• The positivity seen heading into the European open dissipated; US equity futures are seeing modest broad-based losses
• US Democratic Sen. Manchin is skeptical that the Build Back Better bill can pass the Senate this year, CNN sources state
• 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; GBP was hit by a less hawkish Saunders and TRY saw CBRT intervention
• Ukraine Defence Minister says likelihood of an escalation on the part of Russia exists, most probably end of January
• Looking ahead, highlight include US Markit Services PMIs, US and Canadian Labour Market Reports, US ISM Services, US Durable Goods, ECB’s Lane, Fed’s Bullard

CORONAVIRUS UPDATE

WHO spokesperson says have not seen death linked to Omicron variant just yet. (Newswires)

BioNTech (BNTX) CEO says it is not clear if vaccinated people have sufficient protection to avoid severe disease from new variant; anticipate vaccinated people will be protected from severe disease. (Newswires)

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 (+1.0%) 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 (-0.1%) 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)

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)

CENTRAL BANKS

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)

BoE’s Saunders (hawk) says it is likely that any rise in Bank Rate will be limited given that the neutral level of interest rates remains low; the pace, and scale, of any monetary policy changes will depend on economic developments and the outlookIn particular, at the December meeting, a key consideration for me will be the possible economic effects of the new Omicron Covid variant, and the potential costs and benefits of waiting to see more data on this before – if necessary – adjusting policy. But continued delay also could be costly. If the economy continues along its recent path, then maintaining the current highly accommodative policy stance would probably allow the labour market to tighten further and, with inflation well above target, reinforce risks of a further rise in long-term inflation expectations. This could require a more abrupt and painful policy tightening later. (BoE)

ECB's Lagarde says we do not know how quickly Omicron will propagate within the Eurozone; added that ECB needs to give markets some policy guidance in December. Very unlikely to see rate hikes in 2022. Impact on the economy will depend on measures taken. (Newswires)

ECB's Knot says the ECB continues to believe that inflation is mostly a temporary phenomenon. Cannot rule out interest rate increase in 2023 if inflation in 2022 exceeds expectations. (Newswires)

Chinese Premier Li will cut RRR in a timely way, will keep liquidity reasonably ample, will keep prudent monetary policy, will implement stable macro economic policies. (Newswires)

CBRT intervenes in the FX market; selling USD. (Newswires)

US

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)

US Democratic Sen. Manchin is skeptical that the Build Back Better bill can pass the Senate this year, potentially delivering a blow to Senate Majority Leader Schumer's push to get the bill approved by Christmas, CNN sources state. One Democratic senator pegged the likelihood that the bill could pass this year at "20-25%." (CNN) US Moderate Democratic Senator Sinema has been privately telling colleagues she doesn’t believe the Build Back Better Act will pass until after Christmas, sources stated. (Punchbowl)

EQUITIES

The positivity seen heading into the European open dissipated as the session went underway, with the region seeing more of a mixed configuration in cash markets (Euro Stoxx 50 -0.1%; Stoxx 600 Unch) – with no clear drivers in the run-up to the US jobs report. The release will be carefully watching measures of labour market slack to gauge the progress towards the Fed's 'three tests' for rate hikes, whilst the Fed appears almost certain to announce a quickening in the pace of asset purchase tapering at its December meeting (Full NFP preview available in the Newsquawk Research Suite). The recent downside in Europe also seeps into the US futures, with the RTY (-0.2%), NQ (-0.2%) and ES (-0.3%) posting broad-based losses as things stand. Sectors have shifted from the earlier firm cyclical layout to one of a more defensive nature, with Healthcare, Food & Beverages, and Personal & Household Goods making their way up the ranks. Travel & Leisure still sits in the green but largely owed to sector heavyweight Evolution (+6.3%) as the group is to acquire its own shares in Nasdaq Stockholm. Oil & Gas sits as the current winner as crude markets claw back a bulk of this week's losses. On the flip side, Basic Resources are hit as iron ore tumbled overnight. In terms of individual movers, Dassault Aviation (+8.0%) shares soared after France signed a deal with the UAE worth some EUR 17bln. Allianz (+1.0%) stays in the green after entering a reinsurance agreement with Resolution Life and affiliates of Sixth Street for its US fixed index annuity portfolio, with the transaction to unlock USD 4.1bln in value.

FX

DXY - It’s debatable whether this month’s US jobs data will carry as much weight as normal given that Fed rhetoric in the run up to the pre-FOMC blackout period has effectively signalled a faster pace of tapering and the likelihood of more hawkishly aligned dot plots. However, the latest BLS report could be influential in terms of shaping the tightening path once QE has been withdrawn, as markets continue to monitor unfolding COVID-19 developments with the main focus on vaccine efficacy against the new Omicron variant. In the meantime, Buck bulls have resurfaced to lift the index more firmly back above 96.000 and towards loftier levels seen earlier this week within a 96.075-324 range, eyeing Monday’s 96.448 peak ahead of the semi-psychological 96.500 mark and then the w-t-d best at 96.647 set the day after. Back to Friday’s agenda, Fed’s Bullard is due to speak and the services ISM rounds off the week.

