• Asian equity markets eventually traded mixed as the early tailwinds from the US gradually waned
• In FX, the DXY recouped some of its recent losses, EUR was subdued and JPY was indecisive
• Chinese PPI topped expectations whilst CPI Y/Y missed but registered the fastest pace of increase since August last year
• PBoC is reportedly seeing its special status beginning to erode with the government starting to push its influence on the central bank, according to WSJ
• Brazil Central Bank raised the Selic rate by 150bps as expected; sees a similar hike at the next meeting
• German Chancellor Scholz is looking at imposing sanctions on Nord Stream 2 pipeline if Russia invades Ukraine
• Looking ahead, highlights include the Swiss SECO Forecasts, US IJC, and supply from the US

CORONAVIRUS UPDATE

UK PM Johnson announced a move to COVID-19 "Plan B" and that people should work from home from Monday, if possible, while they will further extend face mask requirements to most public venues from Friday. He added that the Omicron variant is growing much faster than the previous variant with evidence that the doubling time of the variant could be between 2-3 days and said they cannot assume Omicron is less severe than previous variants. Furthermore, they will make the NHS COVID-19 pass mandatory to nightclubs, venues and places with large crowds, while businesses will be given a week's notice for NHS COVID pass requirements. (Newswires)

Denmark will close all bars and night clubs as it takes more measures to tackle COVID spread. (Newswires)

Japanese scientist study of genome data in South Africans found the Omicron variant to be 4.2 times more transmissible in its early stage than Delta. (Newswires)

ASIA

Asian equity markets eventually traded mixed as the early tailwinds from the US gradually waned despite the recent encouragement on the vaccine front. All major US indices were underpinned in which the S&P 500 reclaimed the 4,700 level and approached closer to its ATHs, while Apple extended on record levels and moved closer to USD 3tln valuation. The ASX 200 (-0.3%) was initially kept afloat by resilience in defensives, although upside was restricted amid weakness in tech alongside concerns of a further deterioration in ties with China after Australia’s decision to boycott the Beijing Winter Olympics. The Nikkei 225 (-0.3%) was rangebound with the Japanese benchmark stalled by resistance ahead of the 29k level, although the downside was cushioned by recent currency weakness and a modest improvement in the Business Survey Index. The Hang Seng (+1.0%) and Shanghai Comp. (+1.1%) outperformed after China’s NDRC pledged support measures to boost consumption in rural areas and with some chatter regarding the possibility of another RRR cut in Q1 next year according SGH Macro citing a senior Chinese official. Furthermore, participants digested mixed inflation data from China including firmer than expected factory gate prices. CPI Y/Y was softer than forecast but it still registered the fastest pace of increase since August last year. Finally, 10yr JGBs briefly declined below the 152.00 level following the bear steepening stateside in which T-notes tested 130.00 to the downside and following a somewhat tepid US 10yr offering in which the b/c increased from prior but remained short of the six-auction average, while the results of the 5yr JGB auction were mixed and failed to spur prices with higher accepted prices offset by a weaker b/c.

• 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 6.3498 vs exp. 6.3452 (prev. 6.3738)

China NDRC official said China will promote consumption in rural areas through support measures including subsidies for furniture and autos. (Newswires)

• Chinese CPI MM (Nov) 0.4% vs. Exp. 0.3% (Prev. 0.7%)
• Chinese CPI YY (Nov) 2.3% vs. Exp. 2.5% (Prev. 1.5%)
• Chinese PPI YY (Nov) 12.9% vs. Exp. 12.4% (Prev. 13.5%)

CENTRAL BANKS

PBoC is reportedly seeing its special status beginning to erode with the government starting to push its influence on the central bank, while reports also noted that Communist Party discipline inspectors from China’s top anticorruption agency visited the central bank’s headquarters in central Beijing in recent weeks with a stern message that Beijing has little tolerance for any talk of central-bank independence and the monetary authority answers to the party. (WSJ)

SGH Macro, citing a senior Chinese official, said the top priority for current monetary policy is to ensure economic stability in Q1 2022 and that given the likely low growth in Q1, there is a possibility of another RRR cut before March's Two Sessions. (SGH Macro Advisers)

Brazil Central Bank raised the Selic rate by 150bps to 9.25% as expected, while the decision was unanimous and it sees a rate hike of the same magnitude at the next meeting. Brazil Central Bank stated the baseline scenario and balance of risks indicate it is appropriate for the interest rate hike cycle to move significantly into restrictive territory, while it will persevere with this strategy until consolidating both disinflation and anchoring of expectations around its target. (Newswires)

UK/EU

UK threatened to impose more duties on US goods if Trump era tariffs on steel and aluminium are not lifted. However, there were separate comments from UK Trade Minister Trevelyan that she invited US Commerce Secretary Raimondo to London next month and she discussed finding a path early in 2022 to work on steel and aluminium tariff issue. (Newswires/FT)

UK RICS Housing Survey (Nov) 71 vs. Exp. 70 (Prev. 70, Rev. 71). RICS said property listings in November declined for an eighth consecutive month and sales were lower for a fifth straight month, while surveyors expect rents to increase 4% during next year. (Newswires)

