• European stocks have conformed to the risk appetite seen across global peers; US equity futures continue to rise - ES +1.3%
• In FX, the DXY is firmer but remains capped by 96.50, antipodeans outperform on base-metals while EUR & GBP are only marginally lower
• 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
• ECB policymakers are said to be reassessing the extent of their commitment to extra stimulus, given recent events, FT
• Looking ahead, highlights include supply from the US and a meeting between President's Biden & Putin

CORONAVIRUS UPDATE

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 (+1.0%) 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 (+2.7%) and Shanghai Comp. (+0.2%) 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)

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)

RBA-watcher McCrann says "After the latest RBA board meeting it is clear Australia is moving closer to a rate rise, not just potentially in 2023 but possibly even relatively early next year.". (Herald Sun)

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)

Norges Bank Regional Network Survey (25 Oct - 11 Nov): Business sector activity continues to rise. The reopening of society is boosting demand, but contacts expect weaker growth ahead. Over half of the contacts report capacity constraints. Since the interviews were conducted, we have seen a substantial increase in the number of COVID-19 infections. (Newswires)

US

US Senate Minority Leader McConnell said he will probably end up supporting the re-nomination of Fed Chair Powell. (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%); Total Retail Sales YY (Nov) 5.0% (Prev. 1.3%), largest increase since July

German ZEW Economic Sentiment (Dec) 29.9 vs. Exp. 25.1 (Prev. 31.7); Current Conditions (Dec) -7.4 vs. Exp. 5.0 (Prev. 12.5)

• EU ZEW Survey Expectations (Dec) 26.8 (Prev. 25.9)

GEOPOLITICS

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. Subsequently, the Chinese Foreign Ministry said the US' actions may harm bilateral dialogue and cooperation in important areas; China will take resolute countermeasures(Newswires)

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)

Russia's Kremlin says President Putin is ready to listen to US President Biden's concerns and to set out his own; does not expect a breakthrough in talks. (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)

Yemen Houthis fired several ballistic missiles and 25 armed drones on Saudi Arabia, including Aramco facilities in Jeddah. (Newswires)

EQUITIES

European stocks have conformed to the risk appetite seen across global peers (Euro Stoxx 50 +2.5%; Stoxx 600 +2.0%), which initially emanated from Wall Street, before seeping into APAC and reverberating in Europe. There is no clear catalyst behind the gains, although desks have been attributing the optimism to receding fears regarding the Omicron variant – with no recorded deaths thus far. That being said, some of the key tail risks to markets have not subsided, with liquidity also expected to be more anemic in the run-up to next week’s risk-packed docket before year end. Nonetheless, US equity futures are grinding higher with the NQ (+1.9%) in the lead, closely followed by the RTY (+1.7%), whilst the ES (+1.3%) and YM (+1.0%) see slightly less pronounced gains. Back in Europe, Euro-bourses see broad-based upside but the UK’s FTSE 100 (+1.1%) and the Swiss SMI (+0.7%) are capped by underperformance in the defensive sectors – with Healthcare and Food & Beverages towards the bottom of the bunch. Sectors are overall in the green with a clear and firm pro-cyclical bias. Tech leads the gains following its recent underperformance, with Basic Resources also among the winners as base metals post decent gains. In terms of individual movers GSK (+0.5%) remains supported after pre-clinical data demonstrate the potential for monoclonal antibody Sotrovimab to be effective against the latest variant, Omicron, plus all other variants of concern defined to date by the WHO. As a reminder, the co. last week said its COVID treatment Sotrovimab retains its activity against the Omicron variant. British American Tobacco (+2.1%) is firmer followed by a positive trading update alongside Babcock (+5.2%) and Ferguson (+4.0%). On the downside, AstraZeneca (-1.7%) resides towards the foot of the Stoxx 600 amid a downgrade at Jefferies, alongside the broader anti-defensive narrative. Looking at analysts’ commentary, Barclays suggests that the Fed is unlikely to over-deliver on the rate hikes that are already priced in, with the bank unphased by the recent Powell pivot and Omicron resurgence. Barclays maintains its positive view on 2022 equities and upgraded its European small caps to overweight on improving fundamentals but oversold performance, and downgraded Momentum to market-weight.

EU seeks input on Microsoft's (MSFT) USD 16bln deal for Nuance Communication; antitrust regulators ask if Microsoft will favour Nuance Communications over rivals in transcription technology, according to an EU document. (Newswires)

Indian bill seeking to ban crypto payments proposes making those who infringe the law subject to arrest without warrant and being held without bail, according to a document. (Newswires)

