• Early gains across equities faded; Euro Stoxx 50 +0.5%, ES -0.1%, NQ -0.5%
• PBoC cut the RRR effective from December 15th; 50bp reduction that will release CNY 1.2tln in liquidity.
• The DXY is pressured at fresh lows but retains 96.00+ status with peers mixed as havens lag
• US President Biden and Russian President Putin are to hold a phone call on Tuesday at 15:00GMT/10:00EST
• Saudi Aramco over the weekend raised official selling prices for Asia and US customers
• Crypto markets saw substantial losses over the weekend, with Bitcoin plunging over 20% on Saturday; BTC currently -11%
• Looking ahead, highlights include BoE's Broadbent and a Eurogroup meeting

CORONAVIRUS UPDATE

US President Biden’s administration is preparing to fast-track authorisation of revamped COVID-19 vaccines to address the Omicron variant. (Newswires) US CDC Director Walensky said that Omicron COVID-19 cases have been found in at least 15 US states but added that the Delta variant of COVID-19 still makes up the majority of US cases not Omicron. There were separate comments from NIH's Fauci that early reports were encouraging regarding the Omicron variant and that it doesn’t look like there’s a great severity to it with initial data from South Africa not showing a resulting surge of hospitalizations. Canada's Toronto Public Health announced the first confirmed COVID-19 cases in Toronto and it is currently investigating the cases of three Toronto residents that tested positive for the new variant. (Newswires)

UK ministers announced fresh restrictions for travellers entering the UK and will require pre-departure testing for all arriving passengers from this week. Government scientific advisers warned that COVID-19 pandemic will pose a threat for at least the next five years before settling into a predictable endemic state. Furthermore, it was reported that the overall number of confirmed Omicron variant cases in the UK is 246, while UK Health Security Agency noted on Friday that 12 of the first 22 cases of the new variant in UK involved people who were double jabbed but none of the 22 were hospitalised. (Newswires/FT/Daily Mail) A government adviser said it is too late to stop the Omicron variant in the UK. (Times)

Johnson & Johnson (JNJ) study showed value of mix and match approach with boosters as its COVID-19 booster administered six months after the BioNTech (BNTX) vaccine regimen, showed a substantial increase in antibody and T-cell responses. Eli Lilly (LLY) sees FDA grant EUA of two monoclonal antibodies for treatment of COVID-19 in young children, including newborns. Bavarian Nordic and Expres2ion Biotechnologies announced positive topline results of Phase 2 results for the ABNCoV2 vaccine candidate which demonstrated a strong boosting effect for neutralising antibodies to highly efficacious levels of over 90% against SARS-CoV-2. (Newswires)

Incoming German Chancellor Scholz confirms that Lauterbach will be the new Health Minister. (Newswires)

ASIA

Asian equities began the week cautiously following last Friday's negative performance stateside whereby the Russell 2000 and Nasdaq closed lower by around 2% apiece, whilst the S&P 500 and Dow Jones saw shallower losses. The Asia-Pac region was also kept tentative amid China developer default concerns and conflicting views regarding speculation of a looming RRR cut by China's PBoC. The ASX 200 (+0.1%) was initially dragged lower by a resumption of the underperformance in the tech sector, and with several stocks pressured by the announcement of their removal from the local benchmark, although losses for the index were later reversed amid optimism after Queensland brought forward the easing of state border restrictions, alongside the resilience in the defensive sectors. The Nikkei 225 (-0.4%) suffered from the currency inflows late last week but finished off worse levels. The Hang Seng (-1.8%) and Shanghai Comp. (-0.5%) were mixed with Hong Kong weighed by heavy tech selling and as default concerns added to the headwinds after Sunshine 100 Holdings defaulted on a USD 170mln bond payment, whilst Evergrande shares slumped in early trade after it received a demand for payments but noted there was no guarantee it will have the sufficient funds and with the grace period for two offshore bond payments set to expire today. Conversely, mainland China was kept afloat by hopes of a looming RRR cut after comments from Chinese Premier Li that China will cut RRR in a timely manner and a brokerage suggested this could occur before year-end. However, other reports noted the recent remarks by Chinese Premier Li on the reverse repo rate doesn't mean a policy change and that views of monetary policy moves are too simplistic which could lead to misunderstandings. Finally, 10yr JGBs were steady after having marginally extended above 152.00 and with prices helped by the lacklustre mood in Japanese stocks, while price action was tame amid the absence of BoJ purchases in the market today and attention was also on the Chinese 10yr yield which declined by more than 5bps amid speculation of a potentially looming RRR cut.

