• European equities are firmer across the board; US futures extend on post-FOMC gains
• In FX, DXY has pulled back further, high-betas outperform and havens lag
• TRY again weakened as Turkish President Erdogan replaced two deputy finance ministers
• Looking ahead, highlights include BoE, ECB, Banxico, press conferences from the ECB, US IJC and the UK Conservative bi-election

CORONAVIRUS UPDATE

US CDC advisers are to weigh limits for the Johnson & Johnson (JNJ) COVID-19 vaccine sue to continued blood clot issues. (Washington Post)

UK Chancellor Sunak is expected to speak to hospitality representatives later today, according to the UK Junior Treasury Minister. (Newswires)

ASIA

Asian equity markets traded mixed as the region digested the FOMC meeting. The ASX 200 (-0.4%) was negative with heavy losses in the healthcare sector and as COVID infections remained rampant. There were also notable comments from RBA Governor Lowe that the board discussed tapering bond purchases in February and ending it in May or could even end purchases in February if economic progress is better than expected, although it is also open to reviewing bond buying again in May if the data disappoints. The Nikkei 225 (+2.1%) outperformed and reclaimed the 29k level after the Lower House recently passed the record extra budget stimulus and with the latest trade data showing double-digit percentage surges in Imports and Exports, despite the latter slightly missing on expectations. The Hang Seng (+0.2%) and Shanghai Comp. (+0.8%) were varied with Hong Kong pressured by losses in the big tech names amid ongoing frictions between the world’s two largest economies and as US lawmakers proposed a bill to allow the US oversight of China audits, although the mainland was kept afloat amid further speculation of a potential LPR cut this month, as well as reports that China will boost financial support for small businesses and offer more longer-term loans to manufacturers. Finally, 10yr JGBs were indecisive despite the constructive mood in Tokyo and with price action stuck near the 152.00 focal point, while demand was also sidelined amid mixed results at the 20yr JGB auction and as the BoJ kickstarts its two-day 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 6.3637 vs exp. 6.3625 (prev. 6.3716)

China government is reportedly increasing its practice of taking minority stakes in private companies that possess large amounts of key data, according to sources. (Newswires)

Chinese creditors are suing Evergrande (3333 HK) for claims totalling USD 13bln regarding overdue payments, FT citing reviewed records. (Newswires)

Japanese Trade Balance Total Yen (Nov) -954.8B vs. Exp. -675.0B (Prev. -67.4B, Rev. -68.5B)

• Japanese Exports YY (Nov) 20.5% vs. Exp. 21.2% (Prev. 9.4%)
• Japanese Imports YY (Nov) 43.8% vs. Exp. 40.0% (Prev. 26.7%)

Australian Employment (Nov) 366.1k vs. Exp. 205.0k (Prev. -46.3k)

• Australian Unemployment Rate (Nov) 4.6% vs. Exp. 5.0% (Prev. 5.2%)
• Australian Participation Rate (Nov) 66.1% vs. Exp. 65.5% (Prev. 64.7%)

New Zealand GDP QQ (Q3) -3.7% vs. Exp. -4.5% (Prev. 2.8%, Rev. 2.4%)

• New Zealand GDP YY (Q3) -0.3% vs. Exp. -1.6% (Prev. 17.4%, Rev. 17.9%)

CENTRAL BANKS

SNB: Policy Rate -0.75% (prev. -0.75%); CHF classified as ‘Highly Valued’ (prev. ‘Highly Valued’); reiterates line on FX intervention. (SNB) Link to full details

Norges Bank: Key Policy Rate 0.50% (prev. 0.25%; expectations were 90% for a 25bp hike, 10% unchanged) – Unanimous (Norges Bank) Link to full details

• In the Committee’s assessment, the objective of stabilising inflation around the target somewhat further out suggests that the policy rate should be raised towards a more normal level; if develop as expected, will look to hike again in March.

RBA Governor Lowe said he expects conditions for a rate hike will not be met next year and that they are "still a fair way" from a hike with the board prepared to be patient. Lowe stated that the board discussed tapering bond purchases in February and ending in May, while they could end buying in February if economic progress is better than expected but added that they could also review bond buying again in May if the data disappoints and the QE outlook depends on inflation data, labour market and strength of consumer confidence. Furthermore, Lowe said they will consider actions of other central banks and effects of Omicron and that if the rest of the world tightens and RBA doesn't, it would lead to lower AUD, while he added that if other central banks tighten, it would raise probability of them following but also noted that they are in no hurry to raise rates. (Newswires)

