• Broader sentiment was dented on UK COVID Plan B updates; US equity futures mostly hold onto mild gains
• UK sources suggest an 85% chance of implementing COVID Plan B, potentially from Thursday; press conference at 17:30GMT/12:30EST
• Apple (+0.7% pre-mkt) was forced to scale back its total output target for 2021 and reportedly told suppliers to accelerate iPhone production for November-January
• House approved the measure to speed the debt limit increase, with the Senate also likely to conduct a vote on Thursday
• China is to tighten rules for tech companies seeking foreign funding and is preparing a blacklist that is seen to tightly restrict main channel used by start ups to attract foreign capital and list abroad
• Looking ahead, highlights include US JOLTS, BoC Policy Announcement, supply from the US

CORONAVIRUS UPDATE

UK sources suggest an 85% chance of implementing COVID Plan B, according to Times' Dunn; reports indicate such restrictions could be implemented on Thursday, potential for an announcement today. UK cabinet is penciled in for 15:45GMT and presser for 17:30GMT on Plan B, according to BBC's Goodall. (Twitter)

UK government is reportedly drawing up plans for a Christmas work from home order as PM Johnson considers measures to slow the spread of the Omicron variant. (Telegraph) UK officials are reportedly weighing plans for the introduction of vaccine passports to slow the spread of Omicron. Sources state that work on implementing plan B has been stepped up, and this would include work-from-home guidance, vaccine passports for nightclubs, alongside guidance on indoor and outdoor events. (Times)

Norwegian Prime Minister said they must install more restrictions to control the spread of COVID but must avoid a full lockdown of society. The PM added that there should be no more than 10 visitors in private homes, while bars and restaurants must stop serving alcohol from midnight every day and they will introduce new economic compensations for companies hit by COVID restrictions. (Newswires)

ASIA

Asian equity markets traded positively as the region took impetus from the global risk momentum following the tech-led rally in the US, where Apple shares rose to a record high and amid increased optimism that Omicron could be less dangerous than prior variants. This was after early hospitalisation data from South Africa showed the new variant could result in less severe COVID and NIH's Fauci also suggested that Omicron was 'almost certainly' not more severe than Delta, although there were some slight headwinds in late Wall Street trade after a small study pointed to reduced vaccine efficacy against the new variant. The ASX 200 (+1.3%) was underpinned in which tech led the broad gains across sectors as it found inspiration from the outperformance of big tech stateside, and with energy bolstered by the recent rebound in underlying oil prices. The Nikkei 225 (+1.4%) conformed to the upbeat mood although further advances were capped after USD/JPY eased off the prior day’s highs and following a wider-than-expected contraction to the economy with the final annualised Q3 GDP at -3.6% vs exp. -3.1%. The Hang Seng (+0.1%) and Shanghai Comp. (+1.2%) were less decisive and initially lagged behind their peers as sentiment was mired by default concerns due to the failure by Evergrande to pay bondholders in the lapsed 30-day grace period on two USD-denominated bond payments and with Kaisa Group in a trading halt after missing the deadline for USD 400mln in offshore debt which didn’t bode well for its affiliates. Furthermore, China Aoyuan Property Group received over USD 650mln in repayment demands and warned it may not be able to meet debt obligations, while a subdued Hong Kong debut for Weibo shares which declined around 6% from the offer price added to the glum mood for Hong Kong’s blue-chip tech stocks, as did reports that China is to tighten rules for tech companies seeking foreign funding. Finally, 10yr JGBs languished after spillover selling from T-notes and due to the heightened global risk appetite, but with downside stemmed by support at the key psychological 152.00 level and amid the presence of the BoJ in the market today for over JPY 1.0tln of JGBs.

• PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires)
• PBoC set USD/CNY mid-point at 6.3677 vs exp. 6.3632 (prev. 6.3738)

China is to tighten rules for tech companies seeking foreign funding and is preparing a blacklist that is seen to tightly restrict main channel used by start ups to attract foreign capital and list abroad. (FT)

UK government reportedly mulls a ministerial boycott of Beijing Olympics but would permit a limited government attendance that would stop short of a full-on diplomatic boycott. It was also reported that Japan's government is considering restricting cabinet-level officials from attending the Beijing Olympics and Australian PM Morrison confirmed Australia will not send government officials to the Beijing Olympics. (Newswires/Telegraph)

