• APAC stocks were mostly positive with the improvement in risk appetite spurred after China protests were clamped down on by police.
• Fed's Bullard said markets are underpricing the risk that the Fed may be more aggressive, Williams sees a somewhat higher rate path in 2023 vs the September SEPs.
• European equity futures were slightly positive with the Euro Stoxx 50 future up 0.1% after the cash market closed down by 0.6% yesterday.
• DXY remains on a 106 handle, EUR/USD and cable sit on 1.03 and 1.20 handles respectively, antipodeans lead major FX pairs.
• Looking ahead, highlights include EZ Consumer Confidence (Final), German CPI (Prelim.), US Consumer Confidence, Fed Discount Rate Minutes, Speeches ECB's de Guindos & Schnabel, BoE's Bailey & Mann, Supply from Italy.

US TRADE

• US stocks finished lower amid global equity weakness with cyclicals leading the losses as civil unrest and higher COVID cases in China marked a big step back in reopening hopes, while tech shares were also pressured and Apple declined following reports that the tech giant is set to lose 6mln iPhone Pros from the unrest at its Chinese plant.
• SPX -1.54% at 3,963, NDX -1.43% at 11,588, DJIA -1.45% at 33,849, RUT -2.05% at 1,831.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Brainard (voter) said during a closed BIS event in June that continued supply shocks could force central banks to respond with tighter policy to manage risks.
• Fed's Bullard (voter) said the Fed needs to get rates higher to bring inflation down and that rates need to get to the bottom end of the 5-7% range. Bullard said markets are underpricing the risk that the Fed may be more aggressive and that the most important thing is for the Fed to get to a sufficiently restrictive level of rates, while he added that rates will need to be kept at a sufficiently high level all through 2023 and into 2024.
• Fed's Williams (voter) said more work is needed to do on lowering inflation which will take time to move down and more rate hikes will help restore balance in the economy. Williams noted that how high the Fed hikes will depend on the economy and data, while he added that the Fed will need to maintain a restrictive policy for a while but could lower rates in 2024. Furthermore, Williams noted inflation risks are still to the upside and he sees a somewhat higher rate path in 2023 vs the September SEPs.
• Fed's Barkin (non-voter) said their foot is off the gas and is on the brakes, while he added that he is supportive of a path that is slower, longer and potentially higher for rates. Barkin also stated that inflation has been more stubborn than he would like and if inflation stays elevated, the Fed needs to do more. Furthermore, Barkin said the Fed will do what is needed and that they have got to get inflation under control and make sure of it before any talk of loosening.
• US President Biden said a rail shutdown would devastate the US economy and said that a deal between railroad workers and operators would provide a 24% pay raise for rail workers and improved healthcare benefits. Furthermore, Biden said Congress should get the bill to his desk well in advance of December 9th to avoid any disruption, while House Speaker Pelosi noted that the House will consider a tentative agreement this week to help avert a rail strike.

APAC TRADE

EQUITIES

• APAC stocks were mostly positive with the improvement in risk appetite spurred after China protests were clamped down on by police and after the country also announced support measures for developers, while there was also speculation of a potential easing of COVID controls ahead of a press briefing by China’s State Council.
• ASX 200 pared its early losses after rebounding from a floor around the 7,200 level although gains were contained amid the lack of pertinent domestic catalysts.
• Nikkei 225 was subdued after Unemployment Rate and Retail Sales data disappointed expectations and with automakers Toyota and Honda adjusting or suspending factories in China due to the COVID situation, while Eisai was the worst performer after a second death was linked to the Co. and Biogen's Lecanemab Alzheimer's drug.
• Hang Seng and Shanghai Comp were lifted with outperformance in developers after China resumed approving listed developers' mergers and is also to ease rules on developer bond state guarantees, while hopes of a relaxation of COVID restrictions added to the tailwinds.
• US equity futures notched mild gains (ES +0.3%) alongside the brightened mood in Asia-Pac trade.
• European equity futures were slightly positive with the Euro Stoxx 50 future up 0.1% after the cash market closed down by 0.6% yesterday.

