• Asia-Pac stocks traded mostly in the green following the positive close on Wall Street; US equity futures meandered higher overnight
• In FX, the DXY was indecisive, JPY underperformed, and AUD was boosted post-RBA as iron ore futures gained
• The RBA maintained its Cash Rate at 0.10% and weekly bond purchases at AUD 4bln until mid-February, as expected
• PBoC has lowered the relending rate by 25bps for agricultural and small companies, according to sources
• JPMorgan changed its BoE hiking forecast to February from December, due to the Omicron variant
• Looking ahead, highlights include German Industrial Output and ZEW Survey, supply from UK, Germany and the US

CORONAVIRUS UPDATE

White House said the possibility of pulling back southern-Africa travel bans is being discussed daily. (Newswires)

French PM Castex said the fifth wave of COVID requires new measures but the target is not to impose new lockdowns in France, just a curfew for now. Castex added that social distancing measures will be increased at primary schools and they are to aim for two to three days of work from home per week, where possible. (Newswires)

A leading scientist stated that the Omicron variant is already causing up to 1,000 infections a day in the UK, which is much more than the official figures suggest. (Sky News)

ASIA

Asia-Pac stocks traded mostly positive following the heightened risk appetite among global peers, including in the US, where the DJIA posted its best performance since March and all sectors in the S&P 500 finished positive. Omicron concerns abated throughout the session and resulted in notable outperformance across travel and leisure stocks, while the region also took its opportunity to digest the PBoC's recent RRR cut announcement and mostly better than expected Chinese trade data. The ASX 200 (+0.5%) was positive with broad gains across its sectors aside from utilities and with momentum helped after a lack of surprises at the RBA policy decision - which refrained from any policy tweaks. Nikkei 225 (+1.9%) outperformed and regained a firm footing above the 28k level as exporters benefitted from a weaker currency, and with the advances led by SoftBank which atoned for the recent declines in its portfolio companies. The Hang Seng (+1.1%) and Shanghai Comp. (Unch.) were both initially lifted in early trade after the announcement of the PBoC’s RRR cut, which is said to likely calm markets amid increasing developer risks, although the mainland bourse then gave back its gains after the PBoC continued to drain liquidity in its daily open market operations. Furthermore, reports that the PBoC lowered its relending rate by 25bps for agricultural and small companies also failed to boost the mainland as this is viewed as a more targeted supportive measure. Finally, 10yr JGBs declined and re-approached the key psychological 152.00 level on spillover selling from USTs as stocks gained and Omicron fears abated. The results of the latest 30yr JGB auction were mixed with higher accepted prices and lower yield offset by a weaker b/c and wider tail in price.

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. 6.3718 (prev. 6.3702)

Chinese Trade Balance (CNY)(Nov) 460.7B vs. Exp. 575.0B (Prev. 546.0B)

• Chinese Exports YY (CNY)(Nov) 16.6% vs. Exp. 15.1% (Prev. 20.3%)
• Chinese Imports YY (CNY)(Nov) 26.0% vs. Exp. 16.0% (Prev. 14.5%)
• Chinese Trade Balance (USD)(Nov) 71.72B vs. Exp. 82.75B (Prev. 84.54B)
• Chinese Exports YY (USD)(Nov) 22.0% vs. Exp. 19.0% (Prev. 27.1%)
• Chinese Imports (USD)(Nov) 31.7% vs. Exp. 19.8% (Prev. 20.6%)

CENTRAL BANKS

ECB policymakers are said to be reassessing the extent of their commitment to extra stimulus. Recent events have led to doubts among Governing Council members, which has been forecasting for months that inflation would fall back below its target and justify the continuation of stimulus. A policymaker added that they would be very uncomfortable committing to anything beyond end-Q2. (FT)

ECB's Holzmann said it is very unlikely that eurozone inflation will reach a level of below 2% in 2022 and stated that inflation to reach peak at the turn of the year. (Handelsblatt)

IMF said the ECB should maintain a highly accommodative policy stance and should look through transitory inflation pressures. It also noted that inflation risks remain tilted to the upside but underlying inflation in the inflation forecast for the euro area is expected to remain weak and that a modest revision to euro-area GDP forecast is possible. (Newswires)

JPMorgan changed its BoE hiking forecast to February from December due to the Omicron variant. (Newswires)

PBoC has lowered the relending rate by 25bps for agricultural and small companies, according to sources. (Securities Times)

China Daily stated the recent PBoC RRR cut can calm markets amid increasing risks for property developers, while front page comments in China Securities Times suggested that China is likely to reduce its Loan Prime Rate. (China Daily/China Securities Times)

