• European bourses have commenced the week on a firmer footing, Euro Stoxx 50 +0.7%, shaking off the softer APAC handover amid two-way COVID updates.
• Stateside, futures are similarly supported, ES +0.4%, in tandem with the European tone ahead of a sparse US docket
• USD has faded despite hawkish weekend Fed rhetoric, with the DXY nearer the lower-end of 104.12-83 parameters amid marked initial JPY strength
• Bunds are facing modest pressure, though they are off worst levels which occurred in the wake of ECB's Kazimir, prompting the 10yr German yield to test 2.20%
• Choppy but contained session for crude while Dutch TTF deflates as gas cap discussions approach a potential conclusion
• Fed's Mester (non-voter) said she expected the Fed to hike more than its median forecast, and the Fed will need to maintain rates for an extended period once hikes are done
• Looking ahead, highlights include Canadian PPI & US NAHB Housing Market Index

EUROPEAN TRADE

EQUITIES

• European bourses have commenced the week on a firmer footing, Euro Stoxx 50 +0.7%, shaking off the softer APAC handover in minimal newsflow.
• Sectors are firmer ex-Media/Real Estate, featuring outperformance in Energy after Friday's pressure.
• Stateside, futures are similarly supported, ES +0.5%, in-tandem with the European tone ahead of a sparse US docket.
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FX

• USD has faded despite hawkish weekend Fed rhetoric, with the DXY nearer the lower-end of 10412-83 parameters.
• Action which benefits peers across the board, with marked outperformance in the JPY as USD/JPY gapped lower from the 136.69 close to either side of the figure.
• Antipodeans are the current best performers, with the Kiwi through 0.64 vs USD at best and AUD holding above 0.67.
• EUR is bid but to a slightly lesser extent despite hawkish (as expected) ECB rhetoric and strong German Ifo release while Cable has reclaimed 1.22 convincingly.
• ZAR is the marked outperformer after Ramaphosa secures re-election as ANC leader for the 2024 presidential campaign.
• PBoC sets USD/CNY mid-point at 6.9746 vs exp. 6.9753 (prev. 6.9791)
• South African President Ramaphosa has been re-elected as leader of the governing ANC party.
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Notable FX Expiries, NY Cut:

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FIXED INCOME

• Bunds are facing modest pressure, though are off worst levels which occurred in wake of ECB's Kazimir which prompted the 10yr German yield to test 2.20%, action which is being felt more keenly in the periphery.
• Gilts are the marked underperformers after last week's relative resilience, with the UK yield around 3.45%.
• USTs are softer, but comparably more contained and haven't really threatened a breach of initial early-European parameters.
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COMMODITIES

• A choppy but ultimately fairly contained start to the week for the crude benchmarks. Price action throughout the European morning has been two-way in nature and at times without an overt catalyst or driver.
• Currently, WTI & Brent Fed’23 are firmer by around USD 1.00/bbl on the session but are shy of their overnight peaks by around another USD 1.00/bbl, and as such are someway from last week’s respective USD 77.77/bbl and USD 75.26/bbl best levels.
• EU countries are reportedly mulling a gas price cap at levels lower than suggested to date, with the bloc set to meet on Monday in a bid to come to an agreement, according to a document cited by Reuters. Czech Republic proposed a EUR 188/MWh cap on Dutch TTF front-month contract vs the EUR 275/MWh cap originally suggested, according to Reuters.
• Saudi Aramco, Sinopec and SABIC have expanded refining and petrochemical cooperation and expect to start operations by the end of 2025, according to Reuters.
• Algeria is considering exporting its spare power capacity to Europe, according to the Algerian Energy Minister cited by Reuters.
• Uniper (UN01 GY) said the first German LNG terminal is to open in Wilhelmshaven; an annual volume of at least 5bcm of natural gas is expected to be imported, according to Reuters.
• El Paso Natural Gas Co. has lifted the force majeure at its Amarillo compressor station, according to Reuters.
• North Dakota Pipeline Authority said an estimated 200-250k BPD of oil was curtailed on Friday as a result of an extended storm system but anticipated a relatively quick return of production over the next several days, according to Reuters.
• USDA and USTR chiefs said Mexican officials have presented potential amendments to restrictions on genetically modified corn and other biotech products, according to Reuters.
• Indian antitrust agency raided some steel firms for alleged price collusion, according to Reuters sources.
• Peruvian President has urged congress to pass a bill to bring forward general elections amid protests, according to Reuters.
• Spot gold and silver are benefitting from the dented dollar while base metals derive support from the generally positive risk tone and the aforementioned unwinding of restrictions in China, with LME Copper firmer by over 1.0%.
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NOTABLE HEADLINES

