• Equities remain mixed but with a cautious undertone, ES -0.1%, NQ -0.4%; as newsflow is focused on COVID/geopolitics going into the FOMC
• DXY is softer but pivoting 96.50 with peers mixed and GBP leading after UK CPI; USTs are unchanged, EGBs are pressured, led by Gilts on BoE tightening repricing
• Reports indicate UK PM Johnson will hold a Omicron press conference today, unclear on content; gov't is said to be expecting a record daily case print today/tomorrow
• Iran has achieved an agreement with the IAEA to assist in addressing nuclear concerns.
• APAC participants 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
• Looking ahead, highlights include Canadian inflation, US NY Fed Manufacturing, Retail Sales, DoEs, FOMC policy announcement and Fed Chair Powell press conference

CORONAVIRUS UPDATE

Appears as if UK PM Johnson will today host an afternoon press conference on Omicron; unclear whether this will contain new guidelines or be focused on the high case count. Additionally, Gov't sources expect a record daily case figure to be set either today or tomorrow. Finally, UK Head of UK Test and Trace head Harries says that in most UK regions, the doubling rate is now under two days (1.9). (Times/ITV/Sun)

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)

EMA’s human medicines committee (CHMP) has concluded that a booster dose of COVID-19 Vaccine Johnson & Johnson (JNJ) Janssen may be considered at least two months after the first dose in people aged 18 years and above. (Newswires)

GlaxoSmithKline (GSK LN) and Sanofi (SAN FP) announce positive prelim. Phase 3 booster data for their COVID-19 vaccine; Omicron variant was not in circulation during the trial. (Newswires)

WHO prelim. evidence suggests that there may be a reduction in vaccine efficacy and effectiveness against Omicron, alongside a greater risk of reinfection; more data needed on Omicron. (Newswires) Almost identical to the South African prelim. study reported yesterday

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 (-0.9%) and Shanghai Comp. (-0.4%) 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%)

Chinese authorities are reportedly downplaying the sale or complete state-backed bailout of Evergrande (3333 HK) for now, sources state

US

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 sources note that the Build Back Better (BBB) Christmas deadline is not important to the WH, " But they aren’t concerned with blowing the deadline as long as they make the next one". (Punchbowl)

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)

UK Brexit Minster Frost says N. Ireland protocol negotiations are under way, have decided to temporarily extend the current arrangements. (Newswires)

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)

UK CPI YY (Nov) 5.1% vs. Exp. 4.7% (Prev. 4.2%); MM (Nov) 0.7% vs. Exp. 0.4% (Prev. 1.1%)

• Core CPI YY (Nov) 4.0% vs. Exp. 3.7% (Prev. 3.4%)

GEOPOLITICAL

Germany, France and other EU member states are reportedly resisting a push to plan sanctions on Russia regarding Ukraine, wanting to focus on talks. Subsequently, EU Commission President von der Leyen says the response to further Russian aggression may include a 'robust' scaling of existing measures,** prepared to take 'additional, unprecedented measures** with serious consequences'. (Newswires)

Iran has achieved an agreement with the IAEA to assist in addressing nuclear concerns. (Newswires)

Russia's Kremlin says Presidents Putin and Xi agreed that Russia-China relations reached an unprecedented positive level; Xi and Putin expressed concern over US' involvement in APAC situations. (Newswires)

EQUITIES

The equities complex remains mixed in Europe (Euro Stoxx 50 +0.4%; Stoxx 600 +0.4%), but the mood has tilted more towards a cautious one as the clock ticks down to the FOMC policy announcement. The focus of the announcement will be on the pace of the tapering process, with the Fed is widely expected to double the pace of its asset purchase unwind to USD 30bln/mth, taking asset purchases from USD 90bln in December to USD 60bln in January, then to a final 30bln in February, for them to conclude mid-March (full preview available in the Newsquawk Research Suite). US equity futures have seen downticks in early hours with the NQ (-0.1%) narrowly lagging the RTY (+0.1%), ES (+0.1%) and YM (-0.1%). Back to Europe, exporters in the FTSE 100 (-0.4%) are pressured by the inflation-induced gains in the Sterling, whilst the sector configuration is also unfavourable for the UK benchmark with Oil & Gas and Basic Resources towards the bottom of the bunch. Spain’s IBEX (-0.6%) is the regional underperformer with heavyweight Inditex (-3.0%) slumping at the open but rebounding off worst levels as sales hit records, but nonetheless weighing on the broader Retail sector. The upside meanwhile sees Tech – following its recent underperformance, Healthcare, Autos and Personal & Household Goods. In terms of individual movers, Cineworld (-27%) plumbed the depths after a Canadian judge ruled Cineworld must pay USD 965mln in damages to Cineplex after the former backed out of takeover talks amid the pandemic. Cineworld said it will appeal the decision. Sanofi (+0.2%) and GlaxoSmithKline (-0.3%) announced positive prelim. Phase 3 booster data for their COVID-19 vaccine; Omicron variant was not in circulation during the trial. H&M (-3.2%) is pressured after Q4 revenue missed forecasts. Finally, UK electronics retailer Currys (-11%) saw pressure after highlighting a softer market in the Christmas run-up.