• 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 6.3702 vs exp. 6.3649 (prev. 6.3738)

PBoC cuts RRR by 50bps (as touted); effective 15th Dec; will release CNY 1.2tln in liquidity; RRR cut to guide banks for SMEs and will use part of funds from RRR cut to repay MLF. Will not resort to flood-like stimulus; will reduce capital costs for financial institutions by around CNY 15bln per annum.

• Follows earlier reports via China Securities Daily which noted that China could reduce RRR as soon as this month, citing a brokerage firm. However, a separate Chinese press report noted that recent remarks by Chinese Premier Li on the reverse repo rate doesn't mean that there will be a policy change and an Economics Daily commentary piece suggested that views of monetary policy moves are too simplistic and could lead to misunderstandings after speculation was stoked for a RRR cut from last week's comments by Premier Li. (Securities Daily/Economics Daily)

China’s securities regulator said it respects Chinese companies’ choice of listing venues on the basis of compliance and noted that the media report that China will ban companies with variable interest entity (VIE) structure from listing in the US is a total misunderstanding and misreading. Furthermore, CSRC noted that US demands for Chinese companies to delist from US stock exchanges are completely wrong but stated that it recently had constructive communication with the US SEC and PCAOB, while it will continue communicating with US counterparts to resolve accounting and regulatory issues. (Newswires)

Chinese developer Sunshine 100 defaulted on USD 170mln of bonds. (Newswires)

Evergrande (3333 HK) plans to include all offshore bonds as part of restructuring. (Newswires)

A volcano eruption in Indonesia killed at least 14 people and left dozens injured, according to the National Disaster Management Authority. (Newswires)

UK/EU

The BoE is reportedly poised to loosen mortgage lending rules. Officials are said to be mulling softening affordability checks for borrowers, with reviews said to be concluded next week. (Telegraph)

UK CBI cuts UK 2021 GDP growth forecast to 6.9% (prev. 8.2%) and 2022 forecast to 5.1% (prev. 6.9%). (Guardian)

UK PM Johnson reportedly ordered his team to de-escalate tensions with France and told colleagues not to react to recent provocations from France. (FT)

UK PM Johnson’s plan for “levelling up” will be delayed to 2022 after the government white paper that sets out details of the proposal was postponed to after the new year. (Newswires)

UK Chancellor Sunak reportedly instructed Treasury officials to draft plans to reduce the tax burden and is preparing to cut income tax by 2 pence in the pound prior to the next election, while another option being considered is to reduce inheritance taxes. (The Times)

UK will start a trial 'smart' customs border in an effort to lower trade frictions. (FT)

EU IHS Markit Construction PMI (Nov) 53.3 (Prev. 51.2); German IHS Markit Construction PMI (Nov) 47.9 (Prev. 47.7)

• EU Sentix Index* (Dec) 13.5 vs. Exp. 15.9 (Prev. 18.3)
• German Industrial Orders MM* (Oct) -6.9% vs. Exp. -0.5% (Prev. 1.3%, Rev. 1.8%)

UK IHS Markit Construction PMI (Nov) 55.5 (Prev. 54.6)

GEOPOLITICS

US President Biden's video call with Russian President Putin is scheduled for 15:00GMT/10:00EST on Tuesday, according to Russian spokesperson Peskov. Kremlin notes that Ukraine tensions, NATO and the security guarantees that Russia wants will be of focus in the US-Russian call. (Newswires)

Russia said it will protest an incident which occurred on Saturday in which a civilian aircraft had to divert over the Black Sea due to a US spy plane. (Newswires)

Iranian military air defences fired missiles to test the rapid reaction force of Natanz. In relevant news, a senior Iranian diplomat said they see no impasse in the Iran talks, while he added that Iran has provided other parties their draft proposals and encouraged them to come up with written responses or new ideas, according to journalist Abas Aslani. (Newswires/Twitter)

Intelligence-sharing by the US has reportedly convinced allies in EU and NATO that Russia could be set to invade Ukraine and nations including Germany are persuaded of the need to compile a threat of robust sanctions. (FT)

US Defense Secretary Austin suggested he was concerned about China’s continued incursions into Taiwan’s ADIZ and warned that the repeated incursions could be a rehearsal for an eventual invasion of Taiwan. In other news, US intelligence suggested that China is considering establishing its first military post on Africa’s Atlantic coast which has alarmed officials at the White House and Pentagon. (Newswires) The Biden administration is expected to announce that no US government officials will attend the 2022 Beijing Olympics, implementing a diplomatic boycott. (CNN)

