• Asia-Pac stocks traded with mild gains following the downbeat lead from Wall Street
• US equity futures edged higher overnight, with the NQ the outperformer and the RTY posting the shallowest gains
• In FX, DXY drifted under 96.500, NZD narrowly outperformed and USD/TRY slumped under 14.0000
• The first US death attributed to the Omicron variant reported in Harris County, Texas
• Turkish President Erdogan said Turkey is implementing new measures to ease volatility in Forex rate
• RBA Minutes stated the Board is prepared to be patient and remained committed to maintaining highly supportive monetary conditions
• Looking ahead, highlights include German GfK Consumer Sentiment, EZ Consumer Confidence (Flash) and supply from the US

CORONAVIRUS UPDATE

The first US death attributed to the Omicron variant reported in Harris County, Texas, via ABC News. (ABC) Omicron is the most common COVID variant, according to AP; sequencing data show Omicron account for 73% of infections. (AP)

White House said US President Biden's speech on Tuesday is not about locking the country down. (Newswires). White House staff who spent 30 minutes close to President Biden on Friday has tested positive for COVID. President Biden has tested negative on Sunday and Monday, according to WH. (Newswires)

UK PM Johnson said we will rule nothing out in the fight against COVID and they will go further if it is required; will continue to monitor the data. (Newswires) UK PM Johnson is unlikely to impose further coronavirus restrictions before Christmas after delaying a decision yesterday. (Times)

German Chancellor Scholz said Germany is to impose more restrictions on vaccinated and will prepare further contact restrictions. (Newswires)

COVID protection offered by two Oxford/AstraZeneca (AZN LN) vaccines begin to wane three-months after the second dose; a booster is essential to back up the vaccine, according to a new study. (FT)

New Zealand delayed its phased border reopening to February from January amid Omicron uncertainty. (Newswires)

ASIA

Asia-Pac stocks traded with gains across the board following the downbeat lead from Wall Street which saw all the majors post relatively broad-based losses, with some mild underperformance in the Russell 2000. Reopening plays were among the biggest losers, although Micron shares rose over 7% at one point amid blockbuster earnings. US equity futures resumed trade firmer and held onto mild gains overnight, but the upward momentum briefly paused after the US reported its first death attributed to the Omicron variant. Back to APAC, the ASX 200 (+0.8%) was supported by gains in some large-cap miners, although Pilbara Minerals shares slumped over 7% after cutting FY22 production and shipment guidance while announcing average sales price is expected at the higher end of prior guidance. The Nikkei 225 (+2.1%) outperformed as it nursed some of yesterday’s losses and reclaimed the 28k level to the upside. The KOSPI (+0.5%) initially traded between gains and losses before conforming to the mild positive tone. The Hang Seng (+0.8%) and Shanghai Comp (+0.7%) were also firmer in holiday-thinned trade, with major macro newsflow from the region light, although large Chinese tech names were spooked by further crackdown concerns after a Chinese social media influencer was hit with a USD 210mln for tax evasion. In fixed income, US 10yr Futures traded with a mild downside bias as stocks remained in the green, with 10yr JGB futures following suit from its US counterpart.

• PBoC injected CNY 10bln via 7-day reverse repo and CNY 10bln via 14-day for a net neutral daily injection of CNY 10bln, at maintained rates of 2.20% and 2.35% respectively
• PBoC set USD/CNY mid-point at 6.3729 vs exp. 6. 6.3711 (prev. 6. 3933)

Dongxing land port in South China's Guangxi Zhuang Autonomous Region, adjacent to Vietnam, suspended customs clearances for goods and closed the border for travel on Tuesday after one confirmed COVID19 case was found in Dongxing. (Global Times)

Japan is said to be mulling raising fiscal 2022 real GDP growth forecast to 3.0% or more vs prev. 2.2%, according to Japanese press. (Newswires)

CENTRAL BANKS

ECB's de Guindos said inflation in the Eurozone is not as temporary as we expected. (Newswires)

RBA Minutes stated the Board is prepared to be patient and remained committed to maintaining highly supportive monetary conditions. Members observed that inflation had increased, but remained low in underlying terms. The emergence of the Omicron variant was a new source of uncertainty, but it was not expected to derail the recovery. Three possible options for the bond purchase program were discussed. The first option was to reduce the pace of purchases from mid February with an expectation of a likely end point in May 2022. The second option was to reduce the pace of purchases and review it again in May 2022. The third option was to cease purchases altogether in mid February. These options reflected the expectation that the economy would continue to bounce back from the disruption of the outbreak of the Delta variant. If there were another serious economic setback, a different set of options would need to be considered. (RBA)

