• Stocks in Europe have been drifting lower, US equity futures have also succumbed to the modest downside; ES -0.3%
• In FX, the DXY extends above 96.00 with JPY perhaps capping upside while the CNH saw downside on PBoC raising FX RRR by 2ppts
• Chinese PPI topped expectations whilst CPI Y/Y missed but registered the fastest pace of increase since August last year
• Views on the ECB's Governing Council reportedly converging on a limited, temporary increase of APP at Dec meeting
• Biden administration is said to be moving to tighten enforcement of sanctions against Iran
• Looking ahead, highlights include US IJC and supply

CORONAVIRUS UPDATE

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)

WHO says it needs another 2-3 weeks to study Omicron more fully; says only 6% of ICU beds are occupied by COVID patients; South Africa saw an increase of 255% over the past 7 days. (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 (-0.5%) 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 (+1.1%) and Shanghai Comp. (+1.0%) 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%); YY (Nov) 2.3% vs. Exp. 2.5% (Prev. 1.5%)
• Chinese PPI YY (Nov) 12.9% vs. Exp. 12.4% (Prev. 13.5%)

Toyota (7203 JT) has halted production at two Japanese factories amid the supply shortages, according to Jiji

CENTRAL BANKS

PBoC raises FX RRR by 2ppts; effective 15th Dec. Lifted to 9.00% from 7.00%. (Newswires) Reminder, the effective date of December 15th chimes with the commencement date for the overall RRR cut that we saw on Monday.

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)

BoJ is said to see a lowering of corporate debt buying as likely, sources say; timing undecided. (Newswires)

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)

Views on the ECB's Governing Council converging on a limited, temporary increase of APP at Dec meeting; ECB could approve an envelope for APP or an increase limited in time with more frequent reviews, ECB sources say. Link here

US

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

UK/EU

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)

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)

German Trade Balance, EUR, SA (Oct) 12.5B vs. Exp. 13.4B (Prev. 13.2B, Rev. 12.9B)

• Exports MM SA (Oct) 4.1% vs. Exp. 0.9% (Prev. -0.7%); Imports MM SA (Oct) 5.0% vs. Exp. 0.4% (Prev. 0.1%, Rev. 0.4%)

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)

New round of Russian-US discussions on diplomatic issues to occur by end-2021, Russian Deputy Foreign Minister. Subsequently, Russia states that talks with the US on embassies are still at a dead end, according to Ifax. (Newswires)

Biden administration is said to be moving to tighten enforcement of sanctions against Iran, WSJ sources state; U.S. officials say if there is no progress in the nuclear talks. (WSJ)

EQUITIES

Stocks in Europe trade have drifted lower in recent trade, giving up the modest gains seen at the open (Euro Stoxx 50 -0.5%, Stoxx 600 -0.2%), and following the mixed lead from APAC and amidst a lack of fresh fundamental catalysts. US equity futures are also subdued, with a relatively broad-based performance seen across the ES (-0.3%), NQ (-0.4%), YM (-0.3%) alongside some mild underperformance in the RTY (-0.6%). Markets are awaiting tomorrow’s US CPI metrics, but more importantly, are gearing up for next week’s blockbuster FOMC confab. Desks have attributed this week’s rebound to several factors working in unison, including a milder Omicron variant (thus far), Chinese policy easing, FOMO, buybacks/upbeat corporate commentary alongside the widely telegraphed hawkish Fed pivot. On the last note, it’s also worth keeping in mind that the rotating voters next year on the FOMC will be more hawkish with the addition of George, Mester and Bullard as voters, albeit some empty spots remain – namely Brainard’s spot as she takes over the Vice-Chair position. Back to Europe, sectors are mostly in the green but portray a defensive bias – with Healthcare, Telecoms, Food & Beverages and Personal & Household Goods at the top of the bunch, whilst Oil & Gas, Retail and Travel & Leisure resides on the other end of the spectrum. In terms of individual moves, UniCredit (+7.8%) shot up to the top of the Stoxx 600 after unveiling its 2024 targets – with the Co. looking to return at least EUR 16bln via dividend and buybacks between 2021-24. Sticking with banks, Deutsche Bank (-2.1%) is pressured after the US DoJ reportedly told Deutsche Bank it may have violated a criminal settlement, due to failures in alerting authorities about internal complaints at its asset management unit, according to sources. Elsewhere, AstraZeneca (+1.0%) is supported as its long-acting antibody combination received emergency use authorisation in the US for COVID-19 prevention in some individuals. Finally, Rolls-Royce (-3.7%) slipped despite an overall positive trading update.

FX

DXY - The Greenback remains rangy amidst undulating US Treasury yields and a fluid flow of Omicron related headlines that are filling the void until this week’s main macro release arrives tomorrow in the form of CPI data. However, the index is drifting down in almost ever decreasing circles having retreated a bit further from peaks to a marginally deeper sub-96.000 trough on Wednesday, at 95.848, and forming a fractionally firmer base currently to stay within contact of the psychological level within a narrow 96.154-95.941 band, thus far. Ahead, latest jobless claims updates and the last refunding leg comprising Usd 22 bn long bonds after a reasonable 10 year outing, overall.