FX

DXY/GBP/AUD - The Buck extended yesterday’s post-US PPI gains with added momentum from safe-haven demand as Wall Street wobbled on renewed Omicron-related jitters, but has drifted back down in what looks like typical pre-FOMC cautious and consolidative trade. However, the index remains within a firmer range around 96.500 compared to recent extremes either side of 96.000 in anticipation of faster Fed tapering and a more hawkish tightening path portrayed by new dot plots, at the very least. More immediately, NY Fed manufacturing and retail sales provide distractions or fillers before the main event. Notwithstanding the Greenback’s firm underlying bid (DXY holding between 96.405-96.569), the Pound and Aussie are both outperforming and vying for top spot among majors, with the former boosted by hot UK inflation prints as headline CPI smashed consensus and the BoE’s MPR forecast to revive rate hike bets for the MPC on Thursday. Cable is just shy of new w-t-d highs circa 1.3283 and Eur/Gbp is pivoting 0.8500, while Aud/Usd looks more comfortable on the 0.7100 handle as the Aud/Nzd cross rebounds from sub-1.0550 lows with some traction from better than expected Chinese ip rather than a retail sales miss or dip in Westpac consumer sentiment.

EUR/NZD/JPY/CAD/CHF - Very familiar terrain for the Euro, Kiwi, Yen, Loonie and Franc in relation to their US rival, as Eur/Usd meanders from around 1.1280 to 1.1254 and well above decent option expiry interest at the 1.1200 strike (1 bn). Meanwhile, Nzd/Usd is still straddling 0.6750 amidst mixed NZ fiscal impetus via bigger than anticipated Q3 current account deficits, but a bullish HYEFU based on stronger tax revenue than previously envisaged. Elsewhere, Usd/Jpy has moved up from the 113.50 mark that has been a focus, but could be hampered by a clutch of option expiries spanning 113.75-114.20 totalling 3.7 bn, Usd/Cad is now above 1.2850 awaiting Canadian CPI and manufacturing sales in hope of some protection from further weakness in WTI (down to Usd 69.58/brl at one stage) and Usd/Chf is hovering within a 0.9250-24 band alongside Eur/Chf in a 1.0400-26 range on the eve of the SNB.

SCANDI/EM - The Sek and Nok are both churning inside Tuesday’s extremes against the Eur with little reaction to steady Swedish money market expectations on balance or a narrower Norwegian trade surplus, but the Try is succumbing to more selling pressure ahead of the CBRT tomorrow and Zar looks significantly less relieved with the Omicron situation following the latest WHO assessment. In short, the global body says prelim evidence suggests that there may be a reduction in vaccine efficacy and effectiveness against Omicron, alongside a greater risk of reinfection, though more data is needed.

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)

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); Annual (Q3) -15.9B vs. Exp. -15.1B (Prev. -11.2B)

• Current Account/GDP (Q3) -4.6% vs. Exp. -4.5% (Prev. -3.3%)

Notable FX Expiries, NY Cut:

• EUR/USD: 1.1200 (1BLN), 1.1240-50 (718M), 1.1300 (761M), 1.1350 (594M), 1.1375 (313M), 1.1400 (2.1BLN)
• USD/JPY: 112.00 (1.4BLN), 1.1295-1.1305 (1.2BLN), 113.50 (544M), 113.75 (1.5BLN), 113.95-114.05 (1.1BLN), 114.20 (1.1BLN), 114.50 (381M), 115.00-10 (1.8BLN)

South African High Court has ordered former President Zuma back to prison after revoking medical parole. (Newswires)

FIXED

No real surprise that UK debt and the Short Sterling strip are seeing more pronounced downside pressure than core counterparts ahead of the Fed given domestic inflation data that has prompted a last minute repricing of BoE tightening odds, but the bearish theme is pretty widespread as 10 year benchmarks hover above worst levels and 3 month contracts are broadly week, bar the back end of the Eurodollar curve. Gilts have been as low as 126.87 (-49 ticks on the day) on Liffe and Bunds recently slipped to a deeper 174.25 (-21 ticks) Eurex base, while the T-note is holding fractionally above par, but nearer the bottom of a 130-25+/19 band, looking for some pre-FOMC impetus from NY Fed manufacturing and/or retail sales.

COMMODITIES

WTI and Brent front-month futures posted initially modest losses with the contracts on either side of USD 70/bbl and USD 73/bbl respectively; however, as the session has progressed and we near the arrival of US participants this has dipped further to circa USD 69.50/bbl and USD 72.50/bbl respectively. Complex-specific news flow has remained light and thus the crude markets have derived impetus from the cautious mood seen across markets. In terms of an Omicron update, and in-fitting with the South African study yesterday, WHO’s preliminary evidence suggests that there may be a reduction in vaccine efficacy and effectiveness against Omicron, alongside a greater risk of reinfection – but more data is needed on Omicron. In terms of geopolitics, European leaders are meeting to discuss the Russian situation, with the European Commission earlier reiterating the threat of stricter sanctions in the face of Russian aggression. Meanwhile, Iranian nuclear talks are showing little progress, with the prospect of a legal return of Iranian barrels to the market diminishing, albeit Iran has achieved an agreement with the IAEA to assist in addressing nuclear concerns. Elsewhere, spot gold and silver are trading sideways with the former still within recent ranges around USD 1,770/oz (vs high USD 1,774/oz), with the yellow still above a support zone touted to be around USD 1,760-65/oz. Meanwhile, copper prices are under pressure with the LME contact testing USD 9,250/t to the downside. Overnight, Chinese steel saw modest gains after gaining momentum from the Chinese industrial production data.

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)