UK/EU

UK PM Johnson reportedly faced cabinet opposition to new COVID restrictions, forcing him to shelve decisions on a potential post-Christmas “circuit breaker” until ministers have seen new data, according to the Financial Times. (FT)

FX

In FX, the DXY remained within a tight range on either side of 96.500 after the index clawed back some losses from yesterday 96.333 low following Europe’s departure. EUR/USD edged higher and met resistance at the 21 DMA (1.1284). GBP/USD was initially lackluster and tested the 1.3200 level to the downside. USD/JPY found overnight support at 113.50. Antipodeans were mixed with the AUD unfazed by the RBA minutes which did not provide much in terms of fresh news, although it emphasised its patient approach. The NZD narrowly outperformed for most of the session despite New Zealand pushing back its phased border re-opening by a month amid Omicron uncertainty. Elsewhere, the TRY saw a revival and gained as much as 30% against the Dollar as around USD 1bln was sold in markets after President Erdogan unveiled measures to address FX volatility, according to the head of the Turkish Banks Association.

Turkish President Erdogan said Turkey is implementing measures in free market economy rules to ease volatility in Forex rate. He said Turkey is to introduce new financial instrument to soften the burden from volatile FX rates. Citizens will not have to convert Lira savings into FX due to the volatility, will encourage Lira savings. He said Turkey will not turn back from free market economy rules and they will stabilise the FX rate and inflation by continuing on the current path. He said Central Bank FX reserves will rise in excess of USD 135-150bln and no investor should take speculative steps. There will be no early elections and there is no shortage of Forex in Turkey and there is an abundance. He said those who think they can turn Turkey away with exchange rate speculation, price hikes and interest rate pressure are wrong, there is no turning back. He hopes to see a current account surplus in 2022 and suggested the banking sector is solid. (Newswires)

Turkish Bank Association Head said around USD 1bln were sold in markets after President Erdogan announced new measures. (Newswires)

COMMODITIES

WTI and Brent Feb contracts traded with mild gains after trimming some losses following the European close yesterday. Some downticks were seen across the complex after New Zealand pushed back its phased border reopening due to Omicron, albeit prices remain underpinned by risk sentiment with WTI Feb back on a USD 69/bbl handle. Spot gold found support at the 100 DMA (1,788/oz) but ultimately traded sideways. LME copper saw mild gains in tandem with the risk tone and Dollar action, but prices remained under USD 9,500/t. Dalian iron ore extended its rebound overnight, with traders suggesting China's support for the property sector is spurring the demand outlook for the metal.

GEOPOLITICAL

White House said US National Security Adviser spoke with Yuriy Ushakov, Russian Foreign Policy Advisor to Putin, and Sullivan highlighted the US is prepared to engage in diplomacy through several channels, which includes bilateral engagement. (Newswires)

Saudi-led coalition said it carried out strikes on legitimate military targets in the Sanaa airport, according to Al Arabiya TV. (Newswires)

US

The Treasury curve was mixed on Monday in a steeper fashion on further Omicron concerns and after Biden’s Build Back better bill was declined from key Democratic Senator Manchin. The risk tone today was sour with equities seeing pronounced selling pressure on the Omicron and BBB fears. Biden is set to provide an update on COVID on Tuesday, but “it is not about locking the country down”, rather a warning on those who decide to not take the vaccine. Across the Atlantic, however, the tone is more sombre with UK reportedly looking to introduce more restrictive measures after Christmas while the Netherlands have entered a full lock down. Risk assets found some reprieve after the Moderna (MRNA) booster update which showed its booster neutralized antibodies by 37-fold although the treasury curve remained steeper. The risk tone also gradually improved once Europe had left for the day, which coincided with gradual selling across the curve, to see Treasuries at lows going into the settlement. Note, as we head into the holiday period liquidity is expected to die out and price action could become choppy, especially as year-end approaches. T-Note Futures (H2) settled half a tick lower at 131-05.

US President Biden and Senator Manchin spoke on Sunday night and the sense was negotiations around the Build Back Better Act in some form in the new year, Politico reports. (Politico) Moderate Democratic Senator Manchin told the White House he would accept USD 1.8tln for the Build Back Better bill but his counteroffer excluded the expanded Child Tax Credit, according to Washington Post. (WaPo)

US House Speaker Pelosi said she is 'not deterred at all' by Manchin's comments regarding the Build Back Better bill and there are ongoing conversations, but they cannot walk away from this commitment, via Roll Call's Shutt. (Newswires)