FX

In FX, the DXY recouped some of its recent losses and traded both sides of the 96.00 level. The index recovered from worst levers as participants look ahead to Friday’s inflation data, and next week’s FOMC meeting where the Fed is expected to announce a faster pace for tapering asset purchases. The CNY extended on its best levels against the USD in more than three years. EUR/USD marginally pulled back overnight but held on to a majority of yesterday’s gains at the 1.1300 handle, with the single currency largely influenced as a counterparty to the greenback’s choppy mood. GBP/USD was rangebound and just about held on to support at 1.3200 - with the currency despondent following the announcement by UK PM Johnson to move to a COVID-19 ‘Plan B’ due to the rapid spread of the Omicron variant. USD/JPY and JPY-crosses reflected the somewhat indecisive mood, while antipodeans were flat but remained near this week’s best levels following mixed inflation data from China and recent strength in CNY which analysts expect to appreciate further in the short term, as cited by China Securities Journal.

COMMODITIES

WTI crude futures rose back above USD 73/bbl after finding encouragement from the vaccine front, while pessimism also lingers regarding Iran nuclear talks - with US and Israeli defense leaders expected to discuss possible military drills to prepare to destroy Iranian nuclear facilities in the worst-case scenario should negotiations fail. Gold traded sideways with the precious metal contained as the USD recovered lost ground and with participants looking towards Friday's CPI data, while copper initially pulled back as some of the risk momentum gradually waned overnight before a late surge saw prices return flat and back to its best levels in around two weeks.

US President Biden said savings from the SPR release are starting to reach drivers, while he added they are making progress on gasoline prices and will keep at it. (Newswires)

GEOPOLITICAL

US House voted 428-1 to pass legislation to clamp down on products from China's Xinjiang region over concerns about forced labour. The House voted 364-60 to pass the Ocean Shipping Reform Act which is aimed at curbing the shipping container crisis and would curb the practice of sending empty cargo boxes back to China, while the Federal Maritime Commission will be given greater authority and reciprocal trade will also be included as one of its missions. (Newswires/Axios)

US Department of Defense official Ratner said bolstering Taiwan's self-defence is an urgent task and an essential feature of deterrence. There were also comments from a US diplomat for Asia who said Secretary of State Blinken's meetings in SE Asia will focus on strengthening regional security infrastructure in response to Chinese "bullying" in the South China Sea. (Newswires)

US State Department said special envoy Malley will plan to be in the Iranian nuclear talks over the weekend. In relevant news, US and Israeli defense leaders are expected to discuss possible military drills to prepare to destroy Iranian nuclear facilities in the worst-case scenario should diplomacy fail, according to a senior US official. Furthermore, Pentagon leaders briefed US National Security Adviser in late October regarding a full set of military options to ensure Iran will not be able to make a nuclear weapon. (Newswires)

German Chancellor Scholz is looking at imposing sanctions on Nord Stream 2 pipeline if Russia invades Ukraine, with the new coalition said to be less supportive of the gas pipeline than under Merkel. (FT)

US

Treasuries saw volatile trade, closing in a bear-steepener amid long-end supply and the Pfizer news reversing the early bull-flattener caused by UK COVID restrictions. At settlement, 2s -1.6bps at 0.674%, 3s -0.9bps at 0.997%, 5s +0.5bps at 1.261%, 7s +1.5bps at 1.443%, 10s +3.1bps at 1.511%, 20s +5.7bps at 1.932%, 30s +8.3bps at 1.878%. 5yr TIPS -3.4bps at -1.633%, 10yr TIPS -1.2bps at -1.048%, 30yr TIPS +5.0bps at -0.442%. 5yr BEI +11.4bps at 2.894%, 10yr BEI +9.9bps at 2.530%, 30yr BEI +6.2bps at 2.336%. T-Notes hit session highs of 130-24+, with 10yr cash yields finding lows at 1.427% heading into the NY handover. The tide soon turned for risk as reports hit from Pfizer (PFE) and BioNTech (BNTX) that their booster shots managed to neutralise the Omicron variant, although just two jabs were less effective. The news saw a broad risk-on reaction and the selling of sovereigns, seeing the TY fall sharply from 130-21 to lows of 130-10 in the space of 15 minutes. That was only the beginning, however, and the selling sustained through the morning. There was pressure both on the belly and the long-end, with the former accentuated by a slew of 5yr future blocks, which were touted to be sales. But concession ahead of the 10yr and 30yr Treasury reopening auctions also kept the curve steeper, with T-Notes making session lows beforehand at 129-31, while cash 10s hit session highs of 1.537%. There was little follow-through in either direction after the mixed 10yr auction. Instead, traders now prepare for the long bond offering on Thursday ahead of CPI on Friday, with an afterthought for next week's FOMC and accompanying SEPs. T-note (H2) futures settle 4 ticks lower at 130-06+.

US Senate voted 52-48 to block the vaccine testing mandate for private businesses which forwards the measure to the House. (Newswires)

US CBO revised Build Back Better score in which it now expects it to increase the deficit by USD 365bln over 2022-2031 period (prev. estimate USD 367bln). (Newswires)

Apple (AAPL) won a temporary halt of court proceedings in App Store rules revamp lawsuit, while the decision allows the App Store to continue without change while Epic Games antitrust suit continues. (Newswires)