• Asia-Pac equities traded lower across the board following the volatile session on Wall Street on Friday
• US equity futures saw losses overnight whilst T-note futures edged higher
• In FX, DXY held onto most of Friday’s gains, USD/JPY eventually dipped under 113.50, TRY saw early weakness
• US Senator Manchin said he cannot support President Biden’s Build Back Better bill
• UK Brexit Minister Frost has resigned; Foreign Secretary Truss will replace Frost in post-Brexit talks
• Fed's Waller on Friday said the whole point of accelerating the bond taper was to make the March Fed meeting a live meeting for the first rate hike
• PBoC cut the 1yr Loan Prime Rate (LPR) by 5bps to 3.80% (prev. 3.85%), but maintained the 5yr LPR at 4.65%
• Looking ahead, Monday has no Tier 1 events scheduled

CORONAVIRUS UPDATE

US President Biden is, on Tuesday, to warn the nation of the risk of remaining unvaccinated against the coronavirus in a planned speech. (Newswires)

US Democratic Senators Booker and Warren have tested positive for COVID. (Newswires)

Beijing reported one confirmed COVID19 case in Tongzhou district on Sun. Chinese top experts advised epidemic-risk areas and cities holding major events to take strict measures during Spring Festival. (Global Times). China reports 102 new COVID cases in mainland on Dec 19th (vs 83 on Dec 18th) (Newswires)

UK PM Johnson is reportedly mulling limiting household mixing over Christmas: three options are reportedly on the table - 1) limited indoor contact, 2) no household mixing, return of social distancing and 8pm curfew, 3) full lockdown. (Telegraph) UK government is reportedly mulling a two-week COVID circuit-breaker after Christmas. Indoor mixing will be banned, pubs and restaurants will resort to outdoor-only. The rule of six is to report but schools and shops will remain open. More measures before Christmas have not been ruled out. (Times) UK government advisers said it is still too early to realizably assess the severity of the Omicron variant. (Newswires)

UK reports 82,886 new coronavirus cases, up 69% from last week. UK reports 12,133 new Omicron cases, the biggest one-day increase on record. Number of people hospitalised with Omicron in England rises to 104, up from 85 yesterday, with 12 deaths, up from 7. (Newswires)

The Netherlands on Saturday became the first European country to announce a full lockdown to fight the variant. (Newswires) Dutch Prime Minister Mark Rutte said that all non-essential shops, restaurants, bars, cinemas, museums and theatres must shut from Sunday until January 14, while schools must close until at least January 9. (AFP)

French PM Castex said new measures are needed and in order to limit infections during year-end holidays, recommends to limit number of participants at gatherings/parties. (Newswires)

Germany has announced that from midnight on Monday quarantine restrictions will be imposed on travellers coming from Britain and people will required to show a negative COVID test to enter the country. (Sky News)

COVID-19 Vaccine Independent Safety Monitoring Board was informed of three reports of people who had died with a potential myocarditis in the period following vaccination; Board met to review whether the Pfizer (PFE) vaccine was a factor. (Mirage)

European Commission has accelerated the deliveries of vaccine doses to member states. (Newswires)

ASIA

Asia-Pac equities traded mostly lower following the volatile session on Wall Street on Friday, which saw the Dow Jones, S&P 500 and the Nasdaq all posting varying degrees of losses, whilst the Russell 2000 outperformed with decent gains. Overnight, US equity futures opened with a mild upside bias, albeit the optimism faded in early trade as risk aversion materialised, with the ES Mar 2022 contract falling below its 50 DMA (4,596) whilst the NQ and RTY saw losses of over 1% apiece. Sentiment was hit by the slew of concerning COVID headlines over the weekend, whilst Friday saw further hawkish rhetoric from Fed officials - with Fed’s Waller suggesting the whole point of accelerating the bond taper was to make the March Fed meeting a live meeting for the first hike, and under his base case March is very likely for lift-off, although it could be pushed back to May. The ASX 200 (-0.3%) was pressured by some large-cap miners and banks, whilst the Nikkei 225 (-2.1%) and KOSPI (-1.6%) conformed to the downbeat tone, with upside in the former also capped by recent JPY strength. The Hang Seng (-1.5%) and Shanghai Comp (-0.7%) initially saw shallower losses after the PBoC opted to cut the 1yr Loan Prime Rate by 5bps, whilst the 5yr rate was maintained, although the property sector faced more woes after S&P downgraded Evergrande to Selective Default, whilst Kaisa shares slumped after trade resumed following a two-week hiatus, with the Co. in discussions regarding a debt restructuring plan. The Hang Seng dipped below 23,000 for the first time since May 2020. Elsewhere, US 10yr futures continued edging higher as APAC risk aversion supported the haven, whilst Goldman Sachs also cut its US real GDP Growth forecasts on the Build Back Better blockade.