Islamic State militias reportedly took over a village in Northern Iraq, according to security sources although there has been no official confirmation. (Newswires)

EQUITIES

Bourses in Europe kicked off the new trading week higher across the board but have since drifted lower (Euro Stoxx 50 +0.1%; Stoxx 600 +0.3%) following a somewhat mixed lead from APAC. Sentiment across markets saw a fleeting boost after the Asia close as China’s central bank opted to cut the RRR by 50bps, as touted overnight and in turn releasing some CNY 1.2tln in liquidity. This saw US equity futures ticking to marginal fresh session highs, whilst the breakdown sees the RTY (+0.6%) outpacing vs the ES (Unch), YM (+0.3%) and NQ (-0.6%), with the US benchmarks eyeing this week’s US CPI as Fed speakers observe the blackout period ahead of next week’s FOMC policy decision – where policymakers are expected to discuss a quickening of the pace of QE taper. From a technical standpoint, the ESz1 and NQz1 see their 50 DMAs around 4,540 and 16,626 respectively. Back to trade, Euro-indices are off best levels with a broad-based performance. UK’s FTSE 100 (+0.8%) received a boost from base metals gaining impetus on the PBoC RRR cut, with the UK index now the outperformer, whilst gains in Oil & Gas and Banks provide further tailwinds. Sectors initially started with a clear cyclical bias but have since seen a reconfiguration whereby the defensives have made their way up the ranks. The aforementioned Oil & Gas, Banks and Basic Resources are currently the winners amid upward action in crude, yields and base metals respectively. Food & Beverages and Telecoms kicked off the session at the bottom of the bunch but now reside closer to the middle of the table. The downside meanwhile sees Travel & Tech – two sectors which were at the top of the leaderboard at the cash open – with the latter seeing more noise surrounding valuations and the former initially unreactive to UK tightening measures for those travelling into the UK. In terms of individual movers, AstraZeneca (+0.7%) is reportedly studying the listing of its new vaccine division. BT (+1.2%) holds onto gains as Discovery is reportedly in discussions regarding a partnership with BT Sport and is offering to create a JV, according to sources. Taylor Wimpey (Unch) gave up opening gains seen in wake of speculation regarding Elliott Management purchasing a small stake.

FX

DXY - The Buck has settled down somewhat after Friday’s relatively frenetic session when price action and market moves were hectic on the back of a rather mixed BLS report and stream of Omicron headlines, with the index holding a tight line above 96.000 ahead of a blank US agenda. The Greenback is gleaning some traction from the firmer tone in yields, especially at the front end of the curve, while also outperforming safer havens and funding currencies amidst a broad upturn in risk sentiment due to perceivably less worrying pandemic assessments of late and underpinned by the PBoC cutting 50 bp off its RRR, as widely touted and flagged by Chinese Premier Li, with effect from December 15 - see 9.00GMT post on the Headline Feed for details, analysis and the initial reaction. Back to the Dollar and index, high betas and cyclicals within the basket are doing better as the latter meanders between 96.137-379 and well inside its wide 95.944-96.451 pre-weekend extremes.

AUD/GBP/CAD/NZD - A technical correction and better news on the home front regarding COVID-19 after Queensland announced an earlier date to ease border restrictions, combined to give the Aussie a lift, but Aud/Usd is tightening its grip on the 0.7000 handle with the aid of the PBoC’s timely and targeted easing in the run up to the RBA policy meeting tomorrow. Similarly, the Pound appears to have gleaned encouragement from retaining 1.3200+ status and fending off offers into 0.8550 vs the Euro rather than deriving impetus via a rise in the UK construction PMI, while the Loonie is retesting resistance around 1.2800 against the backdrop of recovering crude prices and eyeing the BoC on Wednesday to see if guidance turns more hawkish following a stellar Canadian LFS. Back down under, the Kiwi is straddling 0.6750 and 1.0400 against its Antipodean peer in wake of a pick up in ANZ’s commodity price index.

CHF/JPY/EUR - Still no sign of SNB action, but the Franc has fallen anyway back below 0.9200 vs the Buck and under 1.0400 against the Euro, while the Yen is under 113.00 again and approaching 128.00 respectively, as the single currency continues to show resilience either side of 1.1300 vs its US counterpart and a Fib retracement level at 1.1290 irrespective of more poor data from Germany and a deterioration in the Eurozone Sentix index, but increases in the construction PMIs.