FX

• DXY softened but maintained 106 status as risk appetite improved which saw the greenback wipe out yesterday’s advances which were driven by haven flows and hawkish Fed rhetoric.
• EUR/USD benefitted from the weaker buck and retraced some of yesterday's aggressive intraday pullback from resistance just shy of 1.0500, while recent ECB comments continued to allude to further rate increases.
• GBP/USD clawed back some of the losses from the prior day’s cyclical pressure and reclaimed the 1.2000 status.
• USD/JPY retreated after a failed incursion above 139.00 but with the yen capped by disappointing data releases.
• Antipodeans found reprieve after yesterday’s underperformance and benefitted from the improved risk appetite, as well as a stronger CNY amid China support measures and reopening speculation.
• PBoC set USD/CNY mid-point at 7.1989 vs exp. 7.2077 (prev. 7.1617)

FIXED INCOME

• 10yr UST futures were muted amid the improved risk appetite and hawkish comments from Fed officials including Bullard who noted markets are under-pricing the risk that the Fed may be more aggressive, while Mester stated that the costs of stopping tightening too early are too high and Williams noted more work is needed to do on lowering inflation.
• Bund futures remained lacklustre after a slew of ECB comments continued to point to further rate hikes ahead.
• 10yr JGB futures traded lower with price action not helped by the weaker metrics from the 2yr JGB auction.

COMMODITIES

• Crude was underpinned by the overall constructive mood and as China reopening speculation resurfaced after recent unrest, while some desks had previously suggested that OPEC+ could consider a cut at the upcoming meeting.
• EU talks failed to reach a deal on Russian price caps although they are discussing a cap of as low as USD 62/bbl, while a diplomat noted the legal texts have been agreed but Poland still won't agree to the price, according to Bloomberg.
• White House's Kirby does not see inordinate pressure to take more action on the Russian oil price cap, while he added that talks with the EU are going well and taking place in a robust fashion.
• Spot gold benefitted from the pressure in the greenback amid the mostly positive risk tone.
• Copper gained throughout the session amid China stimulus and reopening hopes.

CRYPTO

• Bitcoin continued its rebound and edged closer to USD 16,500 amid gains in risk assets.
• CoinDesk tweeted that a record flow of Bitcoin left centralised exchanges this week, citing Cryptoquant data.
• FTX resumed ordinary course payments of employees and certain foreign contractors, while it added that most subsidiaries around the world are resuming ordinary course payment of salaries and employee benefits, according to Reuters.

NOTABLE ASIA-PAC HEADLINES

• China State Council will hold a press conference on COVID-19 control at 15:00 Beijing time (07:00GMT/02:00EST)
• China Global Times' Hu Xijin tweeted "China may walk out of the shadow of COVID-19 sooner than expected", while he added that most are no longer afraid of being infected and the current rate of severe cases is about 0.025%.
• UK PM Sunak called for Britain to evolve its foreign policy approach to China, while he also said the golden era of UK-China relations is over and criticised China's crackdown, according to SCMP and The Mirror.

DATA RECAP

• Japanese Retail Sales YY (Oct) 4.3% vs. Exp. 5.0% (Prev. 4.5%, Rev. 4.8%)
• Japanese Unemployment Rate* (Oct) 2.6% vs. Exp. 2.5% (Prev. 2.6%)

GEOPOLITICS

RUSSIA-UKRAINE

• US official said Washington will announce significant financial assistance to Ukraine today and the new aid aims to mitigate damage caused by Russian bombing of Ukraine's energy grid, while the official said the Biden administration has allocated over USD 1bln to support the energy sector in Ukraine and Moldova, according to Sky News Arabia.

OTHER

• China's military said a US cruiser illegally intruded into waters near the Spratly Islands in the South China Sea, while it added that it followed the US cruiser and said the US move infringes China's sovereignty, according to Reuters.
• South Korean President Yoon said China can and should influence North Korea's behaviour to stop weapons development and he warned that any new North Korean nuclear test will be met with a joint response not seen in the past. Yoon also stated he is firmly opposed to any attempt to change the status quo unilaterally regarding Taiwan and said that in the event of a Taiwan conflict, South Korean troops' imminent concern would be any North Korean military action, according to Reuters.

EU/UK

NOTABLE EU/UK HEADLINES

• UK government is abandoning controversial powers from the Online Safety Bill that would have forced internet companies to take down legal but harmful content following backlash from the tech industry and free speech advocates, according to FT.
• ECB's Nagel said it is unclear when inflation would fall back to the target and that inflation in Germany will likely remain above 7% next year, while he added that monetary policy must ensure high inflation goes away as soon as possible.