• APAC stocks traded mostly higher as the region took impetus from the gains on Wall Street; Hang Seng and Shanghai Comp were indecisive
• US equity futures held on to the prior day's gains but lacked any significant follow-through during Asia hours
• DXY continued to weaken after retreating beneath the 105.00 level yesterday, G10s were firmer against the USD, and USD/JPY fell below 136.00
• US Treasury Secretary Yellen said dollar movements largely reflect fundamentals and declined to say if the dollar has peaked against other currencies
• Looking ahead, highlights include US PPI Final Demand, Univ. of Michigan Prelim, Speech from ECB's Herodotou, ECB TLTRO III Repayment Publication
• Click here for the Week Ahead preview

US TRADE

• US stocks finished higher on what was a catalyst-light session with traders tiptoeing ahead of next week's CPI and FOMC, while risk appetite was built in the US pre-market with the mood aided by Apple (AAPL) supplier Foxconn announcing its Zhengzhou facility has lifted its closed-loop management COVID curbs.
• SPX +0.75% at 3,963, NDX +1.22% at 11,637, DJIA +0.55% at 33,781, RUT +0.63% at 1,818.
• Click here for a detailed summary.

NOTABLE HEADLINES

• US Treasury Secretary Yellen said dollar movements largely reflect fundamentals and declined to say if the dollar has peaked against other currencies, while she believes the US can avoid a recession, given there is no wage-price spiral and supply chain bottlenecks are starting to ease. Furthermore, she believes the US is on the right track in lowering inflation and that a "recession is not inevitable".

APAC TRADE

EQUITIES

• APAC stocks traded mostly higher as the region took impetus from the gains on Wall St where the major indices found some relief during a quiet session ahead of next week's key risk events.
• ASX 200 was marginally positive with the index led higher by strength in the mining sector, but with gains capped by weakness in defensives and the top-weighted financial industry.
• Nikkei 225 moved closer to the 28,000 level amid the momentum from the US and after PM Kishida denied they were planning to increase the income tax for defence spending, although a separate report noted that Japan is considering raising corporate tax instead to fund the defence spending.
• Hang Seng and Shanghai Comp were indecisive in which the Hong Kong benchmark whipsawed and the mainland was lacklustre as participants digested the latest inflation data which showed a slowing pace of CPI growth and slightly narrower-than-expected fall in producer prices, while property names were underpinned on reports that China is mulling further property market easing measures at next week's economic meeting.
• US equity futures held on to the prior day's gains but lacked any significant follow-through during Asia hours.
• European equity futures were slightly higher with the Euro Stoxx 50 future up 0.4% after the cash market closed flat yesterday.

FX

• DXY continued to weaken after retreating beneath the 105.00 level yesterday but with price action relatively contained owing to a lack of major news catalysts and with participants bracing for next week’s pivotal events including US CPI data and the FOMC meeting where there are unanimous expectations for a 50bps hike.
• EUR/USD continued its climb above 1.0550 amid the softer greenback, while recent comments from ECB's Lagarde provided little to shift the dial as she noted that macroprudential policy must remain alert to the emergence of new challenges when they appear.
• GBP/USD marginally extended on the prior day’s advances with the UK set to launch consultations on post-Brexit rules to bolster the financial services industry.
• USD/JPY fell below the 136.00 level in which the pressure coincided with a weaker dollar and softer US yields.
• Antipodeans were kept afloat by the mostly positive risk tone and mild commodity gains.
• PBoC set USD/CNY mid-point at 6.9588 vs exp. 6.9604 (prev. 6.9606)

FIXED INCOME

• 10yr UST futures mildly rebounded overnight to nurse some of the declines seen during the prior session where the belly underperformed as participants positioned into next week's auctions, CPI data and the FOMC meeting, while the slight recovery was also facilitated by the softening inflation data in China.
• Bund futures remained lacklustre after prices retreated beneath 142.00 and with the latest Reuters poll showing overwhelming forecasts for a 50bps hike to the ECB’s Deposit Rate next week, as well as a median 80% chance of a recession in the Eurozone during the next 12 months.
• 10yr JGB futures were uneventful alongside the restricted performance in its major counterparts and lack of additional buying by the BoJ.

COMMODITIES

• Crude saw some mild respite from the recent selling pressure amid the positive risk appetite, although the rebound was limited amid light newsflow and following the recent decline in oil prices to a one-year low.
• Kuwait set January KEC crude OSP for Asia at Oman/Dubai + USD 2.10/bbl, according to Reuters.
• Spot gold benefitted from a softer greenback and edged closer to the USD 1800/oz level.
• Copper extended on gains with price action helped by the mostly constructive overnight mood.

CRYPTO

• Bitcoin traded in a tight range with downside limited by a floor around the USD 17,200 level.

NOTABLE ASIA-PAC HEADLINES

• Chinese Premier Li said inflation remains high in some countries and that the world economy faces grim challenges with the risk of a global recession increasing. Li also noted that the domestic economy is currently in a stable state after reversing the Q3 economic decline and said China is to further smooth logistics, while he added that China cannot stop opening up and will continue at a high level.
• US Treasury Secretary Yellen said she intends to deepen interactions with Chinese officials after the Biden-Xi meeting, while she added there is no definite plan to visit China but is "certainly open to it" and looks forward to more intense interactions than in the last year or two. Furthermore, she said the US raised concerns with China about the need for debt restructuring for debtor countries although hasn't seen much progress from China on debt issues which is a topic for future meetings, according to Reuters.
• Canadian police suspended a contract with a China-linked firm amid concerns regarding potential Chinese access to Canadian police communications, according to SCMP.
• Japan is considering raising corporate taxes to fund defence spending, according to Yomiuri.

DATA RECAP

• Chinese CPI MM (Nov) -0.2% vs. Exp. -0.2% (Prev. 0.1%)
• Chinese CPI YY (Nov) 1.6% vs. Exp. 1.6% (Prev. 2.1%)
• Chinese PPI YY (Nov) -1.3% vs. Exp. -1.4% (Prev. -1.3%)

GEOPOLITICS

RUSSIA-UKRAINE

• US is preparing to send a USD 275mln military aid package to Ukraine, according to AJA Breaking.

OTHER

• US House passed a USD 858bln defence spending bill which includes weapons funding of up to USD 10bln for Taiwan, according to FT.
• US is to sanction entities from China and Russia related to human rights abuses, according to WSJ.
• US Senators urged to allow US support for nuclear projects, according to Bloomberg.
• US Treasury release is to say sanctions evasion network led by sanctioned businessman Sikti Ayan has facilitated the sale of hundreds of millions of dollars worth of oil for Iran's revolutionary guards.

EU/UK

NOTABLE HEADLINES

• UK Chancellor Hunt is to launch consultations on rules for the financial services industry in order to abandon EU standards and increase the competitiveness of the City, while City Minister Griffith vowed that measure will make the sector as competitive as possible, according to FT.
• UK rail employers had planned to offer a 10% pay rise over two years to the RMT union but were blocked by the government, according to FT sources.