• Asia-Pac stocks were on the back foot as the region took its cue from the weak performance in the US
• In FX, DXY was steady in a tight range, USD/JPY traded on either side 113.50, USD/CNH saw volatility at the PBoC CNY fix
• PBoC set USD/CNY mid-point at 6.3702 vs exp. 6.3499 (prev. 6.3498)
• Sources in Brussels are confident regarding a compromise on medicines with the UK before year-end
• US oil export ban is not on the table and not under active consideration at this time, according to a Biden admin. source
• US Economic Adviser Deese said the US CPI on Friday will not reflect recent price moves, echoing Biden
• Looking ahead, highlights include UK GDP, US CPI, Uni. of Michigan Survey, ECB’s Panetta, Lagarde, Elderson, Villeroy and Weidmann

CORONAVIRUS UPDATE

WHO Strategic Advisory Group of Experts' interim recommendation supports use of JNJ (JNJ) COVID-19 vaccine as a booster with growing body of evidence supporting its use as both a mix-and-match and homologous booster. (Newswires)

US President Biden said the US is making progress against COVID-19 and that preliminary data of three shots of Pfizer (PFE) shows protection against Omicron. In other news, the White House reiterated that US President Biden will veto a bill banning vaccine mandates if it is required. (Newswires)

NY Governor Hochul said she will announce new measures on Friday “to help fight this impending surge” of the Omicron variant. (CBS)

ASIA

Asia-Pac stocks were on the back foot as the region took its cue from the weak performance in the US, where the major indices reversed recent upside in the run-up to today’s US CPI metric. The ASX 200 (-0.4%) was led lower by the underperformance in energy and tech after a retreat in oil prices and similar weakness of their counterpart sectors in US. The Nikkei 225 (-0.7%) remained lacklustre as it succumbed to the recent inflows into the currency, although the downside was stemmed as participants digested a record increase in wholesale prices. The Hang Seng (-0.7%) and Shanghai Comp. (-0.2%) were hindered by several headwinds including lower-than-expected lending and aggregate financing data, as well as China’s latest internet crackdown in which it removed 106 apps from app stores. However, losses were contained by a softer currency after China’s efforts to curb RMB strength including the PBoC’s 200bps FX RRR hike yesterday and its overnight weakening of the reference rate by the widest margin against estimates on record. Finally, 10yr JGBs were quiet after the mixed performance in US fixed income markets and with the risk-averse mood counterbalanced by the lack of BoJ purchases in the market today, although later saw a bout of selling on a breakdown of support at the key 152.00 level.

• PBoC set USD/CNY mid-point at 6.3702 vs exp. 6.3499 (prev. 6.3498)
• PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires)

UK/EU

The European Commission has said it’s ready to go on a compromise on medicines. Sources in Brussels are confident regarding a compromise on medicines before year-end. (Politico)

UK reportedly denied any Friday deadline in the EU fishing row. (AFP) France will not get all the 104 remaining licences it has demanded in the Brexit fish wars, sources stated. (Telegraph)

UK Labour party takes a 4pt lead in the latest YouGov/Times Westminster voting intention (8-9 Dec). Con: 33% (-3 since 1-2 Dec), Lab: 37% (+4). (Times/Twitter)

FX

In FX, the DXY was steady and took a breather after yesterday’s mild advances where it reclaimed the 96.00 level amid the risk aversion in the US. The focus for the Greenback is on the upcoming US CPI data due later today, while there were also fresh developments in Congress where the Senate approved the fast-track measure for increasing the debt limit which paves the way for a vote on raising the debt ceiling to pass through a simple majority. EUR/USD was lacklustre after slipping beneath 1.1300, while GBP/USD was kept afloat at the 1.3200-handle after the UK denied a Friday deadline in the EU fishing row and although the US confirmed that free trade talks with Britain have been put on hold. USD/JPY languished around 113.50 due to the risk aversion which has also kept antipodeans rangebound, while the PBoC continued its efforts to contain CNY strength, with USD/CNH initially spiking higher at the fixing after the PBoC opted to weaken the reference rate by the largest margin vs expectations.

BoC Deputy Governor Gravelle said supply disruptions and related cost pressures could last longer than expected, increasing the likelihood of CPI remaining above control range and noted that customers can be expected to resume spending on a more typical share of their incomes on services which could feed into inflation expectations and contribute to wage pressures, causing second round price increases. Gravelle also stated that concerns over inflation are heightened on the upside much more than normally and that the BoC is likely to react a little bit more readily to the upside risk given inflation is already above the control range. Furthermore, it was separately reported that the BoC and Finance Ministry will leave the inflation target at 2% in a framework renewal which will be announced soon, while the renewal will include new language on consideration of employment factors, according to sources. (Newswires)

Chinese state media front page article noted the state of CNY appreciation will gradually recede and will stabilise around equilibrium level. (Newswires)

COMMODITIES

WTI crude futures failed on their attempt to recover the USD 71/bbl level after recent selling pressure with the energy complex not helped by the risk aversion. Gold prices were contained by the greenback's recent recovery and with participants awaiting the latest US inflation data, while copper remained subdued amid the lack of risk appetite.