Japan's government plans to prevent large firms that raise wages by less than 1% from receiving tax cuts on investments, while it will give a tax deduction of up to 30% on taxable income for companies which raise wages by 4%, and up to a 40% deduction on small firms that raise wages by 2.5%. (Newswires)

Japanese GDP Revised QQ (Q3) -0.9% vs. Exp. -0.8% (Prev. -0.8%); Rev QQ Annualised (Q3) -3.6% vs. Exp. -3.1% (Prev. -3.0%)

CPCA, China's auto industry body, says China sold 1.84mln passenger vehicles in November, -12.5% YY (prev. -14.1%); Tesla (TSLA) sold 52.9k China-made vehicles (prev. 54.4k in October). (Newswires)

CENTRAL BANKS

ECB's Rehn says ECB's Rehn says there is no need for additional programs as APP and PEPP are enough. ECB will begin to gradually normalise policy; it may be possible to have some clarity within some weeks; inflation peak should ease from early next year, added sometimes it is best to take time in making decisions; uncertainty exceptionally high for policy normalisation. (Newswires)

ECB's de Guindos says current phase of higher inflation could last longer than previously thought; no evidence of second-round inflation effects. (Newswires)

ECB's Kazaks says PEPP should conclude in March, as planned; can see inflation returning to 2%; further stimulus only needed if Omicron really hurts growth. (Newswires)

ECB's Villeroy says French 2021 economic growth is seen at 6.7%. (Newswires)

Riksbank's Jansson says he has difficulty seeing an inflation picture that would motivate a hike at the end of the forecast period (Q4-2024). (Newswires)

RBI kept Repurchase Rate at 4.00% and Reverse Repo Rate at 3.35% as expected, while it maintained its accommodative stance as voted by 5 out of the 6 MPC members. RBI Governor Das said the MPC was of the view that a sharp reduction in new COVID-19 infections is contributing to consumer confidence but noted that a recovery of aggregate demand hinges on private investment which is still lagging and that continued policy support is still warranted given slack in economy and ongoing catch up in activity. Furthermore, Das stated the MPC sees continued policy support required for a durable recovery and the recovery is not yet strong enough to be self sustaining and durable, while downside risks to outlook have risen due to emergence of Omicron variant. (Newswires)

Russian Central Bank monetary policy chief says the CBR may return to fine-tuning policy when rate is adequate to high inflation and inflationary expectations. (Newswires)

Turkish President says will bring inflation and exchange rate down through low interest rates. Reiterates does not believe in high interest rates. FX reserves not an issue and hopefully to increase in the coming period. Believes they will reverse the attack on the TRY. (Newswires)

US

US House voted (222-212) to approve measure to speed the debt limit increase. The House had earlier released details to increase the debt ceiling in a fast-track process that would be approved by a simple majority, which would be allowed just this one time. (Newswires/CNN/CNBC)

Apple (AAPL) was forced to scale back total output target for 2021 and will make only 83mln-85mln units in the iPhone 13 range by year-end vs ambitious goal of 95mln units, according to Nikkei. iPhone and iPad assembly was halted for several days due to supply chain constraints and restrictions on the use of power in China, multiple sources told Nikkei. Apple reportedly told suppliers to quicken iPhone output from November to January. (Nikkei)

UK/EU

"Another Conservative MP tells me “letters will be going in” calling for PM’s resignation." via ITV's Brand. (Twitter). Note, as Brand does caveat, Conservative MPs often make such threats, so it remains to be seen as to whether letters will be placed and how much traction they will gain.

GEOPOLITICAL

Russian Kremlin aide Ushakov said Putin and Biden suggested a normalisation of US-Russian relations, although there were no breakthroughs in talks and its hard to predict sudden breakthroughs for now. Furthermore, Ushakov said it is too early to draw conclusions and resolving problems in US-Russian ties is not the work of one month and perhaps not one year either, while when he was asked if Putin gave Biden assurance Russia would not attack Ukraine, Ushakov responded that was not what discussions were about. There were also separate comments from the Ukraine Presidential Office the the Biden-Putin call did not bring sensations. (Newswires)

Indian army helicopter crashes in Tamil Nadu, with Chief of Defence staff reportedly on board, according to Sputnik. (Sputnik) At least four deaths after the helicopter which was carrying the Indian Defence Chief crashed, sources. (Newswires)

