Equities are pressured after a downbeat APAC handover with Quad Witching in focus; ES -0.4%, NQ -0.8%

In FX, the DXY has staged a marked recovery retaking 96.10 to the broad detriment of peers; Cable loses 1.3300, EUR/USD nears 1.1300

WTI and Brent are pressured given broader risk appetite and seemingly constructive geopolitical developments re. Iran

UK will reportedly drop key ECJ demand in an effort to de-escalate tensions with the EU

UK Conservative Party lost the North Shropshire seat for the first time in history

US Senate approved the Uyghur bill aimed at China which bans imports from Xinjiang

Looking ahead, highlights include Quad Witching; Fed's Waller and Treasury Secretary Yellen

• Desk will be closing at 18:05GMT/13:05EST, following the Baker Hughes Rig Count

CORONAVIRUS UPDATE

US President Biden said Omicron has not spread as fast as it would have without steps his administration took, while he added they are looking at a winter of severe illness and death for the unvaccinated. Furthermore, he stated it is past time for people to get booster shots and warned that Omicron is here which will start spreading more rapidly. (Newswires)

Germany is looking into whether Britain should be classed as a virus-variant area, according to the German Health Ministry. (Newswires)

Indian health official suggests it is time to avoid non-essential travels and gatherings. (Newswires)

US CDC panel work group said blood clot reporting rate following Johnson & Johnson’s (JNJ) COVID-19 vaccine is higher than previous estimates, while the advisory panel voted in favour of recommending that mRNA COVID-19 vaccines are preferred over the Johnson & Johnson (JNJ) vaccine for all those aged 18+ and the CDC later endorsed the ACIP recommendation regarding Moderna (MRNA) and Pfizer vaccines of the Johnson & Johnson vaccine. (Newswires)

Merck (MRK) and Ridgeback announce publication of Phase 3 study of oral antiviral COVID-19 treatment Molnupiravir in which early treatment with Molnupiravir reduced the risk of hospitalization or death in at-risk, unvaccinated adults with COVID-19. (Newswires)

EU Commission President von der Leyen said boosters are recommended six months after COVID-19 vaccination, while there were separate comments from French President Macron that they are not considering requiring PCR tests for EU travellers entering France and will look at hospital capacity, not just cases, when deciding about possible tightening restrictions. (Newswires)

EU regulators on COVID drugs: will rule on Gilead's (GILD) remdesivir before Christmas; will not rule on Merck's (MRK) drug until after, sources state. (Newswires)

Japanese PM Kishida is to speak with Pfizer (PFE) CEO as early as Friday to request a delivery of 120mln doses of its COVID vaccine by end-2022, while it was also reported that Japan is considering extending border restrictions past January. (Nikkei)

ASIA

Asian equity markets were mostly lower with sentiment in the region downbeat after the tech-led declines in the US and yesterday’s central bank frenzy. Overnight US equity futures held a downside bias. The ASX 200 (+0.1%) traded positively amid notable outperformance in the commodity-related sectors which was spearheaded by gold miners as the precious metal reclaimed with the USD 1800/oz level and with sentiment also helped by the announcement of a UK-Australia trade deal. The Nikkei 225 (-1.8%) was the biggest laggard as exporters suffered from detrimental currency inflows and following the BoJ announcement to scale back its pandemic relief measures in March. The Hang Seng (-1.2%) and Shanghai Comp. (-1.2%) were lacklustre after further restrictive measures by the US on Chinese companies including the passage of the Uyghur bill aimed at China which bans imports from Xinjiang unless the US government determines they were not produced with forced labour, while tech suffered after the US included several Chinese companies to its investment and trade restrictions lists. Finally, 10yr JGBs were flat despite the steepening seen in the US and underperformance of Japanese stocks, with demand subdued amid the BoJ decision to scale back pandemic relief measures.