US oil export ban is not on the table and not under active consideration at this time, according to a Biden administration source. (Newswires)

Kuwait set January KEC OSP for Asia at Oman/Dubai + USD 2.80/bbl. (Newswires)

GEOPOLITICAL

US President Biden reaffirmed US' unwavering commitment to Ukraine's sovereignty during a call with Ukraine's President, while Biden voiced deep concerns that the US and its allies have regarding Russia's aggressive actions towards Ukraine. White House also said that President Biden made it clear US and allies would respond with strong economic and other measures in the event of a further military intervention by Russia, while there were separate reports that Ukraine said Russia rejected a proposal to strengthen July 2020 ceasefire during a special meeting which took place on Thursday. (Newswires)

There were initial reports that Ukrainian Navy's command ship Donbass is moving toward the Kerch Strait and is not reacting to demands to change course, according to Russia's FSB. However, the Ukrainian state border service reportedly said it is unaware of the situation with the navy's control ship Donbass and the Ukrainian Defence Minister said that statements about a Ukrainian vessel near the Kerch Strait are an "information attack from Russia" and manipulation. (Newswires)

US Department of Defense said there was no change so far to the Russian build up near the Ukraine border since the Putin and Biden talks. (Newswires)

US Defense Secretary Austin said if current policy on Iran fails, President Biden has made clear we are prepared to turn to other options, while Austin said he is deeply concerned about Iran's nuclear actions and lack of constructive diplomatic engagement. There were also comments from the US special envoy for Iran that the US is ready to hold direct negotiations with Iran which is the best solution to such an issue. Furthermore, US State Department said Iran's escalation of its nuclear programme and intransigence it has shown will put to test whether a mutual return to the nuclear deal is possible and it will probably be another couple of days before US knows where Iran is in the talks, while White House Press Secretary that the US has made it clear to Iran the only path out of sanctions is through nuclear compliance. (Newswires)

US Pentagon said US and Israel routinely conduct exercises and training, while it declined to comment on report that the two were expected to discuss possible military drills to prepare to destroy Iranian nuclear facilities in the worst-case scenario. (Newswires)

US

Treasuries were mixed after another sloppy long-end auction saw the long-end reverse its strength while the belly held its bid. Futures volumes low/holiday-like again. At settlement, 2s +0.7bps at 0.686%, 3s +0.3bps at 1.003%, 5s -0.6bps at 1.255%, 7s -2.2bps at 1.421%, 10s -2.5bps at 1.484%, 20s -2.4bps at 1.906%, 30s -1.3bps at 1.862%. 5yr TIPS +3.6bps at -1.563%, 10yr TIPS +0.7bps at -1.029%, 30yr TIPS +1.9bps at -0.426%. T-Notes initially saw resistance at 130-07 before the European open, where more buyers surfaced to find new resistance at 130-12 into the NY handover. The level soon broke and bidding sustained all the way through until after the NYSE opening bell, taking little notice to the pandemic low IJC print, to make session highs at 130-17+ (cash 10s 1.472%), about where it traded before the UK lockdown headlines in the early Wednesday session, but a distance off the peak seen just prior to the Pfizer vaccine catalyst at 130-24+ (cash 10s 1.427%). Supporting that bid was likely the approaching Fed buybacks in both the 0-2.25yr and 10-22.5yr sectors. Indeed, as those ops and passed and the NY session developed, yields came off lows slightly heading into the 30yr reopening auction. On which, another sloppy showing for the issue saw a knee-jerk lower in duration, although shorter maturities managed to hold onto their earlier bid with not much sustained selling seen in wake of, in which analysts point to a sign that Dealers were well prepared for the reopening. Participants now position into Friday's CPI report (note the several White House officials warning Thursday that the print won't incorporate the very recent decline in energy prices) ahead of the weekend, with the FOMC next Wednesday and the accompanying SEPs. T-note (H2) futures settle 6 ticks higher at 130-12+.

US Senate voted 59-35 to approve the fast-track measure which paves the way for increasing the debt limit through a simple majority vote. There were earlier comments from US Senate Majority Leader Schumer regarding the debt limit in which he stated that they still have a few more steps to take before they completely resolve this matter, but he is optimistic that after today’s vote they will be on a glide path to avoiding a catastrophic default. (Newswires/Twitter)

US Senate Democrats reportedly dropped the vaping tax proposal from the Senate plan as they work out the details of the Build Back Better package. (WSJ)

US Economic Adviser Deese said the US CPI on Friday will not reflect recent price moves. (Newswires)

Tesla (TSLA) CEO Musk tweeted he is thinking about quitting his jobs and “becoming an influencer full-time”. (Twitter)This could be a joke, but the CEO can be unpredictable.