• Equities are pressured after a constructive European open, fundamental updates have been minimal and conditions remain thin before the week's risk events; ES -0.2%
• In FX, the DXY has been pressured towards yesterday's low, but remains comfortably above 96.00, to the mixed benefit of peers with EUR/CHF/GBP leading the way
• South African study on vaccines given Omicron finds Two doses of the Pfizer (PFE)/BioNTech (BNTX) vaccine gives 70% protection against hospitalisation, 33% against infection
• US Senator Manchin had a productive conversation with US President Biden and they will continue to talk over the coming days
• Looking ahead, highlights include US PPI

CORONAVIRUS UPDATE

South African health insurer Discovery, real world study on COVID-19 vaccine effectiveness during Omicron: risk of hospitalisation among adults with COVID is 29% lower than during the first wave, adjusting for vaccinations.

• Two doses of the Pfizer (PFE)/BioNTech (BNTX) vaccine gives 70% protection against hospitalisation, 33% protection against infection during the current wave.
• Risk of reinfection during the current wave is significantly higher than in previous waves.
• Study does caution results should be considered preliminary; sample of 211k positive tests, 78k Omicron variant ones. Taken between November 15th and December 7th.

South African Scientist Gray says no one died from Omicron in the local Johnson & Johnson (JNJ) study; in the next few days will be comparing study participants who received a double dose of the Johnson & Johnson vaccine to those who received a single shot; this will help measure the impact of the booster on Omicron. (Newswires)

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)

Cathay Pacific (0293 HK) says the emergence of Omicron has had an impact on travel sentiment for the holiday period. Are adjusting the December flight schedule, intends to operate no more than 12% of pre-COVID flight capacity until end-2021. Strong peak season is expected to last well into December, in reference to cargo. Expect a full freighter schedule to remain in operation.. (Newswires)

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)

Norwegian Government is to reintroduce the government guarantee scheme for corporate loans. (Newswires) Follows yesterday's announcement of new restrictions given Omicron

French government spokesman says there are no plans to change COVID measures at the moment. (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 (-0.7%) sits beneath the 28.5k level with price action constrained by an indecisive currency. Hang Seng (-1.3%) and Shanghai Comp. (-0.5%) 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)

BoJ is said to be mulling extending COVID measures beyond March according to Kyodo. (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)

US

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

US 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)

UK/EU

UK ILO Unemployment Rate (Oct) 4.2% vs. Exp. 4.2% (Prev. 4.3%); Employment Change (Oct) 149k vs. Exp. 228k (Prev. 247k)

• Claimant Count Unemployment Change (Nov) -49.8k (Prev. -14.9k)
• Average Earnings (Ex-Bonus) (Oct) 4.3% vs. Exp. 4.0% (Prev. 4.9%, Rev. 5.0%)

German IFO Institute: economic recovery will be further delayed by fourth COVID wave and supply bottlenecks. (Newswires)

• VDMA (engineering association) sees 2021 production +7% YY (prev. +10%). Expects supply bottlenecks to remain until at least Q2-2022.

GEOPOLITICAL

Iranian Nuclear Chief Eslami says the IAEA has demanded access to the Karaj site, which is beyond safeguards and as such unacceptable, via ISNA; this, and other, issues are linked and should be dealt with together. (Newswires)

Hong Kong-mainland border is expected to reopen before December 21st, Global Times citing sources; plan is anticipated before December 19th LegCo elections. (Twitter)

Russia's Kremlin says that President Putin and Chinese President Xi will discuss tensions in Europe in a video call on Wednesday, aggressive talk from the US and NATO requires dialogue between China and Russia. (Newswires)

