeting on China which will reflect increasing convergence between the US and EU on challenges posed by China, according to a senior US State Department official. Furthermore, it is expected that there will be discussions with the EU on US and EU alternatives to China's Belt and Road initiative, while Taiwan will also be a topic in US-EU dialogue on Thursday and it was separately reported that China and US top military officials are set to meet to discuss Taiwan tensions. (Newswires)

China's banking and insurance regulator said it is planning stricter regulations on major shareholders of banks and insurance companies, while it also confirmed it will better regulate connected transactions of banks. (Newswires)

China's Global Times tweeted comments from the Chinese Embassy in the Netherlands that 'China firmly opposes the China-related motions proposed by the Dutch Parliamentarians based on false information that interfere with China’s internal affairs and the attempt to smear China with so-called human rights issues is doomed to fail'. (Global Times)

• Korea (Republic of) GDP Growth QQ Revised (Q3) 0.3% (Prev. 0.3%)
• Korea (Republic of) GDP Growth YY Revised (Q3) 4.0% (Prev. 4.0%)
• Korea (Republic of) CPI Growth MM (Nov) 0.4% vs. Exp. -0.2% (Prev. 0.1%)
• Korea (Republic of) CPI Growth YY (Nov) 3.7% vs. Exp. 3.1% (Prev. 3.2%)

UK/EU

US is delaying a deal to remove Trump-era tariffs on UK steel and aluminium due to concerns regarding UK threats to trigger Article 16. (FT)

FX

In FX markets, the DXY was rangebound and traded on both sides of 96.00 after it oscillated around that level during US trade as haven demand for the hard currency and support from better than expected ISM Manufacturing and ADP employment data were offset by falling yields after the confirmation of the first Omicron variant case in US. EUR/USD was marginally higher but with gains relatively tentative. GBP/USD also rebounded from the prior day’s lows and attempted to reclaim the 1.3300 handle where it met resistance and with reports also noting that US talks with the UK on easing metals tariffs could not move forward amid concerns regarding Article 16 threats. USD/JPY and JPY-crosses faded some of the prior day’s haven flows, while antipodeans were steady after relatively inline data from Australia and the mixed overnight risk tone. Elsewhere, TRY was pressured again with USD/TRY back above 13.50 after Turkish President Erdogan replaced the Finance Minister.

Turkish President Erdogan removed the Finance Minister and named Nurettin Nebati as the new Finance Minister. (Newswires)

• Australian Retail Sales MM (Oct F) 4.9% vs Exp. 4.9% (Prev. 1.3%)
• Australian Trade Balance (AUD)(Oct) 11.2B vs. Exp. 11.0B (Prev. 12.2B)
• Australian Exports (Oct) -3% (Prev. -6.0%)
• Australian Imports (Oct) -3% (Prev. -2.0%)

COMMODITIES

Commodities were rangebound overnight amid the mixed risk appetite with WTI crude futures only partially nursing some of the prior day's losses. Nonetheless, the focus for the complex remains on today's OPEC+ meeting where the case for OPEC+ to pause the planned monthly relaxation of output curbs by 400k BPD has been strengthening due to the uncertainty from the new COVID variant and recent US-led SPR release, while no decision was made on output policy at yesterday's OPEC meeting as ministers opted not to discuss the oil market balance and will be keeping it for today. That said, a source close to OPEC intimated that most probably OPEC will stick to the 400k BPD production hike in January. Gold prices were lacklustre as the precious metal remains despondent following the hawkish rhetoric from Fed Chair Powell earlier this week and with Fed's Mester also noting she is open to consider a faster taper pace, while copper prices rebounded off the prior day's lows but with gains limited by the tentative mood in risk assets.

US Deputy Energy Secretary Turk said the timing of SPR release could be adjusted if oil prices drop and they will continue to consider other tools such as potential bans on oil exports. Turk added the US metric of success is affordable consumer fuel prices and not how quickly oil stockpiles can be released, while he added that China and others could also time their releases based on oil prices. Furthermore, the White House later stated that President Biden has no plans to change the SPR release. (Newswires)