• PBoC injected CNY 10bln via 7-day reverse repo and CNY 10bln via 14-day for a net neutral daily position, at maintained rates of 2.20% and 2.35% respectively
• PBoC set USD/CNY mid-point at 6.3933 vs exp. 6. 3880 (prev. 6.3631)

Apple (AAPL) reportedly asked India's watchdog to dismiss the case alleging abuse of market dominance, according to a filing. (Newswires)

Chinese property name Kaisa Group (1638 HK) did not make payment on USD 400mln senior notes on Dec 7th; Co. in discussions regarding a debt restructuring plan with respect to outstanding senior notes. (Newswires)

SenseTime relaunches Hong Kong IPO, to start trading on Dec 30th. (Newswires)

CENTRAL BANKS

Fed's Waller (voter) said the whole point of accelerating the bond taper was to make the March Fed meeting a live meeting for the first rate hike; under his base case March is very likely for liftoff though it could be pushed back to May. He said there is no reason to delay the adjustment of the balance sheet and could allow some run-off of the balance sheet perhaps in a meeting or two after liftoff. He said the switch in dots reflected amazing realignment of views among policymakers. Three hikes in combination with falling inflation means real rates will be tightening. He said balance sheet runoff by summer would also help remove accommodation and ease the need of further rate hikes. He suggested there are yield curve considerations in waiting too long to reduce the balance sheet after policy rates start to rise. Waller said a rate hike will be warranted shortly after bond buys end; US economy is 'closing in' on maximum employment. Waller strongly supported Fed's decision to increase the speed of taper, and suggested faster taper gives increased flexibility to adjust policy as soon as spring. Waller said the US Economy set to continue growing strongly at least through H1 '22 and Omicron COVID variant is a 'big uncertainty' for the outlook. He noted inflation is alarmingly high, persistent, and has broadened, while the baseline outlook is for inflation to moderate next year, and they are monitoring expectations closely. Waller warned Omicron variant could slow the recovery or exacerbate inflation, and the Fed has to be ready 'in coming weeks' to adjust as required. (Newswires)

Fed's Daly (2021, 2024 voter) expects above-trend GDP growth next year and inflation to moderate, unemployment rate to fall beneath 4% next year, is bullish on US economy. She expects the Fed to complete bond buys by March. She said if the economy speeds as expected, 2-3 rate hikes next year would be appropriate, and even with 2-3 rate hikes, it is still a very accommodative policy. She understands inflation is problematic and have to respond to that, and she is very encouraged by the rise in the participation rate and decline in unemployment rate for disadvantaged groups. She acknowledged she has adjusted her policy stance. Daly suggested the best way to create a sustainable economy is not to accommodate as much. She said the US is nearing the level of maximum employment that is achievable currently. Daly said the Fed will have the optionality to raise rates faster or slower than the current Fed policymaker forecast, and raising rates does not mean we are declaring victory on full employment, as still expect further workers to come back to the labour force. She said the timing of rate hike will depend on the course of COVID, fiscal stimulus, and labour supply. (Newswires)

ECB's Wunsch said the ECB has essentially reached its inflation target and the ECB is not sufficiently recognising the inflation issue. (Newswires)

ECB's Holzmann said if upside risks to CPI materialises, then the ECB is ready to act. He added that the inflation forecast shows it is to slow steadily next year. (Newswires)

PBoC cut the 1yr Loan Prime Rate (LPR) by 5bps to 3.80% (prev. 3.85%), but maintained the 5yr LPR at 4.65%. (Newswires)

BoJ Governor Kuroda said it is too early to consider normalising policy now, we're still in a phase to patiently continue large-scale easing

UK/EU

UK Brexit Minister Frost has resigned citing the "political direction" of the Prime Minister's Government and will leave in January. He also warned about taking "coercive measures" to control the spread of coronavirus. Foreign Secretary Truss will replace Lord Frost as the UK's lead negotiator with the EU in post-Brexit talks. (Sky News/BBC)

Around a dozen UK ministers, including Chancellor Sunak, Business Secretary Kwarteng, Chief Whip Spencer, Transport Secretary Shapps and Leader of the Commons Rees-Mogg opposed the call for more restrictions before Christmas, The Times reports. (Times)

UK Treasury sources "have played down the idea of a new fund - or furlough equivalent - being introduced in the coming days, as some have called for. Chancellor held more talks with business Friday about support already on offer", according to BBC. (BBC)

