• Asian equities eventually traded mostly higher following the cyclical-led rebound in the US
• Caixin Services and Composite PMI data slowed from the prior month, but both remained in expansion territory
• The DXY has edged mild gains above 96.00 whilst EUR/USD and GBP/USD hover around 1.13 and 1.33 respectively
• The House and Senate both passed the stopgap funding bill to avert a government shutdown
• Looking ahead, highlight include EZ, UK, US Markit Services PMIs, EZ Retail Sales, US and Canadian Labour Market Reports, US ISM Services, US Durable Goods, ECB’s Lagarde, Lane, BoE’s Saunders, Fed’s Bullard

CORONAVIRUS UPDATE

South African NICD study showed Omicron variant re-infection risk is 3x as great as prior COVID-19 variants, providing evidence for Omicron's ability to evade immunity from prior infection. (Newswires)

US President Biden said his plan to fight COVID-19 does not include shutdowns and he said they are to keep kids in school, not quarantined at home, while it was also reported that daily US COVID-19 cases reached 139,424 which is largest one-day increase since September and that new US international COVID-19 testing rules will take effect from 00:01EST/05:01GMT on Monday, according to sources. (Newswires)

New York Mayor De Blasio that they should assume there is community spread of Omicron in New York City, while it was later reported that New York registered the most daily COVID-19 cases since January. (Newswires)

Minnesota Health Department said the individual in the state with the Omicron variant had a booster shot in November and it was also reported that the Omicron COVID-19 variant case was identified in Colorado state which was a woman who recently travelled to South Africa. Furthermore, New York State found five cases of the Omicron COVID-19 variant, while Hawaii and Los Angeles County reported their first incidences of an Omicron case. (Newswires)

French PM Castex called a meeting of the country’s “health defence council” for Monday to consider whether further COVID measures are required. (Sky News)

Singapore-based infectious disease doctor said Omicron will likely “overwhelm the whole world” in the coming months. (CNBC)

ASIA

Asian equities eventually traded mostly higher following the cyclical-led rebound in the US, but with the mood in the region tentative as Omicron uncertainty lingered after further cases of the new variant were reported stateside and with the latest NFP data drawing near. ASX 200 (+0.2%) lacked direction as resilience in cyclicals was offset by underperformance in defensives and amid ongoing COVID-19 concerns which prompted the Western Australian government to widen its state border closure to include South Australia. Nikkei 225 (+0.8%) was initially subdued amid recent currency inflows and with SoftBank among the worst performers amid several negative headlines including the FTC suing to block the Nvidia acquisition of Arm from SoftBank, while the Japanese conglomerate also suffered from its exposure in “super app” Grab which tumbled 20% in its New York debut and with Didi to start delisting from the NYSE in favour of a Hong Kong listing, although the index eventually recovered losses in latter half of trade. Hang Seng (-0.2%) and Shanghai Comp. (+0.9%) were varied with US-listed Chinese companies pressured as the US SEC moved closer to delisting Chinese ADRs for failing to comply with disclosure requirements, while the mood across developers was also glum with Kaisa shares at a record low after its bond exchange offer to avert a default was rejected by bondholders and China Aoyuan Property Group slumped by double-digit percentages following its warning of an inability to repay USD 651.2mln of debt due to a liquidity crunch. Furthermore, participants digested the latest Caixin Services and Composite PMI data which slowed from the prior month, but both remained in expansion territory and with reports that advisors are to recommend lowering China’s economic growth target to 5.0%-5.5% or above 5%, fanning hopes for looser policy. Finally, 10yr JGBs gained and made another incursion above 152.00 with prices supported amid the cautious mood in Japan and with the BoJ also present in the market today for a total of JPY 1.05tln of JGBs heavily concentrated in 1yr-5yr maturities.

