• Gains in European equities are slightly more pronounced than in US equity futures; Stoxx 600 +0.6%, ES +0.3%
• In FX, USD outperforms with the DXY nearing 96.500 at best; EUR/USD below 1.1300 while USD/JPY extends north of 113.50
• TRY is the EM FX laggard; USD/TRY topped 14.5000 before the CBRT intervened ahead of Erdogan meeting the CBRT Governor
• UK raised its COVID alert level to 4 from 3, and accelerated its booster programme
• Iran’s top nuclear negotiator said good progress was made in nuclear talks and this can quickly pave the way for serious negotiations
• Looking ahead, highlights include OPEC Oil Market Report (12:20GMT/07:20EST) & BoE Financial Stability Report

CORONAVIRUS UPDATE

NIH’s Dr. Fauci stated that three shots of the COVID-19 vaccine is optimal care although two doses of the Pfizer (PFE) and Moderna (MRNA) vaccines and one dose of the Johnson & Johnson (JNJ) vaccine remains the US government's official definition for fully vaccinated, while Fauci commented on Friday that the US is working to model the impact of lifting the travel ban. (Newswires)

Oxford University says vaccines shown to induce lower levels of neutralising antibodies vs the Omicron variant; has the poitential to drive a further COVID wave. (Newswires)

UK raised its COVID alert level to 4 from 3 and PM Johnson warned that a tidal wave of Omicron is coming. He announced to acceleration to the booster programme in which all adults will now be offered a booster by the new year. There were prior reports on Friday that Britain’s top public health officials advised ministers that “stringent national measures” need to be imposed by 18th December to avoid hospitalisations surpassing last winter’s peak, according to documents leaked to the Guardian. (Newswires/The Guardian)

South African President Ramaphosa tested positive for COVID-19 although his symptoms were mild, and he is in self-isolation with all responsibilities delegated to Deputy President Mabuza. (Newswires)

Israel added Britain, Denmark and Belgium to the “red list” of countries which are banned for travel due to concern regarding spread of the Omicron variant. (Newswires)

Australian PM Morrison confirmed they are to reopen their border to international students and skilled migrants from Wednesday, while the New South Wales state border with Queensland was also reopened after five months of closures due to COVID-19. Elsewhere, New Zealand PM Ardern said the COVID-19 alert level for Auckland is to be eased on December 30th and the next review of alert levels is planned for January 17th. (Newswires)

ASIA

Asia-Pac equity markets took their cues from last Friday’s gains on Wall Street where the S&P 500 notched a fresh record close and its best weekly performance since February, with markets now bracing for a risk-packed week including a busy schedule of central bank meetings. The ASX 200 (+0.4%) traded higher with risk appetite supported by the reopening of Australia’s borders to international students and skilled workers from Wednesday, while the government will also partially underwrite up to AUD 7bln in new loans for small businesses impacted by lockdowns. The Nikkei 225 (+0.7%) benefitted from the mild outflows from the JPY, with the index unphased by mixed Tankan and Machinery Orders data in which the Tankan Large Manufacturers Index and Outlook missed expectations but sentiment among Large Non-Manufacturers and Small Manufacturers improved for the sixth consecutive quarter. The Hang Seng (-0.2%) and Shanghai Comp. (+0.4%) predominantly conformed to the upbeat mood amid economists' expectations for China to add fiscal stimulus from early next year following last week’s conclusion to the Central Economic Work Conference, which noted that China's economy faces shrinking demand, supply shock, and weakening expectations but added that economic operations are to be kept within a reasonable range. Alibaba shares were among the biggest gainers in Hong Kong as it extended its rebound from YTD lows. Finally, 10yr JGBs were rangebound with March futures contained by resistance at the key 152.00 level and amid the positive mood across riskier assets, although JGBs were off the lows seen late last week where there were source reports that the BoJ is likely to scale back its pandemic relief programs in March with a potential announcement as early as this week’s meeting.

• 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 6.3669 vs exp. 6.3606 (prev. 6.3702)

China smartphone shipments (Nov): 25.7% YY (prev. 31.0%), CAICT. (Newswires)

BoJ noted that the Tankan survey showed large non-manufacturers index and small manufacturers index improved for a sixth consecutive quarter, while a BoJ official said most firms that replied in the December Tankan likely did not take into account the impact of Omicron and it was also noted that firms' inflation expectations for one year ahead is at 1.1% which is the highest since September 2015. (Newswires)

Japanese Tankan Large Manufacturing Index (Q4) 18 vs. Exp. 19 (Prev. 18)

