• Sentiment remains positive after a constructive APAC handover, though crude has been choppy and EGBs have seemingly decoupled from brief/broader risk jitters
• European bourses are firmer though gains have trimmed since the cash open while US futures remain bid; ES +0.6%, RTY, +0.1%, lags somewhat
• In FX, the USD has come under pressure taking the index sub-96.50 with peers somewhat mixed as the antipodeans/GBP lead
• The first US death attributed to the Omicron variant reported in Harris County, Texas
• RBA Minutes stated the Board is prepared to be patient and remained committed to maintaining highly supportive monetary conditions
• Looking ahead, highlights include 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 staff member 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)

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 (+0.9%) 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 (+0.4%) initially traded between gains and losses before conforming to the mild positive tone. The Hang Seng (+1.0%) and Shanghai Comp (+0.9%) 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

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)

US

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)

UK/EU

German GfK Consumer Sentiment (Jan) -6.8 vs. Exp. -2.7 (Prev. -1.6, Rev. -1.8)

GEOPOLITICAL

There is a possibility of Russia and the US striking an understanding on security guarantees, RIA reports. (Newswires)

• Russian President Putin says the West is responsible for current global tensions, says it is important to develop the domestic army further. Will respond adequately in the scenario of Western aggression.

Ukraine's President Zelenskiy says they are seeking a NATO membership plan in 2022. (Newswires)

• Russian Defence Minster says NATO plans to include Ukraine pose a security threat.

China's Foreign Ministry is to ban four US individuals from the region, following US sanctions on Chinese officials. (Newswires)

EQUITIES

European bourses kicked the session off with gains of around 1.0% across the board, in-fitting with the lead from futures and APAC trade. News flow has been exceptionally quiet, and the economic releases docket is thin. Catalysts are also thin, but traders are predominantly keeping an eye on COVID updates and geopolitics. Sectors are all in the green and the breakdown initially had some of yesterday’s laggards – including Travel & Leisure – trading towards the top of the pack; however, since then, the best performing sectors are now Basic Resources as metals prices pick up, and Technology after US chipmaker Micron’s update afterhours on Monday; Micron (+6.6% premarket) beat on top- and bottom-lines, and expects that the chip shortage will moderate throughout 2022. Elsewhere on the earnings front, Nike (+3.4% premarket) also reported after the US close, and its decent report is buoying other industry retailers like JD Sports (+4.5%). Finally, while the majority of European movers are dictated by the above macro action/US earnings, Zur Rose (-9.5%) is the notable laggard after reports that Germany has postponed digital prescriptions.

FX

DXY/TRY - The Greenback looks a bit more vulnerable as the broad risk tone improves to set up a turnaround Tuesday of sorts, but US Treasuries trade largely flat in contrast to their EU equivalents, irrespective of looming 20 year issuance that might need a decent concession to ensure a warm reception in restrained pre-Xmas/New Year holiday trade. Moreover, the index appears to be losing momentum around the 96.500 mark after a less pronounced bounce between 96.543-337 parameters, while crude oil, precious metals and even the friendless Turkish Lira have reclaimed lost ground against the Buck. In fact, the TRY staged a very impressive comeback to circa 11.7170 at best from 18.3600+ at one stage yesterday as President Erdogan backed up words with action when he announced multiple measures aimed at curbing volatility (depreciation) in the currency, details of which will be divulged by the Finance Minister from 11.00GMT.

NZD/GBP - Far from zeros to heroes, but the Kiwi and Pound are faring much better than they were at various times during Monday’s bouts of aversion, as Nzd/Usd hover just under 0.6750 and Cable crests 1.3250 near a Fib retracement, regardless of ongoing pandemic issues that are plaguing both nations. On that note, New Zealand has been forced to delay its staged border reopening to February from January, while the UK awaits more data before deciding whether to impose a circuit breaker after Boxing Day.