• 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 6.3631 vs exp. 6.3619 (prev. 6.3637)

UK announces it signed a trade deal with Australia. (Newswires)

• New Zealand NBNZ Business Outlook (Dec) -23.2% (Prev. -16.4%)
• New Zealand NBNZ Own Activity (Dec) 11.8% (Prev. 15.0%)

CENTRAL BANKS

PBoC Deputy Governor Chen vowed to deepen the financial opening up in China and called for the development of a financial risk alert system, while it added that China should build all kinds of firewalls to guard against systemic financial risks. (Newswires)

BoJ kept its monetary policy settings unchanged with the rate at -0.10% and 10yr JGB yield target at 0% with YCC decision made by 8-1 vote as Kataoka dissented, while it extended a portion of its pandemic relief loan scheme targeting smaller firms beyond the March deadline by six months. BoJ said it decided to scale back pandemic relief funding upon reaching the March deadline and will taper corporate bond and commercial paper buying in which it will end the increased purchases of such assets in March and will gradually slow the pace of corporate bonds and commercial paper purchases to pre-pandemic levels after April, with the decision on pandemic relief funding made unanimously. BoJ said it will stop rewarding interest to financial institutions that tap funds against government-supported lending they make to smaller firms and maintained the JPY 20tln upper limit on outstanding holdings of corporate bonds and commercial paper purchases. Furthermore, the BoJ reiterated it is ready to take additional easing steps as needed with an eye on the pandemic and that Japan's economy has picked up as a trend although remained in a severe situation due to COVID-19 impact at home and abroad, while it expects the economy will likely recover as downward pressure from COVID-19 on services consumption and effects of supply-side constraints ease. (Newswires)

CBR hikes rates by 100bps as expected to 8.50% (prev. 7.50%); keeps open prospect of further hikes at upcoming meetings. (Newswires)

BoE's Pill, when asked about more rate hikes to come, says he thinks that is true; domestically generated inflation pressures must be contained. Uncomfortably with headline inflation, must look to the longer-term. (Newswires)

ECB will not extend liquidity relief beyond December 21st; banks have ample liquidity buffers; will return to normal supervision of liquidity requirement. (ECB)

German government cannot guarantee a decision will be taken on the replacement for Bundesbank's/ECB's Weidmann next Wednesday. (Newswires)

CBRT intervenes in FX markets. (Newswires)

US

US President Biden signed the debt ceiling increase bill into law. There were also comments from President Biden that he had a productive call with Senate Majority Leader Schumer and House Speaker Pelosi. (Newswires)

US Consumer Financial Protection Bureau to demand buy-now-pay-later firms provide details about product offerings and use of consumer data, according to sources. Furthermore, CFBP orders are aimed at informing the agency's potential rulemaking and enforcement actions. (Newswires)

UK/EU

Liberal Democrats was confirmed to have won the North Shropshire by-election with a 5925-vote majority (Lib Dem 17,957 vs Tory 12,032). (Newswires)

UK will reportedly drop its demand that the ECJ has no legal role in the Northern Ireland protocol in an effort to de-escalate tensions with the EU. UK Brexit Minister Frost will speak to his European counterpart today. (FT/Times)

UK Retail Sales MM (Nov) 1.4% vs. Exp. 0.8% (Prev. 0.8%, Rev. 1.1%); Ex-Fuel MM (Nov) 1.1% vs. Exp. 0.8% (Prev. 1.6%, Rev. 2.0%)

• YY (Nov) 4.7% vs. Exp. 4.2% (Prev. -1.3%, Rev. -1.5%); Ex-Fuel YY (Nov) 2.7% vs. Exp. 2.4% (Prev. -1.9%, Rev. -2.1%)
• UK GfK Consumer Confidence* (Dec) -15 (Prev. -14.0

German Ifo Business Climate (Dec) 94.7 vs. Exp. 95.3 (Prev. 96.5; Rev 96.6); Current Conditions (Dec) 96.9 vs. Exp. 97.5 (Prev. 99)

• Expectations (Dec) 92.6 vs. Exp. 93.5 (Prev. 94.2)

EU HICP Final YY (Nov) 4.9% vs. Exp. 4.9% (Prev. 4.9%); Core and Supercore YY 2.6% vs Exp. 2.6% (prev. 2.6%)

GEOPOLITICAL

US Senate approved the Uyghur bill aimed at China which bans imports from Xinjiang unless US government determines they were not produced with forced labour, sending it to President Biden for signing. (Newswires) US Secretary of State Blinken said they are holding to account Chinese tech entities that actively support surveillance and tracking of religious minorities in China, predominantly Muslim Uyghurs in Xinjiang. (Twitter). SGH Macro sources (dated 16th Dec) say Chinese Premier Li stated any US firms that boycott Xinjiang products will not be permitted to do business in China. (SGH Macro)