The RBA maintained its Cash Rate Target at 0.10% and kept weekly bond purchases at AUD 4bln until mid-February, as expected. RBA reiterated that the Board is committed to maintaining highly supportive monetary conditions and will not increase the Cash Rate until actual inflation is sustainably within the 2%-3% target range. RBA noted that Australia's economy is recovering from the setback caused by the Delta outbreak and is expected to return to pre-Delta path in H1 next year, while it acknowledged that the Omicron variant is a new source of uncertainty but doesn't expect it to derail the recovery. RBA added that the Board will consider the bond purchase program at the February meeting and that holdings of Australian government bonds would total AUD 350bln by mid-February, which is providing significant support to the economy. Furthermore, its decision on bonds will be guided by three considerations which are the actions of other central banks, how the Australian bond market is functioning and most importantly, the actual and expected progress towards the goals of full employment and inflation consistent with the target. (Newswires)

RBNZ said the latest stress tests showed strengthening resilience in banking sector and the benefits of continuing to increase capital buffers. RBNZ added that stress test results showed New Zealand's banking system has a stronger resilience level than a year ago although a major stress event could make it difficult for banks to meet higher capital requirements, while findings will be utilised as an input into forthcoming liquidity policy review set to begin next year. (Newswires)

RBNZ Deputy Governor Bascand said central bankers must continue to look forward to "guard against the unpredictable" and he is confident their financial stability approach has strengthened and foundations are more solid. Bascand added that the RBNZ should not be held responsible for the housing market and that the bank's job is to limit financial stability risks and keep overall inflation under control, while he noted that the RBNZ can lean against house prices by increasing the cost and restricting availability of credit. (Newswires)

RBNZ Assistant Governor Hawkesby said long term inflation expectations remain anchored but short-term ones have increased and that they will take considered steps for now. Hawkesby expects the unemployment rate to drift up to about 4%, while he also noted there was more confidence that the New Zealand labour market is tight and will build inflation pressures. Furthermore, he stated that NZD is in a broad range of where it is expected to be and that a higher currency in the short-term will help us achieve objectives more quickly. (Newswires)

Hungary Central Bank Deputy Governor Virag said they need a long and predictable rate hike cycle in the base rate, while he added that they will not hike rates every week but will act with sufficient force when needed and that it is obvious the base rate hike cycle will continue this month. (Newswires)

UK/EU

UK Barclaycard November consumer spending rose 16% compared to November 2019 and UK consumer spending on non-essential items rose 17.7% vs. November 2019, which is the largest increase since start of the pandemic. (Newswires)

• UK BRC Retail Sales YY (Nov) 1.8% (Prev. -0.2%)
• UK BRC Total Retail Sales YY (Nov) 5.0% (Prev. 1.3%), largest increase since July

FX

In FX, the DXY was indecisive and gradually faded its early gains although remained above the 96.00 level, with downside limited by recent upside in US yields. EUR/USD languished after recent failed attempts to reclaim the 1.1300 handle, with the single currency blighted amid the COVID-19 situation in the bloc which prompted French PM Castex to announce new measures including the closure of nightclubs and extending the use of face masks, although he added that the target is not to impose new lockdowns with just a curfew for now. GBP/USD extended on gains after the recent comments from BoE’s Broadbent. USD/JPY climbed above 113.50 as the constructive risk tone spurred outflows from haven currencies, and the pair was also underpinned by widening yield differentials. Antipodeans were initially steady after inline Australian House Price data but eventually strengthened in the aftermath of the RBA policy, and amid a firm rise in iron ore prices coupled with the Chinese trade data. The RBA decision lacked any major surprises as the central bank kept the Cash Rate Target unchanged at 0.10% and its weekly bond purchases at AUD 4bln until mid-February, as expected.

COMMODITIES

Crude futures gained overnight, with the WTI contract reclaiming the USD 70/bbl level as fears surrounding the Omicron variant abated given the mild nature of infections so far - which in turn also provided a reprieve for the travel sector, while the PBoC RRR cut was also seen as supportive for activity. Furthermore, there were recent comments from the Iraqi oil minister who sees oil prices to reach over USD 75/bbl, whilst there remains uncertainty regarding Iranian nuclear talks - which may resume on Thursday. Gold prices kept to a tight range amid the indecisive mood in the Greenback and copper languished as its largest buyer China lagged its regional peers despite the recent PBoC action and mostly better than expected Chinese trade data.