AUD/EUR - The next best majors, or beneficiaries of their US peer’s pullback as the Aussie regains a firmer footing above 0.7100 and the Euro mounts another attempt to breach 1.1300 convincingly. However, Eur/Usd faces further option expiry-related resistance to augment any psychological reluctance to break beyond the round number as 1.3 bn rolls off from 1.1295 to 1.1300, while Aud/Usd may be hampered by RBA minutes underlining its dovish-leaning stance.

CAD/JPY/CHF - All narrowly mixed vs their US counterpart as the Loonie wanes alongside WTI in the run up to Canadian retail sales and new house prices, while the Yen is back below 113.50 even though media reports suggest that the Japanese Government is mulling an upgrade to its fiscal 2022 real GDP growth forecast to 3.0% or more vs 2.2% previously. Elsewhere, the Franc is eyeing 0.9200 again in wake of Swiss trade data showing a record surplus.

SCANDI/EM/PM - No real reaction to rather conflicting Swedish sentiment indicators or stagflationary NIER forecasts for 2022 CPIF and GDP as Eur/Sek straddles 10.3100, but the Nok is deriving some traction from the aforementioned stabilisation in Brent to test 10.17000 vs lows approaching 10.2200 against the Eur. Meanwhile, the Cnh and Cny have gleaned impetus from a firmer PBoC midpoint fix and the Rub via Brent plus the RIA asserting a possibility of Russia and the US striking an understanding on security guarantees. Conversely, the Zar has not received a fillip from Gold holding at the 100 DMA and inching towards Usd 1800/oz.

Turkish Finance Minister will provide details of economic measures at 11:00GMT/06:00EST today; banks will commence the implementation of transactions of new instruments on Tuesday. (Newswires)

Major Option Expiries, NY Cut:

• EUR/USD: 1.1250 (790M), 1.1295-1.1300 (1.3BN), 1.1310-15 (685M), 1.1350 (800M)

FIXED

Although EU stocks have stalled and turnover is getting even more seasonally light, bonds have succumbed to another bout of selling pressure and a firmer bounce in oil could be fuelling the move in absence of anything else of note, bar ECB commentary highlighting upside inflation risks and the ongoing COVID-related newsflow. Bunds have now lost grip of the 174.00 handle at 173.85 (57 ticks sub-par) and Gilts are under 126.50 at 126.39 (-43 ticks and less than single digits from their post-BoE rate hike base). Meanwhile, US Treasuries are softer and the curve steeper, partly in sympathy, but perhaps also making room for looming 20 year supply.

COMMODITIES

WTI and Brent are conforming to the broader risk themes, and are directionally in-tune with European equities, though magnitudes are somewhat more contained. Currently, WTI and Brent reside around USD 69.00/bbl and USD 72.00/bbl respectively - note, the complex has become increasingly choppy as the session progresses. News flow for the complex has been limited; US/Russia geopolitics has gained some attention this morning though essentially echoes the constructive sentiment from the US on Monday. Elsewhere, natgas prices are bid on supply-side dynamics: Gascade data initially showed that flows to Germany via the Yamal-Europe pipeline had stopped. Subsequently, the Polish operator confirmed that the pipeline had recommenced activity but in reverse mode from Germany to Poland, which the Kremlin described as ‘commercial’ and unrelated to Nord Stream 2. In metals, spot gold and silver are supported given USD’s (limited) downside, though the yellow metal remains capped by USD 1800/oz at the time of writing. Elsewhere, base metals are bolstered on the firmer risk tone that has continued from APAC hours while Iron Ore prices were bid in China, action that was attributed to demand from the property sector.

Russian gas flows to Germany via the Yamal-Europe pipeline have stopped, according to data from Gascade; subsequently, the pipeline has resumed shipping gas in reverse mode from Germany to Poland. On the matter, the Russian Kremlin says reverse gas flows along Yamal-Europe pipeline is a commercial issue, sees no connection between Nord Stream 2 being filled with gas and the reverse flows along Yamal. (Newswires)