GEOPOLITICAL

US Defense Secretary Austin said China's hypersonic missile test in July was just one of the capabilities that make it a pacing challenge for the US military. Austin also commented that North Korea's missile and weapons programs are becoming more and more destabilising for regional security and that the US calls on North Korea to engage in dialogue, while he added that the best approach is to explore diplomacy with North Korea backed by a credible deterrent. There were also comments from South Korean Defense Minister Suh Wook that the US pledged to sustain the current level of troops in South Korea and the countries agreed to maintain a joint defense posture while supporting US diplomatic efforts. Furthermore, Suh commented that US supports inter-Korean dialogue and engagement, while they agreed on the need for a new operational war plan to reflect changing security. (Newswires)

US

The TPLEX continued to bear-flatten Wednesday, although the souring of the risk tone in latter trade suppressed the moves. Futures volumes were above averages, again. At settlement, 2s +3.9bps at 0.565%, 3s +2.4bps at 0.836%, 5s +0.05bps at 1.515%, 7s -1.4bps at 1.35%, 10s -1.2bps at 1.43%, 20s -0.04bps at 1.84%, 30s -1.6bps at 1.769%. Treasuries entered the NY session Wednesday in a heavy bear-flattener as the front-end priced in more policy tightening in wake of Powell's hawkish tilt in Congress Tuesday. There also appeared to be a broader reversion of Omicron fears with nothing concrete yet to suggest it's more of a problem than prior variants. There were no new headline catalysts coming into Wednesday, although in Europe on the auction front, the UK 10yr saw its lowest B/C (2.23x) since March 2020, while the German 5yr Bobl saw more balanced demand. While on the data front, Chinese Caixin Manufacturing PMI missed expectations (49.9 vs exp. 50.5) and EU Markit Manufacturing Final PMI was revised lower to 58.4 from 58.6; note the OECD also revised lower its 2021 global GDP growth forecast to 5.6% from 5.7%, with declines across the US, China, and the EZ. T-Notes hit lows of 130-06 in the European morning but pared through the session. As risk sentiment slipped into the latter NY session, the whole curve came off its lows, although the flattening bias remained. The strong ISM Manufacturing and ADP Employment reports added weight to the front-end weakness. Note that later reports of the first US Omicron case, in California, supported T-Notes to session highs. T-note (H2) futures settled 3+ ticks higher at 130-29+.

Fed's Beige Book stated that economic activity grew at a modest to moderate pace in most Federal Reserve Districts during October and early November and several Districts noted that despite strong demand, growth was constrained by supply chain disruptions and labour shortages. Furthermore, consumer spending increased modestly as low inventories held back sales of some items, notably light vehicles. Furthermore, employment growth ranged from modest to strong across Federal Reserve Districts and prices rose at a moderate to robust pace, with price hikes widespread across sectors of the economy. (Newswires)

Fed's Williams (Voter) said Omicron could prolong the bottlenecks and shortages that have caused inflation to run hotter than expected and that it is a risk Fed officials will assess as they “grapple” with how quickly to remove economic support. (NY Times)

Fed's Mester (2022, 2024 Voter) said she is open to considering a faster taper pace and that momentum in the economy is clear and has seen higher inflation, while she added that Omicron is a risk but more data is needed. Furthermore, Mester said that a faster taper gives the Fed the ability to hike if necessary and that she supports ending taper in Q1 or early Q2 next year. (Newswires)

Fed's Bostic, former Fed Governor Raskin and former CFPB Director Cordray are being considered for Fed Supervision post. (Newswires)

US President Biden said steps being taken will move goods more quickly and get products on shelves, while he noted the 24/7 LA Port operations have led to a 40% drop in numbers of containers waiting on docks for over 8 days. Furthermore, he stated they are heading into the holiday season in a strong shape and measures on gasoline prices are making a difference with wholesale oil and gas prices coming down significantly, while the savings on oil and gas should reach US consumers soon. (Newswires)

US Senate Majority Leader Schumer said talks with Senate Minority Leader McConnell to avoid a government shutdown are "making good progress" and that they must prevent the group of lawmakers trying to cause a shutdown. (Newswires)

Multiple sources told Politico it's highly unlikely the House was to vote on Wednesday as Democrats and Republicans continue to be at a standstill over CR. In relevant news, CNN’s Raju tweeted that multiple GOP senators said they ultimately plan to vote to keep the government open, so even if there’s a brief shutdown over the weekend, it won’t last long, while conservatives are demanding CR defund vaccine mandate and it is unclear if they would be satisfied with just a vote on an amendment. (Politico/Twitter)

Apple (AAPL) reportedly told iPhone component suppliers that demand has slowed down ahead of the holiday period. (Newswires)