• Japanese Tankan Large Manufacturing Outlook (Q4) 13 vs. Exp. 19 (Prev. 14)
• Japanese Tankan Large Non-Manufacturing Index (Q4) 9 vs. Exp. 6 (Prev. 2)
• Japanese Tankan Large Non-Manufacturing Outlook (Q4) 8 vs. Exp. 10 (Prev. 3)
• Japanese Tankan Large All Industry Capex (Q4) 9.3% vs. Exp. 9.8% (Prev. 10.1%)
• Japanese Machinery Orders MM (Oct) 3.8% vs. Exp. 2.1% (Prev. 0.0%)
• Japanese Machinery Orders YY (Oct) 2.9% vs. Exp. 4.0% (Prev. 12.5%)

US

Some Senate Democrats are bracing for President Biden's Build Back Better package to get punted into next year, despite Democratic leaders insisting the bill will pass before year-end. (Axios)

US President Biden will meet with Senator Manchin as soon as today, according to Politico citing sources, in what "will be a make-or-break moment for passing the Build Back Better Act (BBB) before Christmas." (Politico)

More than 100 are expected to have been killed in Kentucky from record tornadoes over the weekend where dozens remained unaccounted for. The Kentucky Governor requested a major disaster declaration and stated that the state will have over 1,000 homes gone when the final count is made, while he stated that he is still hopeful of finding more survivors. There were also comments from US President Biden that this was likely to be one of the largest tornado outbreaks in US history and that the US government will do everything it can to possibly help, while it was later reported that President Biden declared a major disaster in Kentucky which paves the way for additional federal resources. (Newswires)

UK/EU

France, UK and the EU have dropped talk of a trade war and appeared to settle a dispute over post-Brexit fishing licenses, but French fisherman threaten to go ahead with pre-Christmas blockades. (Guardian)

ECB’s de Guindos tested positive for COVID. He has not been in close contact with President Lagarde over the past week. (Newswires)

Fitch affirmed the BoE at AA-; Outlook Stable. (Newswires)

Greece's Central Bank plans an appeal for its bonds to remain eligible for new ECB purchase after March, when PEPP is expected to end. (FT)

GEOPOLITICAL

Iran’s top nuclear negotiator Bagheri said good progress was made in nuclear talks and can quickly pave the way for serious negotiations, while he added that their path during the negotiation was successful but also noted that Iran received no proposal or initiative from western parties to 2015 deal. (Newswires)

G7 Foreign Ministers reiterated that Iran must stop its nuclear escalation and reiterated a unified position on Russia’s aggression towards Ukraine, while the final statement called for Russia to de-escalate and pursue diplomatic channels, as well as noted that further military aggression against Ukraine would have massive consequences and severe costs. The G7 also expressed concern about China’s coercive economic policies and reaffirmed the statement calling for the Belarus regime to urgently alter its course. (Newswires)

Russia’s Kremlin said President Putin told US President Biden that he would like to meet him in-person during their call last week but added that it is too early to say when they can meet and that Putin had no particular grounds for joy after talking to Biden. Putin also told Biden that Russian troops pose no threat to anyone and that Russia is being demonised for moving troops around its own territory, while the Kremlin added there are very serious conceptual differences between Russia and US regarding Russia’s “red lines”. (RIA/Tass)

Russian Deputy Foreign Minster says if the US and NATO do not provide them with guarantees around security, it may lead to confrontation, Ria; Lack of progress on this would lead to a military response. (Newswires)

US State Department senior official said the G7 is absolutely united in concerns over Russia’s build up at the Ukraine border, as well as the consequences and costs should Russia decide to invade. Furthermore, the official said there is more and more convergence between G7, other countries and US on plan to impose costs on Russia if they invade. The official also noted that there was tremendous convergence among G7 regarding discussions about China and the region, while European countries agreed that it is still possible to conclude a deal with Iran but the time is shrinking. (Newswires)

UK Foreign Secretary Truss said that this is the last chance for Iran to come to the negotiation table with a serious resolution and that Iran needs to agree on JCPOA terms, while Truss noted that they will not allow Iran to acquire a nuclear weapon and that there is still time for Iran to agree a deal. Truss also commented that G7 has sent a powerful signal to adversaries and allies in which the G7 has shown a united voice on Russia and have been clear there would be massive consequences for any incursion. Furthermore, Truss said Britain is considering all options how to respond if Russia invades Ukraine and that that they want Russia to stop its aggression on Ukraine, while she added the G7 is clear that they are concerned about China’s economic policies and they must make sure technology is shaped by the free world. (Newswires)

Russia's Deputy Foreign Minister, on the Iranian nuclear deal, says they have reason to anticipate some progress, Ria. (Newswires)

