• European bourses are under pressure across the board, Euro Stoxx 50 -0.7%, as the CPI-induced upside wanes ahead of the FOMC & Powell thereafter
• USD has continued to slip with the index down to 103.66 at worst, nearing Tuesday's 103.57 trough to the benefit of most G10 peers.
• JPY outperforms with USD/JPY dropping below 135.00 to a 134.61 low in wake of BoJ sources
• Bunds under marked pressure given a sizeable 2023 issuance remit and subsequent hawkish ECB source reports; with the benchmark sub-140.00
• Crude benchmarks are firmer on the session, though remain within Tuesday's and by extension recent parameters; IEA OMR raised demand forecasts
• Looking ahead, highlights include US Export/Import Prices, FOMC Policy Decision & Press Conference.
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EUROPEAN TRADE

EQUITIES

• European bourses are under pressure across the board, Euro Stoxx 50 -0.7%, as the CPI-induced upside wanes ahead of the FOMC & Powell thereafter.
• Stateside, US futures are softer though comparably more contained, ES -0.1%, in a paring of the inflation move.
• A paring which has been attributed to various factors including it being a function of traders getting ahead of market pricing, while others cited valuations, technical factors and profit-taking.
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FX

• USD has continued to slip with the index down to 103.66 at worst, nearing Tuesday's 103.57 trough to the benefit of most G10 peers.
• The JPY outperforms with USD/JPY dropping below 135.00 to a 134.61 low in wake of BoJ sources, while we are back to this level now the initial move pared given it seemingly echoes recent commentary from Tamura.
• EUR was already benefitting from the USD move but has derived further impetus from ECB sources indicating CPI to remain above target in 2024, with EUR/USD above 1.0670 at best.
• Sterling slipped in wake of softer CPI though Cable has more than recovered since to an, unsuccessful, test of 1.24 on multiple occasions.
• Kiwi fails to benefit from the USD action post-data, with AUD upside and unusually large NZD/USD OpEx perhaps factoring.
• BoJ sees the possibility of conducting a review in 2023, according to Bloomberg sources.
• Czech Central Bank vice governor Mora would support 25bps rate increase if a majority could be found, would be in favour of 50-75bps increase, according to fintag.cz.
• PBoC set USD/CNY mid-point at 6.9535 vs exp. 6.9556 (prev. 6.9746)
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Notable FX Expiries, NY Cut:

• NZD/USD: 0.6400 (1.02BN), 0.6425 (1.15BN)
• USD/CAD: 1.3560 (1.1BN)
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FIXED INCOME

• Bunds under marked pressure given a sizeable 2023 issuance remit and subsequent hawkish ECB source reports; with the benchmark sub-140.00 though above Tuesday's 139.77 low.
• A sources piece which also sparked pressure in the periphery and, to a lesser extent, in USTs, though the benchmarks remains marginally firmer overall.
• Stateside, focus remains very much on the FOMC and as the session progresses we are seeing long-end yields begin to lift as the associated benchmarks slip further.
• German Debt Agency: intends to issue federal securities with a total volume of EUR 539bln in 2023. Total of EUR 274bln to be raised on capital markets in auctions. Further EUR 242bln to be issued on the money market.
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COMMODITIES

• Crude benchmarks are firmer on the session, with upside just shy of 1.0% at best, though both WTI and Brent remain shy of yesterday’s and by extension recent peaks.
• 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.
• IEA Monthly Oil Market Report: raises 2022 oil demand growth estimate by 140k BPD to 2.3mln BPD, 2023 raised by 100k BPD to 1.7mln BPD.
• FT writes that "Traders are warning that thin volumes and erratic trading have disconnected the price of nickel on the London Metal Exchange from the rest of the global market".
• Spot gold and silver are little changed overall, failing to derive any real traction from the general pullback in equity performance; holding steady above the USD 1800/oz mark and as such is well within Tuesday’s USD 1778-1824/oz range.
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NOTABLE EUROPEAN HEADLINES

• New ECB forecasts will put inflation comfortably above 2% in 2024 and just above in 2025, according to a Reuters source. Reuters polling pencilled in 2023 inflation at 6%, 2024 at 2.3% and 2025 at 1.9%
• 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.

NOTABLE DATA

• UK CPI YY (Nov) 10.7% vs. Exp. 10.9% (Prev. 11.1%); MM (Nov) 0.4% vs. Exp. 0.6% (Prev. 2.0%)
• UK Core CPI YY (Nov) 6.3% vs. Exp. 6.5% (Prev. 6.5%); MM (Nov) 0.3% vs. Exp. 0.5% (Prev. 0.7%)
• German IFO sees 2022 German GDP at 1.8% (vs. prev. view of 1.6%) 2023 seen at -0.1% (vs. prev. view of -0.3%).
• Swedish CPIF Ex Energy YY (Nov) 8.0% vs. Exp. 8.1% (Prev. 7.9%); MM (Nov) 0.2% vs. Exp. 0.3% (Prev. 0.9%)

NOTABLE US 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
• Click here for the US Early Morning Note.

CRYPTO

• Binance CEO said things seem to have stabilised and that deposits are coming back in.

GEOPOLITICS

• 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.
• Kremlin, asked about possible deliveries of US-made Patriot Air Defence systems to Ukraine, says these are a lawful target for Russian armed forces.

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.

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.
• China has decided against postponing its key economic policy meeting, via Bloomberg; subsequently, Reuters citing sources reports that this will occur between December 15th-16th.
• China is reportedly asking some large banks to purchase bonds after recent slump to stabilise the domestic bond market, Bloomberg reports.
• China's NBS says domestic demand recovery is insufficient, via Bloomberg citing Radio; adds, the economic recovery can maintain momentum.

DATA RECAP

• Japanese Tankan Large Manufacturing Index (Q4) 7 vs. Exp. 6 (Prev. 8); Outlook (Q4) 6 vs. Exp. 6 (Prev. 9)
• Japanese Tankan Large Non-Manufacturing Index (Q4) 19 vs. Exp. 17 (Prev. 14); 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%); YY (Oct) 0.4% vs. Exp. 2.6% (Prev. 2.9%)