GEOPOLITICAL

No decision on Nord Stream 2 in H1 2022, according to the head of the German network agency. (Newswires)

US Senate passage of the Uyghur bill targeting China was reportedly held up due to child tax credit disagreement. (Newswires)

Syrian state media confirmed that air defences responded to an Israeli missile attack and noted that one soldier was killed. (Newswires)

Russia's Foreign Ministry labels the security proposals handed to the US as a step towards a substantive dialogue, Ria; prepared for constructive work with the West, despite differences. (Newswires)

UK/EU

UK Flash Composite PMI (Dec) 53.2 vs. Exp. 56.4 (Prev. 57.6)

• Services PMI (Dec) 53.2 vs. Exp. 57.0 (Prev. 58.5)
• Manufacturing PMI (Dec) 57.6 vs. Exp. 57.6 (Prev. 58.1)
• “With COVID-19 infections set to rise further in coming weeks due to the spread of the Omicron variant, and more restrictions being introduced, the pace of economic growth looks likely to continue to weaken as we head into 2022. The bigger uncertainty will be on how rising infection rates both at home and abroad might cause further supply and labour shortages, and whether this means the easing of inflationary pressures seen in December proves frustratingly short-lived.”
• IHS' Williamson notes that the BoE would have has access to the UK PMI data, under embargo, prior to today's policy announcement.

EU Markit Composite Flash PMI (Dec) 53.4 vs. Exp. 54.0 (Prev. 55.4)

• Manufacturing Flash PMI (Dec) 58.0 vs. Exp. 57.8 (Prev. 58.4)
• Services Flash PMI (Dec) 53.3 vs. Exp. 54.1 (Prev. 55.9)
• “The eurozone economy is being dealt yet another blow from COVID-19, with rising infection levels dampening growth in the service sector in particular to result in a disappointing end to 2021. Germany is being especially hard hit, seeing the economy stall for the first time in a year-and-a-half, but the growth slowdown is broad based across the region."

German Markit Composite Flash PMI (Dec) 50.0 vs. Exp. 51.1 (Prev. 52.2)

• Manufacturing Flash PMI (Dec) 57.9 vs. Exp. 56.8 (Prev. 57.4)
• Services Flash PMI (Dec) 48.4 vs. Exp. 51.0 (Prev. 52.7)

EQUITIES

Equities in Europe have taken their cue from the post-FOMC rally seen across Wall Street (Euro Stoxx 50 +1.6%; Stoxx 600 +1.1%) following somewhat mixed APAC trade. As a reminder, markets saw relief with one of the major risk events out of the way, and with Chair Powell refraining from throwing hawkish curveballs. That being said, the forecast does see three rate hikes next year, whilst the Fed Board next year will also be more hawkish – at least within the rotating voters - with George, Mester and Bullard poised to vote from 2022. Nonetheless, US equity future continues grinding higher with all contracts in the green and the RTY (+1.3%) outperforming vs the NQ (+0.7%), ES (+0.6%), and YM (+0.5%). Bourses in Europe also experience broad-based gains with no real outliers, although the upside momentum somewhat waned amid some softer-than-expected PMI metrics ahead of ECB. Sectors in Europe paint a clear pro-cyclical bias. Tech outperforms following a similar sectorial performance seen on Wall Street. Basic Resources and Oil & Gas follow a close second, with Autos and Travel & Leisure also among the biggest gainers. The downside sees Personal & Household Goods, Telecoms and Food & Beverages. Healthcare meanwhile fares better than its defensive peers as Novartis (+4%) is bolstered after commencing a new USD 15bln buyback, highlighting confidence in growth and pipeline. On the flip side, EDF (-12%) shares have slipped after it narrowed FY EBITDA forecasts and highlighted some faults with some nuclear reactors amid corrosion.

FX

DXY - Not much bang for the Buck fits the bill accurately as it is panning out in the FOMC aftermath even though market expectations were matched and arguably exceeded in terms of dot plots showing three hikes in 2022 vs two anticipated by most and only one previously, while the unwinding of asset purchases will occur in double quick time to end in March next year instead of June. However, there appears to be enough in the overall statement, SEP and Fed chair Powell’s post-meeting press conference to offset the initial knee-jerk spike in the Dollar and index that lifted the latter very close to its current y-t-d peak at 96.914 vs 96.938 from November 24. Indeed, the terminal rate was maintained at 2.5%, no decision has been taken about whether to take a break after tapering before tightening, and the recovery in labour market participation has been disappointing to the point that it will now take longer to return to higher levels. In response, or on further reflection, the DXY has recoiled to 96.141 and through the 21 DMA that comes in at 96.238 today.