US Secretary of State Blinken said it is hard to see gas flowing through the Nord Stream 2 pipeline if Russia renews aggression towards Ukraine. There were also comments from German Foreign Minister Baerbock that Nord Stream 2 cannot be certified under current conditions as it does not fulfil European energy rules, while she added questions remain regarding security and that talks are a best measure to avoid further escalation. Subsequently, Russia's Kremlin says the Nord Stream 2 operator is working on complying with German regulatory requirements. (Newswires)

EQUITIES

Stocks in Europe have continued to gain since the cash open (Euro Stoxx 50 +1.0%; Stoxx 600 +0.5%) as the APAC sentiment reverberates through the region following a fleeting blip lower in early European trade. US equity futures are also firmer but to a lesser magnitude – with the RTY (+0.3%) narrowly outpacing the ES (+0.%), NQ (+0.4%) and YM (+0.2%). Focus this week will be on the slew of central bank updates which kicks off with the FOMC on Wednesday, followed by the BoE and ECB on Thursday - with Flash PMIs, Christmas liquidity and Quad Witching also part of this week’s concoction. Add to that the potential tail-risk from geopolitics and headline risk from COVID. Nonetheless, European cash markets at the moment seem unfazed by what’s ahead. Sectors are pro-cyclical with Basic Resources and Autos topping the charts, whilst the defensive Healthcare, Telecoms and Personal & Household goods reside at the bottom. A recent Citi note suggests that rising earnings should keep European stocks moving higher and offset expansive valuations and tightening monetary policy in the US. Citi targets some 9% upside for the Stoxx 600 next year, with a target of 520 (vs current c.477), whilst 12% upside is targeted in the FTSE 100 to 8,200 (vs current c. 7,303). Citi leans in favour of cyclicals vs defensives - with overweights in Banks, Insurance, Basic Resources, Industrials, Media, Luxury Goods and Chemicals. Citi is underweight Utilities, Telecoms, Food & Beverages, Personal Care, Travel, Autos and Financial Services. The bank has also added to its focus list: AstraZeneca (+0.1%), Aviva (+0.7%), Capgemini (+1.2%), Faurecia (+0.9%), Iberdrola (-0.3%), Lloyds (-0.7%), Prosus (+1.5%), Royal Mail (+1.6%), Sanofi (Unch), Tesco (+0.4%), UBS (+0.2%), Vodafone (Unch), Volvo (+1.1%). Separately, Goldman Sachs sees muted returns for global stocks next year amid negative real rates coupled with high equity risk premia and in the absence of a growth shock. GS suggests that risks are growing in the US on a relative basis and sees a maximum drawdown of between -5 to -10% over the next 12 months.

FX

DXY - The Greenback has clawed back all and a bit more of its post-US inflation data losses, partly on reflection perhaps that the CPI prints were broadly in line, and actually a tad above consensus in terms of the m/m headline rate, so highly unlikely to derail the Fed from upping the pace of QE tapering this week and probably won’t deter the more hawkish FOMC members from pencilling in a steeper lift-off. Hence, having ended Friday’s session fractionally below a Fib retracement level (96.098), the index subsequently eclipsed the intraday peak (96.429) to turn what was a bearish technical close into a constructive start to the new week within a 96.080-450 range and a ‘close’ above 96.500 would be deemed positive, if not bullish.

CHF/EUR/AUD - Very little traction from latest signs of building inflation pressure in the Eurozone via German wholesale prices reaching a record high 16.6% y/y in November, but the Euro has held above 1.0400 against the Franc in wake of latest weekly Swiss sight deposits showing a rise in domestic bank balances. Meanwhile, the single currency has absorbed some stops triggered on a breach of 1.1265 vs the Buck and could derive underlying support from decent option expiry interest at 1.1250 (1.5 bn) at the base of a band extending to 1.1320 (2 bn) through 1.1270-1.1300 (1.1 bn), and Usd/Chf is hovering around 0.9250 at the upper end of a 0.9257-00 band ahead of producer/import prices on Tuesday. Elsewhere, the Aussie has not been able to benefit from good news in the form of Australia opening its borders to international students and skilled workers from Wednesday, Government plans to partially underwrite up to Aud 7 bn new loans for small businesses impacted by lockdowns, or buoyant risk appetite, as it straddles 0.7150 against its US counterpart.

JPY/NZD/CAD/GBP - Also conceding ground to their US peer, with the Yen back below 113.50 and hardly helped by mixed Japanese macro releases including December’s Tankan survey and October machinery orders, while the Kiwi is back under 0.6800 even though NZ PM Ardern said the COVID-19 alert level for Auckland is to be eased on December 30 and the next review is scheduled for January 17. The Loonie is slipping alongside WTI between 1.2753-06 parameters and Cable has tested Fib support into 1.3200 at 1.3200 amidst ongoing UK political furore over Conservative Party transgressions during lockdown last year and heightened Omicron restrictions to prevent a tidal wave of infections.