EQUITIES

Equities in Europe shifted to a lower configuration after a mixed open (Euro Stoxx 50 -0.7%; Stoxx 600 -0.1%) as sentiment was dented by rumours of tightening COVID measures in the UK. Markets have been awaiting the next catalyst to latch onto for direction amidst a lack of fresh fundamentals. US equity futures have also been dented but to a lesser extent, with the YM (-0.1%) and ES (Unch) straddling behind the NQ (+0.2%) and RTY (+0.2%). Sources in recent trade suggested an 85% chance of the UK implementing COVID Plan B, according to Times' Dunn; reports indicate such restrictions could be implemented on Thursday, with the potential for an announcement today. In terms of the timings, the UK cabinet is penciled in for 15:45GMT and presser for 17:30GMT on Plan B, according to BBC's Goodall. Note, this will not be a formal lockdown but more so work-from-home guidance, vaccine passports for nightlife and numerical restrictions on indoor/outdoor gatherings. APAC closed in the green across the board following the tech-led rally in the US. The upside overnight was attributed to a continuation of market optimism after early hospitalisation data from South Africa showed the new variant could result in less severe COVID, albeit after a small study pointed to reduced vaccine efficacy against the new variant. Participants will be closely watching any updates from the vaccine-makers, with the BioNTech CEO stating the drugmaker has data coming Wednesday or Thursday related to the new COVID-19 variant, thus markets will be eyeing a potential update this week ahead of the Pfizer investor call next Friday. Back to European, the UK’s FTSE 100 (Unch) and the Swiss SMI (+0.8%) are largely buoyed by their defensive stocks, with sectors seeing a defensive formation, albeit to a slightly lesser extent vs the open. Healthcare retains its top spot closely followed by Food & Beverages, although Personal & Household Goods and Telecoms have moved down the ranks. On the flip side, Retail, Banks and Travel & Leisure trade at the bottom of the bunch, whilst Tech nursed some earlier losses after opening as the lagging sector. In terms of individual movers, Nestle (+1.8%) is bolstered after announcing a CHF 20bln share repurchase programme alongside a stake reduction in L'Oreal (+1.0%) to 20.1% from 23.3% - worth some EUR 9bln. L’Oreal has shrugged off the stake sale and conforms to the firm sectoral performance across the Personal & Household Goods. Meanwhile, chip names are under pressure after Nikkei sources reported that Apple (+0.8% pre-market) was forced to scale back the total output target for 2021, with iPhone and iPad assembly halted for several days due to supply chain constraints and restrictions on the use of power in China, multiple sources told Nikkei. STMicroelectronics (-1.7%) and Infineon (-5.0%) are among the losers, with the latter also weighed on by a broker downgrade at JPM.

FX

DXY - The Dollar index continues to hold above 96.000, but bounces have become less pronounced and the range so far today is distinctly narrower (96.285-130) in fitting with the generally restrained trade in pairings within the basket and beyond, bar a few exceptions. Price action suggests a relatively muted midweek session unless a major game-changer arrives and Wednesday’s agenda does not bode that well in terms of catalysts aside from JOLTS and the BoC policy meeting before the second leg of this week’s refunding in the form of Usd 36 bn 10 year notes.

AUD/EUR - Notwithstanding the largely contained currency moves noted above, the Aussie is maintaining bullish momentum on specific factors including strength in iron ore prices and encouraging Chinese data plus PBoC easing that should have a positive knock-on effect for one of its main trading partners even though diplomatic relations between the two nations are increasingly strained. Aud/Usd has also cleared a couple of technical hurdles on the way up to circa 0.7143 and Aud/Nzd is firmer on the 1.0500 handle ahead of the RBA’s latest chart pack release and a speech by Governor Lowe. Elsewhere, the Euro has regained composure after its sub-1.1250 tumble on Tuesday vs the Buck and dip through 0.8500 against the Pound, but still faces psychological resistance at 1.1300 and the 21 DMA that comes in at 1.1317 today, while Eur/Gbp needs to breach the 100 DMA (0.8513) convincingly or close above to confirm a change in direction for the cross from a chart perspective.