NZD/AUD/CAD/GBP/EUR/CHF - All on the rebound vs their US counterpart, with the Kiwi back on the 0.6800 handle and also encouraged by NZ GDP contracting less than feared in Q3, while the Aussie is hovering around 0.7200 in wake of a stellar jobs report only partly tempered by dovish remarks from RBA Governor Lowe who is still not in the 2022 hike camp and non-committal about ending QE next February or extending until May. Elsewhere, the Loonie has clawed back a chunk of its losses amidst recovering crude prices to regain 1.2800+ status ahead of Canadian wholesale trade that is buried between a raft of US data and survey releases, Sterling is flirting with 1.3300 in advance of the BoE that is likely to hold fire irrespective of significantly hotter than forecast UK inflation, the Euro is pivoting 1.1300 pre-ECB that is eyed for details of life after the PEPP and the Franc is somewhat mixed post-SNB that maintained rates and a highly valued assessment of the Chf with readiness to intervene as required. Note, Usd/Chf is meandering from 0.9256 to 0.9221 vs Eur/Chf more elevated within a 1.0455-30 band.

JPY - The Yen is underperforming on the eve of the BoJ and looking technically weak to compound its yield and rate disadvantage after Usd/Jpy closed above a key chart level on Wednesday (at 114.03). As such, Fib resistance is now exposed at 114.38 vs the circa 114.25 high, so far, while decent option expiry interest may be influential one way or the other into the NY cut given around 1.3 bn at the 114.25 strike, 1.7 bn at 114.30 and 1.2 bn or so at 114.50.

SCANDI/EM - In contrast to perceptions and opinions regarding the BoE’s MPC, Omicron/COVID-19 issues and uncertainty did not prevent the Norges Bank from delivering another 25 bp hike as signalled, while the rate path also factors in a 3rd move of the same magnitude in March 2022. Hence, Eur/Nok is testing 10.1200 to the downside. Conversely, Usd/Try has breached what was widely regarded as the next line in the sand at 15.0000 even before the CBRT’s anticipated ease with the latest catalyst for bulls coming via Turkish President Erdogan removing two Deputy Finance Ministers in a further purge having already replaced their boss.

Turkish President Erdogan replaced two deputy finance ministers, while it was separately reported that Turkey extended tax discounts on certain TRY-denominated assets. (Newswires)

Notable FX Expiries, NY Cut:

• EUR/USD: 1.1200 (1BN), 1.1350 (805M), 1.1400 EUR (1.6BN)
• USD/JPY: 114.25 (1.27BN), 114.30 (1.66BN), 114.50 (1.21BN)

FIXED

Bunds and Gilts may still be feeling some after effects from the Fed even though US Treasuries have regained a degree of poise, but broad risk sentiment is also upbeat to the detriment of debt futures as the clock ticks down to the BoE and ECB. However, the former remains off worst levels and the latter is back above 127.00 from a deeper Liffe low under the round number at 126.92 (-38 ticks on the day) before high noon and a busy pm agenda aside from the aforementioned Central Bank events, as US jobless claims along with ip and several regional Fed surveys plus Markit’s flash PMIs. For the record, the preliminary Eurozone and UK readings were somewhat mixed, but hardly impacted.

ECB allots EUR 52bln vs exp. EUR 100-200bln in TLTRO III.10 (vs prev. EUR 97.57bln in TLTRO III.9 on September 23rd; EUR 109.8bln in TLTRO III.8 on June 17th). (Newswires)

COMMODITIES

WTI and Brent front-month futures are taking advantage of the risk appetite coupled with the softer Buck. WTI Jan trades on either side of USD 71.50/bbl (vs low USD 71.39/bbl) while Brent Feb sees itself around USD 74.50/bbl (vs low USD 74.28/bbl). Complex-specific news has again been on the quiet end, with prices working off the macro impulses for the time being, and with volumes also light heading into Christmas trade. Elsewhere spot gold and silver ebb higher – in tandem with the Dollar, with the former eyeing a group of DMAs to the upside including the 100 (1,788/oz), 21 (1,789/oz) 200 (1,794/oz) and 50 (1,796/oz). Turning to base metals, LME copper has been catapulted higher amid the risk and weaker Dollar, with prices re-testing USD 9,500/t to the upside. Meanwhile, a Chinese government consultancy has said that China's steel consumption will dip 0.7% on an annual basis in 2022 amid policies for the real estate market and uncertainties linked to COVID-19 curb demand.

Qatar Energy was reported to sell February Al-Shaheen crude at the lowest premiums in three months, according to sources. (Newswires)