FX

In FX, DXY held onto most of Friday’s gains above 96.500 which was spurred by the hawkish Fed rhetoric, with the next upside levels the 15th Dec best at 96.914 ahead of the YTD peak at 96.938. Upside was limited after Senator Manchin delivered a blow to President Biden’s Build Back Better bill. The White House said they will find a way to move forward on the bill next year. Furthermore, a potential COVID outbreak at Capitol Hill is one to keep on the radar, after Senators Warren and Booker both tested positive for COVID. EUR/USD saw mild gains overnight as EUR/GBP set its sights on 0.8500 to the upside, with GBP subdued amid more political instability within PM Johnson’s cabinet after UK Brexit minister Frost has resigned, whilst there are also increasing reports of potential tighter COVID restrictions across the UK. USD/JPY came under some early pressure but failed to convincingly breach 113.50 to the downside, whilst the upside sees the 21 DMA (113.377) and 50 DMA (113.83) as immediate resistance. AUD/USD and NZD/USD also saw mild headwinds from the risk tone, whilst the AUD/NZD cross met resistance at its 200 DMA (1.0590) for a second straight session. TRY saw weakness early-doors after President Erdogan reiterated his stance against higher rates over the weekend, USD/TRY extended gains above 17.0000. CNH was unfazed by the PBoC reducing the 1yr LPR by 5bps while leaving the 5yr rate unchanged.

Turkish President Erdogan reiterated his belief that higher interest rates cause inflation, and added that the economic problems are not due to the lowering of interest rates. He said he has lowered inflation to 4% before and he will do it again. Erdogan said the "economic independence war" is continuing successfully. Erdogan also noted that capital controls are "ridiculous" and Turkey will continue to operate within free-market economy. Separately, Turkish business group have called for an end to Erdogan’s low-rates policy. (Newswires)

COMMODITIES

WTI and Brent futures came under early pressure at the futures’ reopen, weighed on by a slew of demand-denting weekend headlines including a Dutch lockdown, calls for tighter measures across the UK and France, and tighter restrictions in China ahead of the February Lunar New Year – which usually sees a surge of cross-country travel. WTI Feb opened under USD 70/bbl and then tested under USD 68.00/bbl to the downside. Elsewhere, spot gold found overnight support around USD 1,800/oz, with the 50 DMA around USD 1,799/oz and the 200 DMA at USD 1,795/oz. Copper prices were weighed on by broader risk, although losses in the red metal are cushioned after Chile elected leftist Boric as President, who stated he will oppose the Dominga copper-iron mine project.

China focuses state sector reforms on rare-earth industry and coal mining consolidation this year, as a three-year action plan for refashioning SOEs is 70% complete, according to a senior official cited by GT. (Global Times)

US Baker Hughes Rig Count (w/e Dec 17th): Oil +4 at 475, Nat Gas -1 at 104, and Total +5 at 581. (Newswires)

Chile has elected leftist Boric as President after opposition Kast conceded. Chilean President-elect Boric says he will oppose the Dominga copper-iron mine project. (Newswires) Boric is leaning towards a more active role for the State in the sector, as well as higher royalties. Kast has instead talked of more private investment in state-owned copper giant Codelco

GEOPOLITICS

Chinese Senior Diplomat Wang Yi says China will not fear confrontation with regards to US-China relations. (Newswires)

US National Security Adviser Sullivan said no pathway back into Iran nuclear deal is yet seen. (Newswires) Iran said Sunday the technical inspection of new surveillance cameras for the Karaj nuclear facility had begun. (AFP)

Russia has barred entry for seven British citizens, via Interfax. (Newswires)

Two rockets shot down near US embassy in Baghdad, security sources said. (AFP)

Saudi-led coalition said air defenses destroyed two drones launched towards Abha airport. (Newswires)

US

T-Notes chopped around in a narrow range through APAC on Friday (around 131-00/131-05). It wasn't until the NY handover that momentum began to build. That came amid the broader trundle lower in stocks that saw curve flattening bets pick up on both sides of the pond. IFR noted, "real money was a buyer out the curve, but hedge funds lifted TUH on out, covered shorts in Eurodollars with bank desks buying in the belly". Highs for T-Notes were made at 131-14 around the NYSE stock open as indices made their lows, before paring a few ticks into the afternoon. The continued move lower in stocks and bid into bonds looks to be a continuation from Thursday with key risks now out the way and holiday's approaching, year-end rebalancing looks to be having an impact with the outflows of stocks and into bonds.

Moderate Democratic Senator Manchin said he cannot support President Biden’s Build Back Better bill. He said it costs trillions more than its supporters claim, according to a statement. Manchin said Build Back Better Bill will risk the reliability of US electrical grid and increase dependence on foreign supply chains. (Fox) The White House said they will find a way to move forward next year on Build Back Better. (Newswires)

US Senate Sanders believes a vote on Build Back Better should be held. (CNN)

Goldman Sachs cuts US real GDP Growth forecast on Build Back Better blockade; Q1 2022 seen at 2% (prev. 3%) and Q2 at 3% (prev. 3.5%). (Newswires)

CRYPTO

Bank for International Settlements’ Cœuré said regulators will likely agree crypto framework in 2022. (FT)