• Asian equities were mixed/rangebound as participants remained cautious following the losses in the US (S&P 500 -0.75%)
• The region also digested mixed Chinese data in which Industrial Production topped estimates but Retail Sales disappointed
• The Senate and House passed the bill to raise the debt limit by USD 2.5tln
• In FX, DXY is modestly softer and sub 96.50 with price action relatively contained in the G10 space
• UK lawmakers voted to require COVID passes for some venues and large events in England; 98 Tory rebelled
• Looking ahead, highlights include UK & Canadian inflation, US NY Fed Manufacturing, Retail Sales, DoEs, FOMC policy announcement and Fed Chair Powell press conference

CORONAVIRUS UPDATE

WHO Emergency Director suggested there is a number of weeks to go before the peak of this COVID wave hits. (Newswires)

FDA revised Johnson & Johnson's (JNJ) Janssen COVID-19 vaccine fact sheets to update information about the risk of thrombosis with thrombocytopenia syndrome (TTS) following vaccination, but continues to find known and potential benefits outweigh the known and potential risks for people aged 18-years and above. (Newswires)

UK lawmakers voted 369-126 to require COVID passes for some venues and large events in England in which the vote saw 98 Tory rebels. The rebellion (96 Tory MPs and 2 tellers) was larger than the previous biggest rebellion of 53 regarding COVD tiers last year and greater than the 79-seat majority PM Johnson currently has, according to Sky News' Coates. Furthermore, a government source stated that Parliament will be recalled over the Christmas break if further curbs are needed and it was separately reported that the NHS told pharmacies it cannot deliver additional rapid COVID-19 tests. (Newswires/Sky/Daily Mirror/Telegraph)

German Health Minister reportedly told federal states that the federal government ordered too few vaccine doses and there is a significant shortage. (Der Spiegel)

Dutch PM Rutte said COVID-19 measures will be extended through Christmas and New Year, while he added it is not possible to ease restrictions yet. (Newswires)

ASIA

Asian equity markets were mixed with price action rangebound as participants remained cautious following the losses in US where a hot PPI report further supported the case for the Fed to speed up its tapering heading into today’s FOMC meeting and with participants in the Asia-Pac region also digesting mixed Chinese activity data. ASX 200 (-0.7%) was led lower by tech after similar underperformance of the sector stateside and as weak Westpac Consumer Sentiment data and a continued surge in domestic COVID-19 cases also contributed to the uninspired mood. Nikkei 225 (+0.1%) was steady with price action contained by resistance around the 28.5k level and amid the lack of direction in the domestic currency, although Toyota shares were among the top performers after its recent commitment to spend trillions of Yen to boost its electrification. Hang Seng (+0.1%) and Shanghai Comp. (-0.1%) were choppy amid several opposing forces including mixed data in which Industrial Production topped estimates but Retail Sales disappointed and with the PBoC’s previously announced 50bps RRR cut taking effect. The PBoC also announced to inject CNY 500bln via a 1-year MLF operation and Chinese press noted that China may lower Loan Prime Rates ahead of the holiday season, although the central bank’s decision to maintain the 1-year MLF rate suggested a reduction in the benchmark LPR next week was unlikely. Furthermore, US-China frictions lingered after the House passed the Uyghur bill which targets China and the White House also noted that China must be held accountable for genocide, while it was also reported that President Biden's team is considering imposing harsher sanctions on China's largest chipmaker SMIC. Finally, 10yr JGBs were kept afloat above the psychological 152.00 level amid the BoJ’s presence in the market for more than JPY 1.3tln of JGBs under its regular Rinban operations and with the central bank also conducting a 3rd consecutive injection via repurchase agreements, although upside was limited as markets brace for a potential faster Fed taper.