• UK Chancellor Hunt has commissioned the OBR to prepare an economic & fiscal forecast, to be presented alongside the Spring Budget due 15th March, 2023.
• UK PM Sunak scrapped Liz Truss' plan to purchase energy from foreign producers, according to Sky News. Elsewhere, Sunak is set to sign off an extension to the government's energy support package for businesses for up to 12 months.
• Bank of France cut France's 2023 growth forecast to 0.3% (prev. 0.5%) and cut the 2024 forecast to 1.2% (prev. 1.8%), according to Reuters.
• ECB's de Guindos says the ECB will keep hiking rates and does not know when they will stop, not planning on altering the 2% mid-term price stability goal.
• ECB's Simkus is in no doubt that there will be a 50bps hike in February.
• ECB's Kazimir says rates will not only need to go to restrictive territory but stay there much longer.

NOTABLE DATA

• German Ifo Business Climate New (Dec) 88.6 vs. Exp. 87.4 (Prev. 86.3, Rev. 86.4); Ifo says the likelihood of a recession has reduced with today's data.
• German Ifo Current Conditions New (Dec) 94.4 vs. Exp. 93.5 (Prev. 93.1, Rev. 93.2); Expectations New (Dec) 83.2 vs. Exp. 82.0 (Prev. 80.0, Rev. 80.2)
• UK CBI Trends - Orders (Dec) -6 vs. Exp. -9.0 (Prev. -5.0).

NOTABLE US HEADLINES

• Fed's Mester (non-voter) said she expected the Fed to hike more than its median forecast, and the Fed will need to maintain rates for an extended period once hikes are done, via Bloomberg TV. Mester sees tentative signs that inflation rises are stabilising, but not calling a peak. Mester said the timing of a Fed rate cut is not tied to a calendar and the Fed will have to keep Funds Rate above 5% next year. Mester sees growth slowing but does not forecast negative activity.
• Tesla (TSLA) CEO Musk, via a Twitter poll, asked if he should step down as the head of Twitter and said he will abide by the results of this poll. The poll currently tilts towards "Yes"; some of the recent weakness in Tesla shares had been attributed to Musk's split focus across his companies.

GEOPOLITICS

RUSSIA-UKRAINE

• Blasts were heard across Ukrainian capital Kyiv early Monday morning, according to a Reuters witness.
• Russian military stationed in Belarus are to conduct tactical exercises, according to Interfax citing the Russian Defence Ministry
• Ukrainian advisor Podolyak says, to European partners, Ukraine will not surrender to or fulfil the demands of Russia; adds, "War ending can only be accelerated by increasing artillery/tanks supply. Even unilaterally…"

OTHER

• Qatari diplomat said Qatar has been "exclusively criticised and attacked" in the investigation into the European parliament, according to a statement cited by Reuters. Qatari diplomat added that "limiting dialogue and cooperation" on Qatar before the legal process has ended will negatively affect discussions on global energy security and security cooperation.
• North Korea fired two ballistic missiles towards the Korean Peninsula's east coast on Sunday, according to the South Korean military cited by Reuters. The missiles appeared to have landed outside of Japan's Exclusive Economic Zone (EEZ), according to NHK.
• US State Department said the US is gravely concerned that Iranian authorities are reportedly continuing to kill protesters, according to Reuters.
• Italian Economy Minister urged the EU to give a strong and strategic response to the US Inflation Reduction Act (IRA), and suggested some Italian companies are considering moving production to the US, according to Reuters.
• Australian PM said Foreign Minister Wong is to travel to Beijing on Tuesday at the invitation of China, according to Reuters.

CRYPTO

• Bitcoin is softer on the session, but resides towards the mid-point of relative narrow parameters.