AUD/NZD - The high betas are bearing the brunt of Greenback gains, but also bearish technical forces as the Aussie and Kiwi both lose sight of key chart and simple round number levels that were keeping them afloat or declines relatively contained at least. Aud/Usd is now probing 0.7050 and a Fib retracement just above, while Nzd/Usd is hovering around 0.6775 as the Aud/Nzd cross holds in the low 1.0400 zone.

JPY/CAD/CHF/GBP/EUR - All softer vs their US counterpart, with the Yen looking towards 113.50 for support with added protection from option expiry interest up to 113.60 in 1.1 bn, while the Loonie is relying on WTI to maintain recovery momentum before Canada and the US go head-to-head in the employment stakes. Usd/Cad is meandering in the low 1.2800 area as the crude benchmark regains Usd 68+/brl status from a sub-Usd 66.50 base and even deeper trough below Usd 62.50 in knee-jerk response to OPEC+ sticking to its output plan yesterday. Elsewhere, the Franc continues to straddle 0.9200, Sterling has retreated from 1.3300+ terrain again post-fractionally softer than forecast final UK services and composite PMIs, whilst a less hawkish speech from BoE hawk Saunders took Cable to a session low of 1.3255 and a 15bps Dec hike pricing fell from 51% to 26%. The Euro has also reversed from recent highs beyond 1.1300 amidst rather mixed Eurozone readings and pretty routine ECB rhetoric from President Lagarde plus GC members Knot, de Cos and de Guindos.

SCANDI/EM - No real traction from Brent’s recovery for the Nok, or a dip in Norway’s registered jobless rate and upward revisions to 2021 CPI and GDP projections from StatsNorway, but it is holding up better than the Sek in percentage terms vs the Eur irrespective of a pick-up in Sweden’s services PMI. Meanwhile, yet more thrills and spills in Turkey where CPI surpassed strong expectations and PPI accelerated faster than 50% y/y to propel Usd/Try to fresh record peaks before CBRT intervention.

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

FIXED INCOME

Trade remains fairly volatile, albeit ranges and price action not quite as wide or erratic/fickle in bonds than of late, but the pecking order has gradually shifted to leave Bund and the Eurozone peers lagging Gilts and US Treasuries. Indeed, the 10 year UK benchmark has just notched a new Liffe best at 126.85 post-Saunders and the 10 year T-note is back above par vs Bunds 10 ticks adrift, though off worst levels (172.46 Eurex low, -29 ticks on the day) amidst a general downturn in risk sentiment on the latest Omicron headlines (WHO underlining its greater transmissibility). Ahead, NFP the highlight in theory, but perhaps not practice on this occasion, Fed hawk Bullard and the US services ISM may all provide distractions from COVID-watch.

COMMODITIES

WTI and Brent front month futures continue to nurse losses seen earlier this week, with the post-OPEC downside completely erased alongside some more. To recap, oil contracts were under pressure from compounding COVID headlines at the start of the week and in the run-up to OPEC+ whereby ministers opted to keep production plans despite the Omicron variant and the recent SPR releases. Delving deeper into these themes, desks suggest that a dominant Omicron variant could actually be positive if the strain turns out to be milder than some of its predecessors – with the jury still out but initial reports from India and South Africa suggesting so. Regarding OPEC+, some oil traders suggest the move to maintain plans was more of a political strategy as opposed to an attempt to balance markets, with journalists also suggesting that tensions with the US have simmered down and the prospect of further SPR releases have significantly declined. Further, it's also worth bearing in mind that due to maintenance and underinvestment, the real output hike from OPEC+ producers will likely be under the 400k BPD. In terms of Iranian developments, updates have been less constructive, with sources suggesting that Iran is holding a tougher stance than during the June talks. Negotiations will break today and resume next week. Crude contracts are modestly lower on the week and well-off worst levels, with Brent Feb now back around USD 71.50/bbl (65.72-77.02 weekly range), while WTI Jan resides around USD north of USD 68/bbl (62.43-72.93/bbl). Elsewhere, spot gold and silver vary, with the former finding some overnight support around USD 1,766/oz as risk sentiment erred lower, whilst the cluster of DMAs remain around the USD 1,790-91/oz region. In terms of base metals, LME copper is flat on either side of USD 9,500/t. Overnight, Dalian iron ore futures fell amid a decline in mill demand, whilst China's steel hub Tangshan city is to launch a second-level pollution alert from December 3-10th, the local government said – providing further headwinds for iron demand.

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)

Russian Kremlin says that following the meeting between Foreign Minister Lavrov and Secretary of State Blinken there is divergence between the two sides on many points. (Newswires)

Iran nuclear talks joint commission to meet Friday at 13:00GMT, nuclear talks likely to resume next week after consultations according to ISNA. (Newswires)

Ukraine Defence Minister says likelihood of an escalation on the part of Russia exists, most probably end of January; says 94k Russian forces are near Ukraine's borders; there will be no provocations from Ukraine side, but says Ukraine is ready to fight back. (Newswires)

An Iranian source on this week's Iranian nuclear talks said there were significantly bigger gaps than in June. (Newswires)