FX

DXY/AUD/NOK/SEK/CAD/NZD - Although the Buck remains bid on bullish US fundamentals and the index is finding plenty of underlying buying interest/support into 96.000, the overall market mood is constructive enough to help riskier currencies outperform, and shrug off another dovish RBA policy meeting in the case of the Aussie. Instead, Aud/Usd and Aud/Nzd are gaining more ground on the coattails of iron ore prices and favourable tradewinds, as Chinese imports surged beyond expectations and outpaced exports that also beat consensus to leave the surplus somewhat short of the mark. The headline pair reached 0.7101 before running into resistance and 1.2 bn option expiry interest at the 0.7100 strike, while the cross has breached 1.0450 convincingly to expose 1.0500 ahead of NZ Q3 manufacturing sales on Wednesday and following RBNZ Assistant Governor Hawkseby sticking to a considered line on further rate normalisation overnight. He also said the Kiwi 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. Nzd/Usd is still rotating around 0.6750, while the Loonie is latching on to the latest leg up in WTI over Usd 71/brl to test offers protecting 1.2700 vs its US rival in advance of Canadian and US trade data, Ivey PMIs and tomorrow’s BoC, with the DXY fading following a fleeting breach of Monday’s peak within 96.447-168 confines, Note also, 1.1 bn option expiries reside between 1.2750-55 in Usd/Cad and could cap recovery rallies. Elsewhere, the Scandinavian Crowns continue to rebound from recent lows against the Euro, and Brent’s bounce to the brink of Usd 75/brl is helping the Nok probe 10.2000 rather than a somewhat mixed Norges Bank regional network survey, while the Sek is lagging circa 10.2400 amidst Riksbank concerns over the lack of liquidity and transparency in Sweden’s corporate bond market that needs to be addressed.

CHF/GBP/EUR/JPY - The G10 laggards to varying degrees, with the Franc trying to pare losses from sub-0.9250 vs the Dollar and more successfully against the Euro from almost 1.0450 towards 1.0400, while the Pound is holding mostly above 1.3250 in Cable terms and Eur/Gbp is pivoting 0.8500 as the single currency remains under the psychological 1.1300 level vs the Greenback irrespective of supportive Eurozone macro impulses via better than forecast German industrial output and ZEW economic sentiment over bleak current conditions. Similarly, the Yen remains weak on risk and rate/yield dynamics and Usd/Jpy is now firmer within a loftier 113.40-74 range before a raft of Japanese releases including Q3 GDP revisions and October’s current account balance.

EM - More easing in China, but resilience or even ongoing strength in the Cny and Cnh in wake of the PBoC shaving 25 bp off the relending rate for agricultural and small companies, according to sources in the Securities Times that also suggests in tune with the China Daily that an LPR cut may be in the offing. Conversely, weakness in the Rub awaiting the call between Putin and Biden and the Zar on the back of SA GDP missing already low-key expectations, but the Try is nursing some declines in what could be reasonably described as intervention fashion.

FIXED

It’s two down and one to go on the auction front and any qualms about cash buyers getting cold feet in the current less favourable bond environment have been allayed for the time being as Germany’s short-dated offerening and the UK’s 2051 sale both received a friendly welcome in terms of cover vs previous outings of the same maturities, or similar. However, extended gains in equities and the broadly upbeat tone is keeping Bunds, Gilts and US Treasuries below par, albeit not as weak as they were within 174.52-06, 126.98-68 and 130-25+/16 ranges for the respective 10 year futures. Ahead, a fairly busy pm agenda comprising data, surveys and the Usd 54 bn 3 year note leg of refunding.

COMMODITIES

WTI and Brent front-month futures are firmer on the session, buoyed by the risk appetite across the markets. From a fundamental standpoint, the benchmarks remain underpinned by the lack of progress in Iranian nuclear talks coupled with the OSP hike seen by Saudi Aramco over the weekend for Asia and US customers – typically a reflection of firmer demand. The morning also saw some reports suggesting Yemen Houthis fired several ballistic missiles and 25 armed drones on Saudi Arabia, including Aramco facilities in Jeddah, but details remain light. Aside from that, the morning’s newsflow has been on the quiet side, with the macro environment currently dictating price action. WTI Jan is back on a USD 71/bbl handle (vs low 69.50/bbl) while Brent Feb topped USD 75.00/bbl (vs low USD 73.20/bbl). In terms of bank forecasts, Citi sees a dramatic fall in energy prices from Q4 2021 to Q4 2022 averages – with Brent seen at USD 62/bbl (from USD 79/bbl) and WTI seen at USD 59/bbl (from USD 75/bbl). Over to metals, spot gold and silver move in tandem with the Buck featuring the former around USD 1,780/oz and caged below that cluster of DMAs which today sees the 50, 100 and 200 at USD 1,793/oz, USD 1,790/oz and USD 1,791/oz respectively. Elsewhere LME copper takes impetus from the broader risk appetite, with prices back north of USD 9,500/t and extending on gains, with the Chinese trade data also supportive for the base metal complex. Overnight, Dalian iron ore futures gained focus as prices were bolstered by the recent liquidity action taken by the PBoC coupled with more sanguine commentary surrounding the Chinese housing market, according to some analysts.

Citi sees a dramatic fall in energy prices from Q4 2021 to Q4 2022 averages; Brent seen at USD 62/bbl (from USD 79/bbl), WTI seen at USD 59/bbl (from USD 75/bbl)