• Asia-Pac stocks traded mostly subdued following the pullback on Wall Street
• In FX, the DXY has gained a firmer footing above 96.00, activity currencies narrowly lag G10 peers
• The Senate will vote on legislation to raise the Federal Government debt limit today
• Russia said it may be forced to deploy intermediate-range nuclear missiles in Europe in response to what it sees as NATO's plans to do the same
• Looking ahead, highlights include UK Labour Market Report, IEA OMR, EZ Industrial Production, US PPI, supply from Italy

CORONAVIRUS UPDATE

US CDC urged Americans to avoid travel to Italy, Greenland and Mauritius due to COVID-19 cases, while it was separately reported that California will reinstate indoor mask mandate across the state from December 15th-January 15th. (Newswires/Twitter)

Victoria reported 1189 new COVID-19 cases, while New South Wales reported 804 new cases which was a 10-week high and warned that Omicron cases are expected to jump quite significantly. (The Australian/SMH)

Norway announced that restaurants and bars are to stop serving alcohol while gyms and swimming pools can only stay open for limited groups. Furthermore, schools will introduce additional measures and work from home will be mandatory for those who can, while it brought forward the timeline for the third dose. (Newswires)

ASIA

Asia-Pac stocks traded mostly subdued following the pullback on Wall Street as sentiment turned cautious ahead of this week’s plethora of central bank-focused risk events, key global data releases and quad-witching. ASX 200 (Unch.) was rangebound as underperformance in consumer-related sectors was counterbalanced by the resilience in property and mining names, with risk appetite not helped by a surge in domestic COVID infections and mixed NAB Business Confidence data. Nikkei 225 (-0.8%) sits beneath the 28.5k level with price action constrained by an indecisive currency. Hang Seng (-1.3%) and Shanghai Comp. (-0.6%) conformed to the downbeat mood as property names suffered from ongoing default concerns after China Shandong Hi-Speed Financial noted a default event by China Aoyuan Property Group and said it will make efforts to recover missed payments. Casino stocks also weakened amid concerns of a new global COVID wave and after China reported its first Omicron case, while there were further disruptions in the Zhejiang province where around 250k people were recently placed under lockdown due to an outbreak in three of the manufacturing region's cities. Finally, 10yr JGBs were helped by the lacklustre mood in stocks and with the BoJ announcing purchases including JPY 2tln of bonds via repurchase agreements and JPY 7tln of JGBs for Wednesday-Thursday, while the enhanced liquidity auction for longer-dated government bonds also attracted a higher bid-to-cover.

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 6.3675 vs exp. 6.3615 (prev. 6.3669)

China cyberspace regulator said Sina Weibo (9898 HK) repeatedly published or transmitted illegal information and it imposed a CNY 3mln fine on the Co. (Newswires)

US Secretary of State Blinken said the US is to advance a free and open Indo-Pacific, while the US and countries across the region are concerned over Beijing's aggressive actions and want it changed. Blinken added that China's aggressive actions in the South China Sea threaten the movement of USD 3tln of trade each year and that the US is developing a comprehensive Indo-Pacific economic framework at President Biden's direction, while he added that the US will bolster Indo-Pacific security and will adopt a strategy that weaves together diplomacy, military and intelligence with its allies, but does not want conflict in the Indo-Pacific. (Newswires)

Asian Development Bank lowered developing Asia 2021 growth forecast to 7.0% from 7.1% and 2022 growth forecast was lowered to 5.3% from 5.4%, while the Asian Development Bank lowered its China 2021 growth forecast to 8.0% from 8.1% and lowered 2022 growth forecast to 5.3% from 5.5%. (Newswires)

Magnitude 7.7 earthquake reportedly hit Flores Sea in Indonesia which triggered a tsunami warning from Indonesia and the Pacific Tsunami Warning Center also warned that the quake could cause hazardous tsunami waves, although the Japan Meteorological Agency later noted there was no tsunami threat to Japan from the Indonesia earthquake and NOAA also announced that the tsunami threat had passed. (Newswires)

UK/EU

BoE Governor Bailey said he does not think they are in a situation where there is stress around the corner for markets because of the Omicron variant. (Newswires)

UK and EU are set to extend their negotiations over the post-Brexit future of Northern Ireland into 2022, as both sides look for a compromise that would prevent a trade war. (Newswires)

German Finance Minister Lindner said they see the risk of rising inflation in the EU and world, while he added that they need to combine monetary stability and more investments to modernise economies, while he added that they should find fiscal buffers with the next years. (Newswires)

Dutch parties agreed on a governing pact, paving the way for PM Rutte to form a new cabinet. (Newswires)

FX

In FX markets, the DXY held on to yesterday’s gains with a firm footing on the 96.00 level as it found support from the cautious mood heading into the upcoming key risk events including the FOMC meeting on Wednesday where the Fed is expected to discuss speeding up the tapering of asset purchases. US data releases were non-existent to start the week although there was some attention on Washington where US Senate Democrat Leader Schumer announced the Senate will vote on legislation to raise the Federal Government debt limit today, while Moderate Democrat Senator Manchin held “productive” talks with President Biden, as the administration vies to get the Build Back Better bill passed before the holidays. EUR/USD remained lacklustre after recent USD strength and the single currency’s failed attempt to reclaim the 1.1300 status, while GBP/USD briefly breached 1.3200 to the downside with continued pressure from Omicron concerns as government modelling estimated the new variant could be infecting 200k people a day in the UK. USD/JPY and JPY crosses lacked firm direction amid the uninspired risk tone, which also kept antipodeans subdued alongside pressure in commodities and the tepid Business Survey data from Australia.