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 6.3738 vs exp. 6.3739 (prev. 6.3719)

US SEC is reportedly moving closer to delisting Chinese ADRs and will "provisionally identify" US-listed foreign companies that require added disclosures for 15 business days, while it will then allow Co.'s to provide contradictory evidence. In relevant news, Didi (DIDI) is to start delisting on the NYSE and begin preparations for a Hong Kong listing with the Co. said to target a Hong Kong listing around March. (Newswires)

Kaisa Group (1638 HK) announced the lapse of its exchange offer and consent solicitation related to the outstanding 6.5% senior notes due this year and no legally binding agreement was made as bondholders rejected the exchange offer, while it was separately reported that China Aoyuan Property Group (3883 HK) warned that there was no guarantee of being able to meet financial obligations amid a liquidity crunch and after creditors demanded repayment. (Newswires)

US and EU joint statement expressed strong concern regarding China's 'problematic and unilateral actions' in South and East China Seas, as well as in the Taiwan Strait. (Newswires)

• Chinese Caixin Services PMI (Nov) 52.1 vs Exp. 52.6 (Prev. 53.8)
• Chinese Caixin Composite PMI (Nov) 51.2 (Prev. 51.5)

UK/EU

US official said the delay in a US-UK trade deal is not connected with any concerns about London's threats to change post-Brexit trading rules in Northern Ireland. (Newswires)

ECB's Muller said Omicron isn't a reason to shift the PEPP end timetable. (Newswires)

German Chancellor-in-waiting Scholz looks to pick BIS Deputy Head of Banking Department Joachim Nagel to run Germany’s Bundesbank. (FT)

FX

In FX markets, the DXY edged marginal gains as it extended above the 96.00 level which has been a focal point for price action throughout the week ahead of the upcoming NFP report. In terms of the recent Fed rhetoric, Bostic reiterated the Fed needs to taper bond purchases which have served their purpose and that tapering will give more optionality for a lift-off, while Daly suggested that they may need to taper faster, as well as start crafting a plan to think about raising rates and Mester noted that she would support at least one rate hike next year but added that two may be appropriate. Furthermore, there were also positive developments in Congress where the House and Senate both passed the stopgap funding bill to avert a government shutdown and fund the government through to February 18th. EUR/USD was lacklustre after the single currency slipped back beneath 1.1300 amid the marginal gains in the greenback. GBP/USD was tame after failing to sustain the 1.3300. USD/JPY was rangebound amid the tentative overnight mood and JPY-crossed languished near the prior day’s lows, while AUD/USD and NZD/USD continued to retreat after recently giving up the 0.7100 and 0.6800 handles, respectively.

Fitch affirmed Turkey at BB-; Outlook revised to Negative from Stable, cites CBRT's premature monetary policy easing cycle and prospect of further rate cuts amongst other things

Fonterra lifted and narrowed its 2021/22 forecast for farmgate milk prices to NZD 8.40-9.00 per KGMS, while it expects milk supply will be less than last season's 1,539mln KGMS. (Newswires)

COMMODITIES

Commodities were kept afloat with outperformance in WTI crude futures which fully recouped OPEC+ induced losses after producers agreed to proceed with their plans for incremental production increases of 400k bpd for January but noted that it would review supply additions prior to the next meeting and could adjust the planned supply hike if markets change. Nonetheless, crude prices recovered from the initial wobble to test USD 68/bbl to the upside as risk appetite improved during Wall Street hours and with plenty of doubts regarding the Iran nuclear talks as the Iranian Foreign Minister was said to not be optimistic about US and European will and intention in Vienna talks. Gold eked marginal gains but with upside limited by a steady greenback and ahead of today's jobs data, while copper gained with late support seen as the Asia bourses gradually shrugged off their initial tentativeness.

Algeria's Energy Minister said oil market fundamentals are resilient despite the new variant and release of reserves, while he later noted that OPEC+ compliance with oil production cuts is at 116% in November. (Newswires)

White House Press Secretary said the administration welcomes the OPEC+ decision, while it was also reported that the US is planning to propose in the coming days the amount of biofuels that oil refiners must blend into their mix this year and next year. (Newswires)

GEOPOLITICAL

US Chairman of the Joint Chiefs of Staff General Milley said there are enough indicators and warning signals regarding Russian military movements near Ukraine to cause a lot of concern and noted significant national security interests for US and NATO if Russia intervenes militarily in Ukraine, while the official was a little bit more concerned about potential Russian intervention in Ukraine compared than the official was in April. (Newswires)

Russia Foreign Minister Lavrov said he proposed Russia and US cancel all limits of the work on respective diplomatic missions and start afresh. (Newswires)