EQUITIES

The mood across equities have shifted to a downbeat one after the initial upside seen at the cash open (Euro Stoxx 50 -0.1%; Stoxx 600 -0.1%). US equity futures see losses to a greater magnitude with the RTY (-0.6%) and NQ (-0.6%) pressure is of a greater magnitude vs the ES (-0.3%) and YM (-0.2%). There has been no single trigger for this downside, with traders teeing up for tomorrow’s FOMC announcement, followed by the ECB, BOE, Flash PMIs, and Quad Witching. The morning saw an Omicron update from a South African study which suggested the risk of hospitalisation among adults with COVID is 29% lower than during the first wave, adjusting for vaccinations. This also noted that two doses of the Pfizer (-0.1% pre-mkt)/BioNTech (-1.4%) vaccine gives 70% protection against hospitalisation and 33% protection against infection during the current wave. Aside from that, fresh macro news flow has been on the lighter side. Back in Europe, cash bourses are mixed with some outperformance seen in the FTSE 100 (+0.4%), propped up by gains across banks and miners, with the former buoyed by the rising yields. Sectors are now mixed with a slight defensive bias, as Food & Beverages and Telecoms going Basic Resources and Banks at the top of the pile. The other side of the spectrum sees Autos & Parts, Tech and Travel & Leisure. In terms of individual movers, BT (-7%) after Altice said it has acquired a further 585mln shares in BT, upping its stake to 18.0% from 12.1%, to which the UK said it is closely monitoring the situation on BT and will not hesitate to act if needed. Altice's Drahi informed BT after-close on Monday that the stake had been increased, did not make them aware of this beforehand. Sticking with M&A, Vifro (+12.5%) rose to the top of the Stoxx 600 after CSL confirmed the Swiss tender offer for 100% of Vifor at USD 179.25/shr which will be funded by AUD 6.3bln institutional placement and will also raise AUD 750mln through share purchase plan.

"Tesla (TSLA) will make some merch buyable with Doge (DOGE) & see how it goes", according to CEO Musk. (Twitter) Immediate upside was seen in Doge

FX

DXY - The Greenback continues to grind with an upward bias amidst dip buying ahead of the FOMC that is keeping a lid on US Treasuries due to hawkish expectations for QE and rates amidst the ongoing spread of Omicron that is prompting bouts of risk aversion to the benefit of safe havens, intermittently. However, the index is still encountering resistance into 96.500 for semi-psychological reasons if not strictly technical and the Dollar is finding several levels tough to breach on an individual basis vs counterparts. PPI data may provide the additional impetus if strong, but confirmation of a faster taper by the Fed along with more aggressive tightening intentions implied by the latest SEP dot plots could be what the Buck needs to overcome its inhibitions. Looking at the DXY in more detail, the latest fade and dip is underway and favouring the carry currencies over high betas and commodity bloc, in the main as the index trades near the base of a 96.493-158 range.

CHF/EUR - No initial or obvious positive reaction to Swiss or Eurozone data in the form of producer/import prices and ip respectively, but the Franc and Euro are both taking advantage of the Greenback’s loss of momentum to probe round numbers at 0.9200 and 1.1300, while the Eur/Chf cross pivots 1.0400 to keep the SNB on guard for Thursday’s quarterly policy reviews just a matter of hours before the ECB delivers its final decisions of 2021.

AUD/CAD - The Aussie retreated further in wake of a mixed NAB business survey overnight showing a marked decline in confidence vs slight improvement in conditions, but has reclaimed 0.7100+ status against its US rival, while the Loonie is trying to contain losses through 1.2800 against the backdrop of another downturn in WTI crude.

GBP/NZD/JPY - All narrowly divergent vs their US peer, albeit the Pound taking most advantage of the retracement following a mostly upbeat UK labour market report, as Cable recovers from a sub-1.3200 low, while the Kiwi is back over 0.6750 awaiting NZ Q3 current account balances and benefiting from Aud/Nzd tailwinds. Elsewhere, the Yen has brushed off more speculation about the BoJ extending pandemic support measures beyond the current March 2022 expiry data to maintain clear sight of 113.50 and could be cushioned by decent option expiry interest just under the 113.75 low as 1 bn rolls off between 113.80-85.

SCANDI/EM - The Sek must have been expecting an upside beat from Swedish CPI and core inflation metrics rather than Riksbank’s Bremen renewing calls for QE tapering in 2022, as it derived little support around 10.2700 vs the Eur, but it is holding up better than the Nok amidst soft Brent and post-confirmation of tighter COVID-19/Omicron restrictions in Norway. Meanwhile, the Try is back under considerable pressure as the Turkish Government prepares to present a supplementary budget to parliament, the Huf is looking toward the NBH for direction and guidance beyond the anticipated 30 bp hike that kicks off a run of no less than 14 Central Bank rate/policy announcements this week and the Czk will have taken note of the CNB head flagging rates nearer 4% than 3% for the year ahead.