BoC Governor Macklem said the BoC is focused on bringing inflation back down to target without choking off the economic recovery and said they are not in a situation right now where they could probe for maximum sustainable employment, while he added that there are risks involved in the BoC's projection over the next year. (Newswires)

• Australian NAB Business Confidence (Nov) 12 (Prev. 21)
• Australian NAB Business Conditions (Nov) 12 (Prev. 11)

COMMODITIES

Commodities were lacklustre as price action reflected the uninspired risk tone in which WTI crude futures retreated beneath the USD 71/bbl, while the recent OPEC MOMR had little affect on prices as 2021 and 2022 world oil demand growth forecasts were maintained. There were also notable comments including from the Saudi Energy Minister who said their kingdom is to be one of the countries to raise oil production capacity in 2022 and that oil markets are set for a period that could be dangerous, while UAE Energy Minister affirmed the nation's commitment to the OPEC process, as well as noted that the oil market is in good condition and will be well supplied in Q1 2022. Gold prices were flat with haven demand for the precious metal offset by a steady greenback and copper prices were subdued amid the cautious mood, global Omicron concerns and disruption in China's manufacturing province of Zhejiang where hundreds of thousands of people are under quarantine amid a recent outbreak of COVID-19.

GEOPOLITICAL

US State Department said it is too soon to say whether Iran has returned to talks in Vienna with a more constructive approach. (Newswires)

Senior European diplomats said that they have not yet been able to enter into any real negotiations regarding Iran talks and said they are wasting precious time with new Iranian positions that are incompatible with or beyond the JCPOA. (Twitter)

Russia said on Monday that it may be forced to deploy intermediate-range nuclear missiles in Europe in response to what it sees as NATO's plans to do the same, while the Russian Deputy Foreign Minister said Russia would be forced to act if the West declined to join it in a moratorium on intermediate-range nuclear forces in Europe which is part of a package of security guarantees it is seeking as the price for defusing the crisis over Ukraine. (Newswires)

US

Treasuries bull flattened on Monday as equities tumbled ahead of key risk events and quad-witching. At settlement, 2s -1.7bps at 0.645%, 3s -2.9bps at 0.960%, 5s -3.9bps at 1.214%, 7s -5.2bps at 1.370%, 10s -6.5bps at 1.424%, 20s -6.4bps at 1.853%, 30s -7.1bps at 1.813%. 5yr TIPS +5.9bps at -1.540%, 10yr TIPS -2.3bps at -1.024%, 30yr TIPS -4.0bps at -0.421%. Treasuries bull flattened on Monday to start the week ahead of key risk events including the Fed and accompanying SEP's on Wednesday. The upside on Monday appeared to follow the lead from Europe after cautious Omicron concerns from the UK and Europe tampered expectations for hawkish Central Bank decisions this week, although the Fed is still widely expected to double the pace of its taper process to see purchases conclude in March due to the inflation situation in the US, emphasizing the policy differentials between the Fed, BoE and particularly ECB. On this front, Blackrock turned underweight in European government bonds, writing that yields will move higher against current market pricing pointing to 'no substantive change in monetary policy for multiple years'. Meanwhile, in a research note from Morgan Stanley, the strategist's highlight price action in the last half hour of cash equity trading in the US shows “a clear trend” toward declines in stocks and long-end bond yields over the past 12 months, pointing to the market impact of pension funds rebalancing portfolios at the end of the day. The desk notes demand from corporate defined benefit pension funds has been a major force behind the decline in 30yr yields, putting bull flattening pressure across the curve, which has only been aided by hawkish expectations for the Fed, affecting the short-end of the curve. T-note (H2) futures settled 14 ticks higher at 130-27.

White House said it is looking to announce Fed nominees soon and hopes to finalise appointments before the holidays. (Newswires)

US Senate Democratic Leader Schumer said the Senate will vote Tuesday on legislation to raise the Federal Government debt limit. (Newswires)

US Moderate Democratic Senator Manchin suggested the Build Back Better bill still needs a lot of work to earn his support, while he suggested a USD 1.7tln range for the Build Back Better bill and said that the Build Back Better bill shouldn’t rely on temporary spending that could become permanent. It was later reported that Senator Manchin had a productive conversation with US President Biden and they will continue to talk over the coming days. Furthermore, Manchin responded that anything is possible and he is still engaged in talks when asked if the Build Back Better bill can get done this year. (Newswires/CNN)