PBoC injected CNY 500bln via 1-year Medium-term Lending Facility with the rate maintained at 2.95% and it injected CNY 10bln via 7-day reverse repos with the rate maintained at 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.3716 vs exp. 6.3684 (prev. 6.3675)

US lawmakers reached a deal on the Uyghur Forced Labor Prevention Act and the House later passed the Uyghur bill aimed at China which now goes to the Senate, while the White House said it welcomed the Uyghur bill agreement in Congress and that China must be held accountable for genocide. (Newswires)

US President Biden's team is reportedly considering imposing harsher sanctions on China's largest chipmaker SMIC (981 HK), while it was also reported that Dawning Information Industry (603019 CH), drone maker DJI and Megvii are among the eight more Chinese companies that the US will blacklist on Thursday for alleged involvement in surveillance against Uyghurs. (Newswires/FT)

China may lower Loan Prime Rate ahead of the holiday season. (Securities Times)

According to SGH Macro (dated 14th Dec), some Chinese officials at last week’s China’s Central Economic Work Conference were reportedly discussing setting a 5.0% GDP growth target for next year, while others felt 5.5% would be an attainable goal. The piece noted that stimulus will likely come in two steps, with another RRR cut potentially in February although some officials see interest rate cuts as less likely. Furthermore, officials reportedly believe inflation will not pose major constraints on monetary policy and believe the policy tightening in the US and easing in China will alleviate some recent currency pressures. (SGH Macro Advisers)

• Chinese Industrial Production YY (Nov) 3.8% vs. Exp. 3.6% (Prev. 3.5%)
• Chinese Retail Sales YY (Nov) 3.9% vs. Exp. 4.6% (Prev. 4.9%)
• Chinese Urban Investment YTD YY (Nov) 5.2% vs. Exp. 5.4% (Prev. 6.1%)
• Chinese House Prices YY (Nov) 3.0% (Prev. 3.4%)

UK/EU

UK Tory party and Liberal Dems believe there could be just a few hundred votes that would decide the by-election on Thursday for the North Shropshire seat and a senior Tory MP warned that backbenchers' reactions could be 'volcanic' if the Tory party loses the seat. (PoliticsHome)

Negotiators from Britain are today set to demand that the EU alters the Northern Ireland protocol subsidy rules so that businesses can benefit from COVID state support. (Telegraph)

5/9 members of the Times shadow MPC voted in favour of lifting the base rate to at least 0.25% from 0.1% with the view that the rate should be raised before Omicron pushes inflation even higher. (Times)

ECB projections reportedly showed inflation below the 2% goal in 2023 and 2024, according to sources. (Newswires)

FX

In FX markets, the DXY was indecisive and traded on both sides of the 96.50 level as the FOMC announcement drew closer, although it has retained most of the prior day’s gains. There were also fresh developments in Congress where both the Senate and House passed the bill to raise the debt limit by USD 2.5tln to USD 31.4tln which now awaits President Biden's signature and in terms of the Build Back Better bill, the White House noted that President Biden and Moderate Democratic Senator Manchin are not there yet but will have another meeting in the coming days. EUR/USD attempted to nurse losses after losing ground to the greenback’s advances and its recent failed attempt to reclaim the 1.1300 status, while reports also noted ECB projections for inflation were below the 2% goal for 2023-2024. GBP/USD was steady with plenty of focus on the growing anger towards UK PM Johnson from within the Tory party as the vote for the new COVID pass restrictions saw 98 Tory rebels, which is the largest rebellion yet and above the 79-seat majority PM Johnson currently has, while a senior Tory MP also warned that backbenchers' reactions could be ‘volcanic’ if the party loses the Thursday by-election for North Shropshire. USD/JPY and JPY-crosses were contained by the cautious mood and antipodeans lacked firm direction following weaker Australian Westpac Consumer Sentiment and New Zealand Current Account figures, as well as the mixed Chinese activity data.

Canada's 2021-2022 budget deficit is expected at CAD 144.5bln vs prev. deficit forecast of CAD 154.7bln, 2022-2023 budget deficit is seen at CAD 58.4bln vs prev. deficit forecast of CAD 59.7bln, while 2023-2024 budget deficit is seen at CAD 43.9bln vs prev. deficit forecast of CAD 51.0bln. Furthermore, 2021 real GDP growth is seen at 4.6% vs prev. forecast of 5.8%, 2022 growth seen at 4.2% vs prev. forecast of 4.0% and 2023 growth seen at 2.8% vs prev. forecast of 2.1%, while inflation is expected to average 3.3% in 2021, 3.1% for 2022, 2.3% in 2023 and 2.1% in both 2024 and 2025. (Newswires)

RBNZ Governor Orr said to expect more reductions in stimulus over time and that house prices are above a sustainable level and vulnerable for a correction. (Newswires)