EM - Broad declines vs the Usd, but the Cnh and Cny have regained upward momentum to buck the general trend after last week’s intervention to stem the Yuan rally in stark contrast to the Try that has plunged beneath 14.0000 and far below 14.5000 on further investor angst in wake of S&P downgrading Turkey’s outlook to negative. However, bears are really gunning for the Lira on credibility grounds as the CBRT is widely expected to lower benchmark rates by decree following more external pressure from President Erdogan and his Government and is running out of reserves to halt the tide, irrespective of a new line in the sand at 15.0000. In CEE, contrasting vibes from the CNB and NBP, as Mora of the former says a more pronounced rate move appears to still be needed in December, likely 50 bp or 75 bps given that the Czk is weaker than forecast and also a pro-inflationary factor, but Lon on behalf of the latter assumes the tightening cycle will conclude early next year, if another hike is needed at all.

S&P affirmed Turkey, Outlook Revised to Negative. (Newswires)

Turkish Finance Minister says the government is determined to not hike rates, via IndyTurk; says he does not know whether rate cuts will continue, but the determination is not to hike. Says the FX increase was stopped, but the CBRT intervened multiple times. There are a few manipulative and speculative embroideries inside the CBRT. (translated from Turkish) Additionally, reports indicate that Turkish President Erdogan is, on Monday, to meet with the CBRT Governor and state bank executives. (Newswires)

Major FX Expiries, NY Cut:

• EUR/USD: 1.1250 (1.5 BN), 1.1270-1.1300 (1.1 BN), 1.1320 (2 BN)

FIXED

No obvious catalyst, and indeed several factors may be deemed negative or at least detractive for bonds given the upbeat tone across most equity indices. Nevertheless, Bunds have been up to 174.39 (+15 ticks on the day vs -35 ticks at the overnight Eurex low) vs last Friday’s 174.27 high and also eclipsing the apex from the session before that, while Gilts rebounded from 127.08 to 127.44 (+12 ticks and above their prior two intraday pinnacles as well), leaving only US Treasuries languishing (10 year T-note just above parity within a 131-17/130-07+ band) and the curve slightly flatter on bets that the Fed puts more distance between itself and the ECB plus BoE later this week.

COMMODITIES

WTI and Brent front-month futures have been drifting lower since the European morning after the former tested USD 73/bbl to the upside and the latter briefly topped USD 76/bbl. Newsflow for the complex has been light but there have been further positive omens regarding the Iranian nuclear talks - Iran’s top nuclear negotiator said good progress was made in nuclear talks and can quickly pave the way for serious negotiations, whilst Russia's Deputy Foreign Minister said they have reason to anticipate some progress. That being said, we are yet to hear from some of the western nations. Meanwhile, on the OPEC front, Iraq’s Oil Minister said he expects OPEC to maintain its current policy of gradual monthly increases of 400k BPD at the next meeting – slated for early January. On the COVID front, the UK opted not to further tighten restrictions over the weekend but instead boosted the booster programme, whilst reports surrounding the Omicron variant have all highlighted a mild illness. The geopolitical space may require some more attention as tensions remain high on the Ukraine/Russia and Taiwan/China front, with the US involved in both. Russian Deputy Foreign Minister, according to reports this morning, said if the US and NATO do not provide them with guarantees around security, it may lead to confrontation – and emphasised that the lack of progress on this would lead to a military response. Further, there were reports that Saudi Arabia and Iran held security talks. Ahead, the monthly OPEC oil market report is due to be released, but focus this week will likely remain on the slew of central bank meetings. Elsewhere, spot gold and silver are constrained to recent ranges ahead of a risk-packed week, with the former still in a purgatory zone below its 50 DMA (1,789/oz), 200 DMA (1,793/oz) and 100 DMA (1,795/oz). Meanwhile, LME copper is firmer on the mild market optimism but has receded south of the USD 9,500/t mark.

OPEC Monthly Oil Market Report at 12:20GMT/07:20EST. (Newswires)

Iraq’s Oil Minister said he expects OPEC to maintain its current policy of gradual monthly increases of 400k bpd at the next meeting. (Newswires)

Saudi Arabia approved a draft budget for 2022 of SAR 955bln, while its oil revenues for 2021 is seen to increase 35% Y/Y to SAR 558bln. (Newswires)

Iran set January Iranian light crude price to Asia at Oman/Dubai + USD 3.10/bbl, while it was separately reported that Iran’s draft budget projects 1.2mln bpd in oil exports with a selling price projected at USD 60/bbl. (Newswires)