CHF/EUR/CAD - No obvious reaction to Swiss SECO forecasts even though supply bottlenecks and stricter COVID-19 measures are putting a strain on the economy internationally in winter 2021/22, according to the Government affiliated body. Similarly, ECB sources reporting that views on the GC are converging on a limited, temporary increase of the APP at December’s policy meeting, via an envelope or time specified increase with more frequent reviews, hardly impacted the Euro, as Eur/Usd remained towards the bottom of a 1.1346-16 range and Usd/Chf continued to straddle 0.9200, albeit mostly on the weaker side. Meanwhile, the Loonie has also slipped to the back of the major ranks following yesterday’s largely non BoC event against the backdrop of softer crude prices and an indifferent risk tone, with Usd/Cad hovering mainly above 1.2650 between 1.2645-80 parameters.

JPY/GBP/NZD/AUD - All sticking to tight confines against their US peer, as the Yen rotates around 113.50 again and Pound pivots 1.3200 in limbo awaiting top tier UK data on Friday that might shed more light on what is gearing up to be another tight BoE rate call next week. Moreover, Usd/Jpy looks pretty well and heavily flanked by option expiry interest either side and in between its 113.81-35 extremes given large amounts running off at the NY cut - see 6.59GMT post on the Headline Feed for full details. Elsewhere, the pendulum has swung down under in favour of the hitherto underperforming Kiwi, as Nzd/Usd popped over 0.6800 and Aud/Nzd stalled ahead of 1.0550 alongside a pull back in Aud/Usd from 0.7185+ at best to test support into 0.7150 in wake of comments by RBA’s Harker and the RBNZ rebalancing its TWI. In short, the former said Australia’s economy can run hot while dodging the runaway inflation that’s plaguing much of the world, signaling monetary policy will stay ultra-loose for some time yet, while the latter culminated in a bigger Cny contribution at 27% from 23.5%.

SCANDI/EM - Another day and more appreciation for the Cnh and Cny, at least in early hours, with validation via the PBoC setting a sub-6.3500 midpoint fix for the onshore Yuan vs Buck. However, the offshore then re-weakened past 6.3500 per Dollar after the Chinese central bank opted to raise the FX RRR by 2ppts - effective 15th Dec. Meanwhile, the Nok gives back after midweek gains as Brent slips with WTI to the detriment of the Rub and Mxn as well. Conversely, the Huf has a further 20 bp 1 week repo hike from the NBH to lean on and the Brl got a boost from 150 bp tightening on top of the BCB signalling the same again when COPOM delivers its next SELIC rate call.

Major FX Expiries, NY Cut:

• USD/JPY: 112.90-113.00 (1.1BLN), 113.10-15 (1BLN), 113.25 (1BLN), 113.50 (868M), 113.70 (1BLN), 113.90-114.00 (1.1BLN), 114.10 (2.2BLN)

FIXED INCOME

It’s been a bit stop-start and choppy, but debt futures have sustained a decent level of recovery momentum, and Bunds in particular after their pop and drop yesterday that resulted in a record wide intraday range. Indeed, the core Eurozone bond remains on course to reach the point where it retrieves 50% of Wednesday’s hefty loss from peak to trough (174.21) having just extended its Eurex top to 174.13 with some outside help from the PBoC jacking up its foreign currency RRR by 200 bp that also lifted Gilts to 127.28 and the 10 year T-note to 1301-12 vs lows of 173.44, 127.01 and 129-31+ respectively. Ahead, US jobless claims and the 30 year auction with eyes also on Washington and breaking news for COVID/Omicron updates.

COMMODITIES

WTI and Brent front month futures have drifted lower from their best levels printed overnight, which saw WTI Jan briefly mount USD 73.00/bbl and Brent Feb eclipse 76.50/bbl. The complex was unfazed by WSJ source reports suggesting the Biden administration is said to be moving to tighten enforcement of sanctions against Iran, whilst US officials say if there is no progress in the nuclear talks. This comes ahead of the resumption of nuclear talks today, albeit the US delegation will only travel to Vienne over the weekend. With the likelihood of an imminent deal somewhat slim, participants will be eyeing any further deterioration in relations alongside additional demand/sanctions. Aside from that, price action will likely be dictated by the overall market tone in the absence of macro catalysts. Elsewhere, reports suggested the Marathon pipeline has been shut due to a crude oil leak estimated to be around 10 barrels from the 20-inch diameter Illinois pipeline, but again the headlines failed to spur the oil complex. Over to metals, spot gold trades sideways and remains under that cluster of DMAs which today sees the 100 at 1,790/oz, 200 and 1,792.50/oz and 50 and 1,795/oz. LME copper meanwhile has been drifting lower since the end of APAC trade, but the contract remains north of USD 9,500/t.

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)

UBS said it continues to hold a constructive outlook on natgas next year, but recises down the end-March 2022 forecast to USD 4.3/MMBtu vs prev. USD 4.0/MMBtu. (Newswires)