Notable FX Expiries, NY Cut:

• USD/JPY: 113.00 (926M), 113.50-65 (585M), 113.80-85 (1BLN), 113.90-114.00 (450M)

Australian NAB Business Confidence (Nov) 12 (Prev. 21)

South Africa's Department of Environmental Affairs (DFFE) has given its decision to Eskom around minimum emissions standards. Eskom's request for postponements at some locations was declined. If implemented, the decisions would result in the immediate shutting down of 16kMW of installed coal-fired capacity. (Newswires)

FIXED

Bonds have been gradually unwinding gains, but not reversing sharply as can be the case when intraday and short term longs decide to bail or pare positions due to a lack of follow-through buying and conviction to extend higher. Nevertheless, Bunds, Gilts and the 10 year T-note have been down to 174.42, 127.35 and 130-22 compared to 174.75, 127.60 and 130-28+ at the other end of the spectrum. Charts may be playing a part along with general apprehension ahead of the Central Bank bonanza that comprises 14 final policy decisions of the year. Data-wise, US PPI looms and could be influential is pipeline prices show more pressure building or vice-versa to rekindle transitory talk.

COMMODITIES

WTI and Brent front-front futures have retreated off best levels as the complex initially attempted to nurse yesterday’s losses, whilst risk sentiment tilts towards aversion. The contracts came off intraday highs after the IEA revises down its oil demand outlook by some 100k BPD for each 2021 and 2022. The IEA also suggested that world oil supply is set to overtake demand from this month, and new COVID cases are expected to temporarily slow - but not upend the recovery in oil demand. This differs somewhat from the OPEC release yesterday which saw a sizeable upgrade to the Q1 2022 metric – teeing the producers for a continuation of the current plans to hike monthly output. On the COVID front, South African health insurer Discovery released a real-world study on COVID-19 vaccine effectiveness during Omicron, which stated the risk of hospitalisation among adults with COVID is 29% lower than during the first wave, adjusting for vaccinations. The study also suggested that two doses of the Pfizer (PFE)/BioNTech (BNTX) vaccine gives 70% protection against hospitalisation, 33% protection against infection during the current wave and the risk of reinfection during the current wave is significantly higher than in previous waves. On the travel front, China’s Cathay Pacific said the emergence of Omicron has had an impact on travel sentiment for the holiday period and adjusted the December flight schedule to operate no more than 12% of pre-COVID flight capacity until the end-2021. The airline continues to face significant challenges, particularly for the travel business. This also comes as China's Guangzhou city has detected an additional Omicron COVID-19 case in a traveller returning from abroad. On the geopolitical front, Iranian nuclear talks hit the first stumbling block since resumption - Iranian Nuclear Chief Eslami said the IAEA has demanded access to the Karaj site, which is beyond safeguards and as such unacceptable. WTI Jan has retreated to around USD 71.00/bbl level (vs USD 72/bbl high) whilst Brent Feb heads towards the low USD 74/bbl area (vs high 75.15/bbl). It’s also worth keeping in mind that Open Interest in Brent has flipped to the Mar contract, but volume remains in Feb. Elsewhere, spot gold was initially hit by the rising Buck, with upside for the yellow metal still capped by the 100 DMA (1,789/oz), 200 DMA (1,793/oz) and 50 DMA (1,796/oz), whilst the downside sees USD 1,775/oz as the next immediate psychological support. The recent risk aversion has also crept into the base metals market, with LME copper now losing further ground under USD 9,500/t.

IEA OMR: revises down oil demand outlook by circa. 100k BPD for each 2021 and 2022. World oil supply is set to overtake demand from this month. New COVID cases expected to temporarily slow but not upend the recovery in oil demand. If OPEC+ continues to unwind cuts, an oil surplus of 1.7mln BPD could occur in Q122 and 2mln BPD in Q222. (Newswires)