• APAC stocks took impetus from the gains across global peers following the softer-than-expected US CPI (SPX +0.73%, NDX +1.1%).
• European equity futures were steady with the Euro Stoxx 50 future up 0.1% after the cash market closed with gains of 1.7% yesterday.
• DXY remains lacklustre and lingers just above the 104 mark, EUR/USD and USD/JPY sit on 1.06 and 135 handles respectively.
• US Congressional negotiators said they reached a deal on government funding through end-September 2023.
• Looking ahead, highlights include UK CPI, EZ IP, US Export/Import Prices, FOMC Policy Decision & Press Conference, Speech from ECB's Elderson.

US TRADE

• US stocks finished higher with outperformance led by the Nasdaq after having initially surged following the cooler-than-expected US CPI data, although the majority of gains had reversed throughout the afternoon on likely profit-taking ahead of the FOMC. Some theorised that the reversal was due to money market pricing for the terminal rate still implying an FFR of 4.75-5.00%, while the huge rally heading into the Fed also made the risk-reward for further upside less favourable ahead of the key risk event.
• SPX +0.73% at 4,019, NDX +1.09% at 11,834, DJIA +0.31% at 34,110, RUT +0.76% at 1,832.
• Click here for a detailed summary.

NOTABLE HEADLINES

• US Congress negotiators said they reached a deal on government funding through end-September 2023, according to Reuters.
• US Deputy Treasury Secretary Adeyemo is reportedly favoured to succeed Brian Deese as the top White House economic adviser, according to Bloomberg

APAC TRADE

EQUITIES

• APAC stocks took impetus from the gains across global peers following the softer-than-expected US CPI data but with upside capped ahead of the slew of central bank decisions beginning with the FOMC later today.
• ASX 200 was led by strength in tech and commodity-related stocks amid the lower yields and a softer dollar.
• Nikkei 225 climbed back above the 28,000 level albeit with further upside limited after mixed BoJ Tankan and Machinery Orders data in which the large manufacturers’ sentiment index declined to its lowest since March 2021.
• Hang Seng and Shanghai Comp were mildly positive as China plans to allocate over CNY 1tln to bolster its semiconductor industry and amid further reopening headlines, although cases were said to be increasing rapidly in Beijing and China postponed its economic policy meeting that was set to begin on Thursday amid surging cases.
• US equity futures kept afloat overnight (ES +0.3%) although price action was rangebound with the FOMC on the horizon.
• European equity futures were steady with the Euro Stoxx 50 future up 0.1% after the cash market closed with gains of 1.7% yesterday.

FX

• DXY was lacklustre after the prior day’s losses owing to the cooler-than-expected CPI report which dragged the dollar briefly beneath the 104.00 level, although some of the losses in the currency and the dovish reactions in asset classes were pared as focus turned to the upcoming FOMC.
• EUR/USD held onto its recent gains at the 1.0600 handle.
• GBP/USD traded rangebound after coming off a six-month peak but with the pullback limited ahead of upcoming CPI data and tomorrow's BoE announcement.
• USD/JPY remained subdued after it briefly slipped below the 135.00 handle with the Japanese currency emboldened by the softer US inflation data and yield differentials.
• Antipodeans were marginally softer as they continued to partially retrace the post-CPI spike.
• PBoC set USD/CNY mid-point at 6.9535 vs exp. 6.9556 (prev. 6.9746)

FIXED INCOME

• 10yr UST futures were quiet but held on to most of the gains from the US CPI data, albeit with prices off their highs after some of the dovish market reaction was then pared ahead of today’s FOMC policy decision, as money markets continued to price a peak FFR at 4.75%-5.00% and with prices not helped by a weak 30yr auction.
• Bund futures traded sideways near 140.50 with price action calmer after the recent fluctuations.
• 10yr JGB futures eked marginal gains after the mixed data releases and with the BoJ present in the market for JPY 1.6tln of JGBs on top of its daily fixed-rate operations.