Saudi Aramco announced a USD 15.5bln gas pipeline deal with a consortium of global investors which are led by Blackrock Real Assets and Hassana Investment Co., while the new venture is to lease and leaseback usage rights of Aramco's gas pipeline network over 20yrs. (Newswires)

Iraqi oil minister expects oil to reach over USD 75/bbl and said OPEC is trying to "positively contain" the energy market. (Newswires)

GEOPOLITICS

White House Press Secretary reiterated that US government officials will not attend the 2022 Winter Olympics in Beijing due to China's human rights record. In relevant news, US State Department said the US wants the private sector to operate with full information about what's transpiring in China's Xinjiang region and US House Speaker Pelosi said the House will take up the forced Uyghur labour in China bill this week. China's Embassy in Washington said the US diplomatic boycott of the Beijing Winter Olympics is a pretentious act that is a political manipulation and grave distortion of the spirit of the Olympic Charter, while it was separately reported that New Zealand Deputy PM Robertson announced diplomats will not attend Winter Olympics in China citing COVID-19 as the reason. (Newswires)

Iran talks could resume in Vienna on Thursday but it is not confirmed by everyone yet, according to WSJ's Norman. (WSJ)

US is reportedly mulling removing Russia from the SWIFT payments system, as well imposing sanctions against energy and President Putin's inner circle, according to Sputnik. Furthermore, CNN highlighted the "nuclear option" would be a removal from the SWIFT international payment system but officials are weighing a wide set of sanctions to deter Putin from launching an invasion into Ukraine. (Sputnik/CNN)

US Secretary of State Blinken reiterated US unwavering support for Ukraine in face of Russian aggression during a call with Ukraine's President, while they agreed on need to fully restore Ukraine sovereignty over its borders including Crimea. There were also earlier comments from a US official that the US is open to sending more troops to NATO allies if necessary and that they do not know if Russia has made a decision on further military escalation in Ukraine but it has put in place the capacity to do so, while the official added the US is not seeking conflict with Russia but will impose meaningful consequences when necessary for harmful actions. (Newswires)

Leaders of UK, US, Italy, France and Germany held a call regarding Ukraine and emphasised the need to provide a united front in the face of Russian threats and hostility. French President Macron said that western powers are determined to ensure Ukraine sovereignty is respected and US President Biden discussed shared concerns about the Russian military build up on Ukraine's borders during the call with leaders, while the leaders called for Russia to de-escalate tensions and agreed that diplomacy is the only way forward to resolve conflict in Donbas. Furthermore, the leaders are planning to speak again after the upcoming call between US President Biden and Russian President. (Newswires)

Saudi-led coalition destroyed two ballistic missiles launched towards Riyadh, according to local press. (Newswires)

US

Treasuries sold across the curve Monday in thin trade with the belly weakest in a fade of Friday's rally and supply on the radar. Futures volumes have been below average. At settlement, 2s +4.4bps at 0.635%, 3s +6.5bps at 0.909%, 5s +8.6bps at 1.210%, 7s +9.4bps at 1.385%, 10s +9.3bps at 1.434%, 20s +8.7bps at 1.846%, 30s +8.3bps at 1.758%. 5yr TIPS -7.1bps at -1.601%, 10yr TIPS -0.5bps at -1.045%, 30yr TIPS +8.5bps at -0.514%. 5yr BEI +6.2bps at 2.811%, 10yr BEI +2.7bps at 2.455%, 30yr BEI +0.2bps at 2.288%. T-notes gapped lower to 131-07 at the CME open and then gradually declined through the APAC and European Monday session with little major catalysts except the announced RRR cut in China. There was some chop in the NY handover before new lows were made after the NYSE stock open amid indices further paring their Friday losses. USTs found their way back to pre-NFP levels (130-26 for T-Notes/1.43% for cash 10s) with an eye on supply, including a busy IG USD market Monday, ahead of the Treasury auctions this week. Looking ahead, the calendar is very light this week with the Fed in blackout and the highlight being CPI on Friday ahead of the slew of central bank decisions next week. That will serve to amplify the festive season thin liquidity conditions, while rates traders still active will have eyes on the Treasury reopening. Otherwise, the Fed's buybacks could have more weight to them this week due to the (expected) thinner trade. Indeed, 5yr TIPS yields sunk lower Monday amid the front-end buyback, while Tuesday's long-end buyback (22.5-30yr sector) will serve as an opportunity for participants to make room for Thursday's 30yr auction. T-note (H2) futures settle 25+ ticks lower at 130-21.

US Senate Minority Leader McConnell said he will probably end up supporting the re-nomination of Fed Chair Powell. (Newswires)

US House Majority Leader Hoyer hopes to deal with the debt limit in the House this week and said including the debt limit increase in the National Defense bill is a "possibility" but does not know if it is a "probability". (Newswires)