APAC TRADE

BOJ

• Japan's government is set to revise a 10-year-old joint statement with the BoJ that commits the central bank to achieve its 2% inflation "at the earliest date possible", according to Kyodo. PM Kishida will aim at making the central bank's 2% inflation target a more flexible goal with room for allowance, Kyodo reported. The new statement could remove the phrase "at the earliest date possible," or change the language to clarify that the 2% inflation target is a medium- to long-term goal rather than one that needs to be achieved quickly, according to Kyodo. The PM will discuss details on how to revise the statement with a new BoJ governor, who will succeed Kuroda when his term ends in April.
• Japan’s government is to consider revising the joint statement with BoJ signed in 2013 under the new BoJ governor to be appointed next year, according to Reuters sources. Sources added there is no consensus on what changes could be made, and discussions are likely to intensify next month.
• Japanese Chief Cabinet Secretary Matsuno said there is no truth to the reports that the government is set to change the joint statement signed with the BoJ in 2013, and added that the government hopes to continue working closely with the BoJ, according to Reuters.
• Ex-BoJ Deputy Governor Yamaguchi said the BoJ must stand ready to tweak YCC next year if Japan's economy can withstand overseas economic risks; one idea would be to raise the 10yr JGB yield target from the current 0%. He said the BoJ must enhance the flexibility of its policy by removing the commitment to keep increasing the pace of money printing until inflation stably exceeds 2%, and does not see merit in changing BoJ's joint statement with the government now, according to Reuters.

EQUITIES

• APAC stocks eventually traded lower across the board following the downbeat performance on Wall Street on Friday.
• ASX 200 was weighed on by its heavyweight Financials and Healthcare sectors but losses were cushioned by gains in the metals-related names.
• Nikkei 225 was pressured following weekend reports that Japan's government is set to revise a 10-year-old joint statement with the BoJ that commits the central bank to achieve its 2% inflation "at the earliest date possible," while Toshiba Corp shares slid over 5% amid Nikkei reports that its preferred bidder JIP reportedly appears to be mulling a lower valuation for a buyout.
• Hang Seng and Shanghai Comp were initially mixed but the former failed to hold onto opening gains whilst the latter overlooked the PBoC injecting fresh funds via 14-day reverse repo for the first time in nearly two months, with sentiment dampened by reports of two COVID-related deaths in mainland China.
• US equity futures traded flat within tight ranges - the ES March contract remained under 3,900.

NOTABLE ASIA-PAC HEADLINES

• China reported two new COVID-related deaths in the mainland on December 18th vs zero a day earlier, according to Reuters.
• China's Shanghai Education Bureau said it is to shut down all in-person classes in kindergartens and childcare centres in the city from December 19th due to COVID-19 infections, according to Reuters.
• Chip maker Renesas Electronics (6723 JT) suspended work at its Beijing plant from Friday for several days due to the spread of COVID-19 in the city, according to Reuters.
• Beijing has removed or adjusted 126 COVID-19 prevention measures, and all factories and construction sites above designated size and commercial buildings in the city have fully resumed work, officials cited by Global Times said Sunday.
• Macau's government is to cancel COVID risk regulations for mainland China from Tuesday; arrivals from China must have a negative COVID test in the last 72 hours, according to Reuters.
• Hong Kong leader Lee to begin a four-day trip to Beijing on Wednesday, at which he is expected to discuss the reopening of the border with mainland China, via SCMP citing sources.
• Beijing, China is to buy imported COVID medicines to relive pressure on domestic shortages, via Reuters citing an official; customs will speed up the clearance for imported COVID medicines.
• USTR Office has announced a nine-month extension of tariff exclusion on 352 Chinese import product categories, according to Reuters.
• China is to maintain ample liquidity in 2023 to implement proactive fiscal policy, according to state media citing the PBoC Vice Governor.
• China’s Central Economic Work Conference suggested China will focus on stabilising its economy in 2023 and step up policy to ensure key targets are met, according to a statement cited by Reuters.
• PBoC injected CNY 9bln via 7-day reverse repos with the rate maintained at 2.00%; injects CNY 76bln via 14-day reverse repos with the rate maintained at 2.15% - for a daily net injection CNY 83bln. according to Reuters.
• Toshiba Corp's (6502 JT) preferred bidder JIP reportedly appears to be mulling a lower valuation for a buyout, according to Nikkei.
• Japan is reportedly eyeing an initial budget at a record JPY 114tln for FY23, according to Kyodo.
• Australia’s sovereign wealth fund is positioning for inflationary pressures to persist globally and believes that gold and other commodities will offset hindered returns across asset classes, according to Bloomberg.
• South Korean Finance Minister said the economy is slowing more rapidly than expected; economic slowdown is to be at its worst pace in H1 2023, via Reuters.

DATA RECAP

• Chinese Business Confidence Index (Dec) 48.1 (Prev. 51.8); lowest since January 2013, according to World Economics Survey.
• New Zealand Consumer Confidence (Q4) 75.6 (Prev. 87.6)