COMMODITIES

• Crude took a breather after yesterday's gains that saw Brent crude back above USD 80/bbl amid the risk appetite and a softer dollar, although momentum has since waned following bearish private sector crude inventories.
• US Energy Inventory Data (bbls): Crude +7.8mln (exp. -3.6mln), Gasoline +0.9mln (exp. +2.7mln), Distillate +3.9mln (exp. +2.5mln), Cushing +0.6mln.
• EU gas price cap proposal put the price level at EUR 160-220MWh and EU states were reportedly considering delaying the decision on the gas price cap level.
• German Economy Minister said EU countries made progress on technical issues linked to gas price caps, but they are not through yet and it makes sense for EU countries to take some more time to finalise the gas price cap policy. Furthermore, discussions will continue on Monday and it was stated that it might be possible that they reach a solution via a majority vote, while they are said to have reached a 90-95% agreement on the gas price cap issue, but the big and symbolic issues have not yet been resolved.
• Czech Industry Minister said they proposed a revision in February to assess the gas price cap's impact and proposed a gas price cap excluding OTC contracts, while the price level for triggering the gas price cap is the only open issue for next Monday.
• EU Energy Commissioner said Europe is not out of the danger zone regarding energy supplies.
• Spot gold traded sideways but remained above the USD 1800/oz level following the US CPI data.
• Copper notched mild gains but was well off the prior day's highs.

CRYPTO

• Bitcoin was choppy overnight but remained above USD 17,700 after the post-CPI boost.
• Binance CEO said things seem to have stabilised and that deposits are coming back in.

NOTABLE ASIA-PAC HEADLINES

• China is to offer a second booster and the National Health Commission said the second COVID vaccine booster dose can be given to high-risk groups and elderly people over 60 years old. It was also separately reported that China's health authority said it will stop reporting asymptomatic cases from today, according to Reuters.
• China's retreat from zero-COVID policy has reportedly sparked a wealth management product sell-off with fund managers forced to sell holdings amid a wave of redemptions, according to FT.
• China's stats bureau cancelled the December 15th press conference on November economic data and will release the data online, according to Reuters.
• US is to add more than 30 Chinese companies to its trade blacklist as early as this week, according to Bloomberg citing a source familiar with the matter.
• Japan's ruling LDP tax panel chief said senior officials agreed to raise corporate tax, tobacco tax and income tax as sources of funding the defence budget. It was later reported that Japan's government is to tap the FX reserves special account for JPY 3.1tln in defence spending boost, according to a government draft cited by Reuters.

DATA RECAP

• Japanese Tankan Large Manufacturing Index (Q4) 7 vs. Exp. 6 (Prev. 8)
• Japanese Tankan Large Manufacturing Outlook (Q4) 6 vs. Exp. 6 (Prev. 9)
• Japanese Tankan Large Non-Manufacturing Index (Q4) 19 vs. Exp. 17 (Prev. 14)
• Japanese Tankan Large Non-Manufacturing Outlook (Q4) 11 vs. Exp. 16 (Prev. 11)
• Japanese Tankan Large All Industry Capex Estimate (Q4) 19.2% vs. Exp. 20.9% (Prev. 21.5%)
• Japanese Machinery Orders MM (Oct) 5.4% vs. Exp. 2.6% (Prev. -4.6%)
• Japanese Machinery Orders YY (Oct) 0.4% vs. Exp. 2.6% (Prev. 2.9%)

GEOPOLITICS

RUSSIA-UKRAINE

• Blasts were heard in the Ukraine capital of Kyiv, according to witnesses cited by Reuters, while Mayor Klitschko also said blasts hit the city centre and that explosions were heard in downtown Kyiv.
• US is finalising the approval to send its Patriot missile defence system to Ukraine, according to Reuters citing US officials. It was separately reported that the US Commerce Department issued a temporary denial order suspending export privileges of three people and two companies for 180 days for unauthorised exports to Russia.

EU/UK

NOTABLE HEADLINES

• UK Chancellor Hunt said they will be announcing the details of further energy support for businesses very shortly, according to Reuters.
• 8/9 members of The Times' Bank of England shadow MPC believe the BoE should raise rates by 75bps (vs. consensus of a 50bps move) with just one member opting for 50bps.