• Australian Westpac Consumer Confidence Index (Dec) 104.3 (Prev. 105.3)
• New Zealand Current Account Quarterly (Q3) -8.3B vs. Exp. -7.9B (Prev. -1.4B)
• New Zealand Current Account Annual (Q3) -15.9B vs. Exp. -15.1B (Prev. -11.2B)
• New Zealand Current Account/GDP (Q3) -4.6% vs. Exp. -4.5% (Prev. -3.3%)

COMMODITIES

Commodities were mixed in which WTI crude futures remained pressured and retreated beneath the USD 70/bbl level due to the cautious risk mood and with the latest private sector inventory data showing a narrower than expected draw in headline crude stockpiles, while the weakness had stemmed from the prior session amid a firmer greenback and as the latest IEA Oil Market Report revised its oil demand outlook for 2021 and 2022, as well as noted that global supply will overtake demand this month. Furthermore, the DoE will issue a notice of the sale of 18mln bbls of crude oil from the SPR on Friday which is part of the US previously announced release. Gold prices remained near the prior day's lows as the greenback held on to most the gains from the record-high PPI data and with all focus on the approaching FOMC announcement, while copper traded sideways amid the non-committal tone in risk assets and after reports that Codelco reached a wage agreement with Chuquicamata miners.

US Private Inventory (bbls): Crude -0.8mln (exp. -2.1mln), Gasoline +0.4mln (exp. +1.6mln), Distillates -1.0mln (exp. +0.7mln), Cushing +2.3mln. (Newswires)

DoE is to issue a notice of the sale of 18mln bbls of crude oil from the SPR on December 17th which is part of the process related to the White House's previous SPR release announcement. (Newswires)

GEOPOLITICAL

Iran's Foreign Ministry spokesman said ongoing discussions with the IAEA have led to progress and gaps over several issues of mutual interest have narrowed, while they can anticipate reaching an understanding with IAEA soon. (Press TV)

French Ambassador to the UN said they are rapidly reaching the end of the road in Iran talk and that Iran has to choose between collapse of JCPOA and a reasonable deal, while they are also nearing the point where Iran's nuclear acceleration will have completely hollowed out the JCPOA. (Newswires)

US and European officials have accelerated talks over what should be done if the Vienna talks fail to reach an agreement, officials told Kann News and the discussions on what to do next are said to have become more serious. Furthermore, officials added that the talks are mainly on snapback of sanctions and the diplomatic manner the countries should take, as well as the need for a "unified stance" against Iran if the talks fail". (Twitter)

Saudi Foreign Minister said they are seeing pessimism from the talks in Vienna but hopes there will be progress and he wants good ties with Iran but added this requires Iran to cooperate. (Newswires)

US

Treasuries were lower in a choppy session with selling pressures exacerbated after a hot PPI report, although as risk assets tumbled Treasuries were well off the lows in what appeared to be a typical haven play or perhaps some profit-taking ahead of FOMC on Wednesday. At settlement, 2s +1.2bps at 0.657%, 3s +1.6bps at 0.976%, 5s +1.8bps at 1.232%, 7s +2.2bps at 1.391%, 10s +1.4bps at 1.438%, 20s +0.7bps at 1.860%, 30s +0.4bps at 1.817%. 5yr TIPS +14.0bps at -1.459%, 10yr TIPS +3.0bps at -0.971%, 30yr TIPS -1.0bps at -0.391%. Treasuries were choppy but ultimately settled lower after the jump on Monday. Selling pressures were exacerbated after a hot PPI report which also saw the curve flatten with rate a move lower in H2 Eurodollars, suggesting an increased chance of a March hike next year. Desks have highlighted that the initial downside saw algos sell 10s following a break above 1.45% and 1.84% in bonds, although this had reversed into the afternoon, perhaps on short covering and position squaring ahead of Wednesday's FOMC. The move higher coincided with continued weakness in risk assets, so it may have been a risk play as well. T-note (H2) futures settled 6+ ticks lower 130-20+.

US Senate voted 50-49 to pass the bill to raise the debt limit to USD 31.4tln from USD 28.9tln and extend it into 2023, while the House voted 221-209 to pass the debt limit increase to send it to President Biden for signing. (Newswires)

White House Press Secretary said US President Biden and Moderate Democratic Senator Manchin are not there yet on Build Back Better but will have another meeting in the coming days. (Fox)