Belarusian Foreign Ministry said it could impose asymmetrical measures in response to EU sanctions. (Newswires)

US

Treasuries flattened for the third day in a row, with the front-end driving the action again, while stocks and commodities enjoyed the risk recovery; less commotion on the second and third reported US Omicron case. At settlement, 2s +5.6bps at 0.619%, 3s +5.9bps at 0.895%, 5s +5.5bps at 1.210%, 7s +3.5bps at 1.389%, 10s +1.4bps at 1.448%, 20s +0.0bps at 1.851%, 30s -1.2bps at 1.767%. 5yr TIPS +5.3bps at -1.533%, 10yr TIPS -0.8bps at -1.041%, 30yr TIPS -4.9bps at -0.550%. 5yr BEI -1.4bps at 2.743%, 10yr BEI +5.5bps at 2.465%, 30yr BEI +5.7bps at 2.333%. T-Note Mar'22 futures hit highs of 131-05 late on Wednesday as stocks found their lows in wake of the first Omicron US case and the latest hawkish Fed tilt, the contracts then retreated to interim lows of 130-19 (10s at 1.46%) around the European stock open. Bidding then emerged into the NY handover. The strength was part spillover from the acute rally in German Bunds, where the risk aversion was greater given Merkel confirming a nationwide lockdown for the unvaccinated and the plans for mandatory vaccination from February. T-Notes hit highs of 130-31+ just before the NY stock open, led by the long-end as flattening bets saw the Ultra Bond hit session highs (30s hit 1.737%, the lowest since Q1 '21). But, stocks rallied out of the open, and the long-end eventually buckled to the sustained selling pressure on the front-end; 5yr TIPS yields made new YTD peaks above -1.50% amid the hawkish market shifts. USTs were already making new session lows before the deluge of regional Fed presidents hit the tape, with all of them, even Daly, getting behind the hawkish tilt Powell launched earlier this week. T-Notes saw lows of 130-14+, and cash 10s yield highs of 1.466%, before hovering just above the support into the settlement. The Treasury reopening auction announcements for next week's 3s, 10s, and 30s auctions were also likely supporting the selling pressure. T-note (H2) futures settle 10+ ticks lower at 130-19.

Fed's Barkin (2021, 2024 voter) said inflation has gone up faster than he expected due to the virus and that long-term inflation expectations are always a concern, while he added it is important to have them at the Fed's target and he is supportive of normalizing monetary policy as the Fed is doing. (Newswires)

Fed's Bostic (2021 voter) said they have seen a pretty robust recovery in employment and GDP growth although inflation is elevated and the Fed must stay on top of that, while he stated that uncertainty over inflation has an ability to prolong inflation environment for longer and the longer there is higher inflation, the greater the risk. Bostic added that the Fed needs to taper bond purchases which have served their purpose and tapering will give more optionality for a lift-off. Furthermore, he noted that he had forecast one rate hike for 2022 in September forecasts but stated there will be a case to pull forward hikes and do more than one if inflation stays elevated in 2022. (Newswires)

Fed's Daly (2021, 2024 voter) said long-run inflation expectations have been remarkably stable, giving her confidence that people still believe the Fed is credible, while she added that they may need to taper faster and start crafting a plan to think about raising rates. Furthermore, she doesn't anticipate raising rates above the neutral rate of interest. (Newswires)

Fed's Mester (2022, 2024 voter) said Omicron threatens to stoke US inflation and could exacerbate supply chain squeeze and worker shortages. Mester added that she would support at least one rate hike next year and that two may be "appropriate"; while she supports Fed Chair Powell regarding a faster QE taper. (Newswires)

US House voted 221 vs 212 to pass the short-term government funding bill and fund the government through to February 18th and the Senate also voted 69 vs 28 to pass the stopgap funding bill after a deal was made to avert a government shutdown, while the Republican proposal to remove funding for vaccine mandate from the stopgap funding bill was defeated. (Newswires)

Mexico’s Economy Minister said they are analysing different actions in response to the US proposal of fiscal incentives for imports of EV's to the US and that Mexico would retaliate with trade actions to safeguard its auto industry. (Newswires)