Chinese Embassy in Washington spokesperson said US sanctions on Chinese entities related to Xinjiang are totally groundless, adds US actions violate rules of free trade and threatens security of global supply chain. (Newswires)

Remaining parties to Iran nuclear deal plan to meet on Friday at 14:00 local time (13:00GMT/08:00EST) to adjourn nuclear talks, according to diplomats; parties in the Vienna nuclear talks have been able to reach a new draft by incorporating Iran's views, according to journalist Aslani (Newswires)

EU Commission President von der Leyen said the EU would impose sanctions with massive effect if Russia were to move against Ukraine, while it was also reported that EU is to work with allies on potential Russian sanctions related to Ukraine. Subsequently, Russia proposes NATO gives up all military activity in Ukraine, Eastern Europe, The Caucasus And Central Asia, according to Ria; and that the US denies membership to ex-Soviet states. (Newswires/FT)

Russian lawmaker Zavalny says the first gas via Nord Stream 2 may start flowing in January. Subsequently, Germany economy Ministry spokesman says no gas can flow in January as authorisation has to be given first. (Newswires)

EQUITIES

European equities have succumbed to the weakness seen on Wall Street and across most APAC markets (Euro Stoxx 50 -1.1%; Stoxx 600 -0.6%) as global central banks turn hawkish and Quad Witching gets underway in holiday-thinned liquidity (full schedule posted on the Newsquawk headline feed). US equity futures have also drifted lower, with the March 2022 contracts softer to the tune of 0.1-0.3% across the ES, NQ, YM and RTY. On the recent central bank pivots, analysts at Barclays suggest that rate hikes do not end bull markets, but reduced liquidity means “less speculative froth”. Barclays sees persisting inflation as a risk to markets and Omicron as an increasing downside risk to European growth, albeit the impact is contained thus far. Back to trade, Eurozone bourses see broad-based weakness whilst the UK’s FTSE 100 (+0.2%) holds its head above water – aided by outperformance in the basic materials sector and a softer Sterling. Overall sectors kicked off the day with a defensive bias, albeit that theme has since faded, with some cyclicals making their way up the ranks. Sectors are mostly in the red, however. Auto names are the laggards, with European car registrations -17.5% in November (prev. -30% MM). Tech also resides towards the bottom amid outflows from growth, and with the hefty valuations state-side also stoking some concerns. Chip names are also hit amid news Apple (-0.8% pre-market) is reportedly planning to build a new office to bring wireless chips in-house which may replace parts from Broadcom and Skyworks. STMicroelectronics (-3%), ASM (-2.4%), BE Semiconductor (-2.6%) are among the biggest losers in the Stoxx 600.

Biogen (BIIB) Alzheimer's drug gets negative EU recommendation. (Newswires) -5.5% in the pre-market

FX

DXY - In many ways it feels like Friday fatigue has set in and markets are already in weekend mode as the Greenback sticks to relatively tight lines against most G10 peers and the index holds close to the 96.000 level within a narrow 96.118-95.875 band. Consolidation and sideways price action is hardly a surprise given this week’s extremely volatile trade on a combination of thin seasonal volumes and the abundance of final global Central Bank policy meetings for the year all scheduled within a few days. However, the Dollar and a few of its key counterparts may also be tied up in option expiry interest that ranges from large to huge in certain cases, awaiting comments from Fed’s Waller as the first official post-FOMC speaker.

CHF/EUR/GBP/JPY - The Franc remains above 0.9200 vs the Buck and is testing 1.0400 against the Euro again in wake of an unchanged SNB yesterday, while the single currency is holding above 1.1300 vs the Greenback even though Germany’s latest Ifo survey was downbeat and perhaps underpinned by hawkish remarks from ECB’s Simkus and Muller over the comparatively neutral/dovish Rehn. Elsewhere, Sterling retains an element of its post-BoE hike momentum, but not enough for Cable to breach the 30 DMA that comes in at 1.3344 today or stay above a Fib retracement at 1.3321 irrespective of Chief Economist Pill expressing the view that further tightening is likely. Conversely, the BoJ stuck to its dovish stance and balanced the termination of corporate and commercial QE by extending the COVID-19 funding facility for SMEs another 6 months, to leave the Yen meandering between 113.86-44, though nearer 113.50 amidst the latest bout of risk aversion. Note also, Usd/Jpy will likely be contained by a swathe of option expiries stretching from 113.00 up to 114.50 and the same can be said for Eur/Usd and the Pound given the sheer size of interest at various strikes rolling off today - see 7.24GMT post on the Headline Feed for details.