SCANDI/EM - The aforementioned revival in risk appetite, albeit fading, rather than Riksbank minutes highlighting diverse opinion, is boosting the Sek, and the Nok is also drawing some comfort from Brent arresting its decline ahead of Usd 70/brl, but the Cnh and Cny have been capped just over 6.3700 by the PBoC’s RRR reduction and ongoing default risk in China’s property sector. Elsewhere, the Try remains under pressure irrespective of Turkey’s Foreign Minister noting that domestic exports are rising and the economy is growing significantly, via Al Jazeera or claiming that the Lira is exposed to high inflation to a degree, but this is a temporary problem, while the Rub is treading cautiously before Russian President Putin and US President Biden make a video call on Tuesday at 15.00GMT.

Turkish President Erdogan said that Turkey will provide low rates to its people and he hopes to stabilise FX early-2022. (Newswires)

Fitch raised Italy’s sovereign rating by one notch to BBB; Outlook Stable and it affirmed Russia at BBB; Outlook Stable, while Moody’s affirmed Turkey at BBB; Outlook Stable. (Newswires)

FIXED

US Treasuries remain softer and sidelined with the curve a tad flatter in the aftermath of last Friday’s conflicting jobs data, but Bunds and Gilts have been choppier after initial/early strength within 174.76-38 and 127.18-126.85 respective ranges vs their prior 174.49 and 126.87 closes on Eurex and Liffe (former now on the Mar22 contract as well). The core debt futures saw some small and fleeting upside in wake of the PBoC’s RRR cut pre-announcement, though not sufficient to threaten intraday highs and are not benefiting from any asset reallocation even though equities have pared a chunk of their best gains. However, Gilts are holding up a tad better than the Eurozone equivalent perhaps anticipating relatively dovish rhetoric from BoE’s Broadbent that might add to speculation that the MPC could refrain from a pre-year end hike awaiting more evidence on the impact of tighter restraints aimed at curbing the spread of Omicron.

COMMODITIES

WTI and Brent front month futures are firmer on the day with the complex underpinned by Saudi Aramco upping its official selling prices (OSPs) to Asian and US customers, coupled with the lack of progress on the Iranian nuclear front. To elaborate on the former; Saudi Arabia set January Arab light crude oil OSP to Asia at Oman/Dubai average +USD 3.30/bbl which is an increase from this month’s premium of USD 2.70/bbl, while it set light crude OSP to North-West Europe at ICE Brent USD -1.30/bbl vs. this month’s discount of USD 0.30/bbl and set light crude OSP to the US at ASCI +USD 2.15/bbl vs this month’s premium of USD 1.75/bbl. Iranian nuclear talks meanwhile are reportedly set to resume over the coming weekend following deliberations, although the likelihood of a swift deal at this point in time seems minuscule. A modest and fleeting boost was offered to the complex by the PBoC cutting RRR in a bid to spur the economy. WTI Jan resides on either side of USD 68/bbl (vs low USD 66.72/bbl) whilst Brent Feb trades around USD 71.50/bbl (vs low 70.24/bbl). Over to metals, spot gold trades sideways with the cluster of DMAs capping gains – the 50, 200 and 100 DMAs for spot reside at USD 1,792/oz, USD 1,791.50/oz and USD 1,790/oz respectively. Base metals also saw a mild boost from the PBoC announcement – LME copper tested USD 9,500/t to the upside before waning off best levels.

OPEC Secretary General Barkindo said OPEC will continue with supply adjustments to attain stability in the oil market. (Newswires)

Saudi Arabia set January Arab light crude oil OSP to Asia at Oman/Dubai average +USD 3.30/bbl which is an increase from this month’s premium of USD 2.70/bbl, while it set light crude OSP to North West Europe at ICE Brent –USD 1.30/bbl vs. this month’s discount of USD 0.30/bbl and set light crude OSP to US at ASCI +USD 2.15/bbl vs this month’s premium of USD 1.75/bbl. (Newswires)

Canada’s Trans Mountain said it successfully restarted its pipeline after completion of necessary assessments and repairs of protective earthworks required for a restart and will monitor the line, while it will continue with additional emergency work during the weeks ahead. (Newswires)

Russia's Gazprom will not hold auction for spot gas sales on its electronic sales platform this week, according to Gazprom exports. (Newswires)

CRYPTO

Crypto markets saw substantial losses over the weekend with Bitcoin (BTC) plunging over 20% on Saturday before finding support around USD 45k.

Crypto exchange Binance is reviving efforts to launch in the UK. (Telegraph)

Singapore’s financial regulator has reportedly suspended crypto exchange Bitget over a row with South Korean artists. (Guardian)