CHF/CAD/JPY/GBP/NZD - All sitting tight in relation to their US counterpart, with the Franc paring some declines between 0.9255-30 parameters and the Loonie straddling 1.2650 in the run up to the aforementioned BoC that is widely seen as a non-event given no new MPR or press conference, not to mention the actual changes in QE and rate guidance last time. Nevertheless, implied volatility is quite high via a 63 pip breakeven for Usd/Cad. Meanwhile, Sterling lost grip of the 1.3200 handle amidst swirling speculation about the UK reverting to plan B and more Tory MPs calling for PM Johnson to resign, the Yen is rotating around 113.50 eyeing broad risk sentiment and US Treasury yields in context of spreads to JGBs, and the Kiwi is lagging after touching 0.6800 awaiting independent impetus from NZ manufacturing sales for Q3.

SCANDI/EM - The Nok extended its advantage/outperformance against the Sek as Brent rebounded towards Usd 76/brl in early trade and Riksbank’s Jansson retained reservations about flagging a repo rate hike at the end of the forecast horizon, while the Mxn and Rub also initially derived some support from oil with the latter also taking on board latest hawkish talk from the CBR. However, the Cny and Cnh are outpacing their rivals again with some assistance from a firmer PBoC midpoint fix to hit multi-year peaks vs the Usd and probe 6.3500 ahead of option expiry interest at 6.3000 and a Fib retracement at 6.2946, in stark contrast to the Try that is unwinding recent recovery gains with no help from the latest blast from Turkish President Erdogan - see 10.00GMT post in the Headline Feed for more. Conversely, the Czk has taken heed of CNB’s Holub underscoring tightening signals and expectations for the next rate convene and the Pln and Brl are anticipating hikes from the NBP and BCB.

FIXED INCOME

Markets were waiting in hope rather than real anticipation for a catalyst to spark activity ahead of JOLTS and the BoC, but got more than many bargained for given a somewhat surprisingly solid 10 year German debt sale that started to give Bunds a fillip before extended gains on a marked downturn in risk appetite prompted by reports/rumours of tighter UK COVID restrictions. The plan B news really rocked the boat and the safe-haven ball is still rolling to the benefit of 10 year benchmarks are now probing 175.00, 127.65 and 130-24 respectively with corresponding yields through -40 bp, sub-70 bp and under 1.44%. Hence, not the concession for impending T-note supply that was in place not long ago.

COMMODITIES

Crude futures have been hit on the prospect of imminent COVID-related measures in the UK, albeit the measures do not involve lockdowns. Brent and WTI front month futures slipped from European highs to breach APAC lows. The former dipped below USD 74.50/bbl from a USD 76.00/bbl European peak while its WTI counterpart tested USD 71.00/bbl from USD 72.50/bbl at best. Overnight the benchmarks traded on either side the USD 75/bbl mark and just under USD 72/bbl after the weekly Private Inventories printed a larger-than-expected draw (-3.6mln vs exp. -3.1mln), albeit the internals were less bullish. Yesterday also saw the release of the EIA STEO, cut its 2021 world oil demand growth forecast by an insignificant 10k BPD but raised the 2022 metric by 200k BPD – with the IEA and OPEC monthly reports poised to be released next week. On the vaccine front, a small preliminary study of 12 people showed a 40x reduction in neutralization capacity of the Pfizer vaccine against Omicron, but early hospitalisation data from South Africa showed the new variant could result in less severe COVID. BioNTech CEO said they have data coming in on Wednesday or Thursday related to the new Omicron variant. The geopolitical space is also worth keeping on the radar, with US President Biden yesterday warning Russian President Putin that gas exports via Nord Stream 2 will be targeted and more troops will be deployed if he orders an invasion of Ukraine. Further, reports suggested, an Indian army helicopter crashed in Tamil Nadu, with Chief of Defence staff reportedly on board, according to Sputnik. Note, Tamil Nadu is located towards the south of the country and away from conflict zones. Elsewhere spot gold was supported by the overnight pullback in the Dollar, but the recent risk aversion took the yellow metal above the 100 DMA around USD 1,790/oz, with nearby upside levels including the 200 DMA (1,792/oz) and the 50 DMA (1,794/oz). Copper prices meanwhile consolidated within a tight range, with LME copper holding onto a USD 9,500/t handle (just about). Dalian iron ore extended on gains in a continuation of the upside seen in recent trade.

US Private Inventory (bbls): Crude -3.1mln (exp. -1.7mln), Gasoline +3.7mln (exp. +1.8mln), Distillates +1.2mln (exp. +1.6mln), Cushing +2.4mln. (Newswires)