NZD/AUD/CAD - A further deterioration in NBNZ business outlook and decline in own activity have compounded the aforementioned downturn in overall sentiment to the detriment of the Kiwi more than Aussie or Loonie that is feeling the heat from renewed weakness in WTI crude. Hence, Nzd/Usd is nearer 0.6750 than 0.6800, while Aud/Usd is hovering within a 0.7185-53 range and Usd/Cad sits just above 1.2800.

SCANDI/EM - Brent’s pullback has knocked the Nok a few more pegs down from Norges Bank hike peaks, but the Rub is deriving some underlying support from the CBR’s 100 bp hike and guidance for the tightening cycle to continue and the Mxn is still gleaning traction from Banxico surpassing consensus with a 50 bp rate increase. However, the CBRT has been forced into action yet again after the 100 bp ease to try and arrest a slide in the Try beyond yet another big figure at 17.0000.

Major FX Expiries, NY Cut:

• EUR/USD: 1.1200 (3.5B), 1.1250 (680M), 1.1290 (780M), 1.1300 (2.6BN), 1.1350 (1.5BN), 1.1375-80 (1.7BN), 1.1390-1.1400 (3.9BN)
• USD/JPY: 113.00 (1.8BN), 113.50-60 (1.4BN), 113.75 (3BN), 113.90 (760M), 114.00-05 (1.7BN), 114.50 (1.5BN)
• GBP/USD: 1.3150 (840M), 1.3200-10 (1.1BN), 1.3250 (1.2BN), 1.3000 (1.8BN), 1.3350 (1.3BN)
• EUR/GBP: 0.8350 (595M), 0.8400 (2.1BN), 0.8450 (1.055BN), 0.8500 (580M), 0.8550 (1.1BN), 0.8565 (350M), 0.8600 (330M)
• AUD/USD: 0.7000 (2.1BN), 0.7100 (705M)
• USD/CAD: 1.2740-50 (630M), 1.2800 (620M), 1.2850 (830M)

FIXED

A bit more price movement in bonds, albeit not quite as eye catching perhaps in comparison to the action in currencies and equities, but Bunds fell in sympathy with Gilts again on the back of hawkish comments from BoE chief economist Pill to hit a new 174.08 low before regaining composure (+3 ticks vs +41 ticks at best), while their UK equivalent remains under par and 127.00 having reversed to 126.80 (-¼ point vs +24 ticks at the very early Liffe high). Hence, the respective EU benchmarks are largely respecting relative policy stances, as US Treasuries essentially flat-line awaiting commentary from Fed’s Waller in the absence of anything else on the US agenda.

COMMODITIES

WTI and Brent futures have been trundling lower in tandem with risk appetite – with WTI Jan closer to USD 71/bbl (vs high USD 72.26/bbl) whilst Brent Feb resides under USD 73/bbl (vs high USD 74.98/bbl). The morning did see updates on the Iranian nuclear front whereby sources suggested the parties in the Vienna talks have been able to reach a new draft by incorporating Iran's views, which, if finalised, will be the basis for upcoming talks. Although nothing is yet set in stone, this is much more constructive than had been the case this time last week. Further, the oil complex juggles the fluid COVID situation as the steeper rise in global cases backs the notion of stricter measures. That being said, reports thus far continue to suggest the lower severity of the Omicron variant. Analysts at Goldman Sachs said Omicron hasn't had much of an impact on mobility and oil demand, while it sees strong oil demand in 2022 from rising CAPEX and infrastructure construction. Furthermore, it stated that average oil demand is to hit record highs in 2022 and 2023. Elsewhere, spot gold remains firm after topping the group of DMAs yesterday (21 at 1787, 100 at 1788, 200 at 1794 and 50 at 1798) alongside the USD 1,800/oz mark. LME copper hovers around the USD 9,500/t mark awaiting the next catalyst, whilst Dalian iron ore continued to gain overnight with traders citing a recovery in steel demand.

Goldman Sachs said Omicron hasn't had much of an impact on mobility and oil demand, while it sees strong oil demand in 2022 from rising capex and infrastructure construction. Furthermore, it stated that average oil demand is to hit record highs in 2022 and 2023. (Newswires)