• European equities are mixed/flat alongside US equity futures; the FTSE 100 lags, hampered by Basic Resources
• DXY is around flat; JPY significantly underperforms after BoJ sources, USD/JPY up to 146.45
• BoJ is said to see little need to end negative rates in December, via Bloomberg citing sources; intends to come to a decision based on data up to the last minute. Lacks proof of sustainable inflation.
• Bunds post modest gains whilst Gilts lag in a continuation of last week’s slight divergence, USTs bear-flatten
• Crude dips after edging higher overnight with spot Gold also softer
• Looking ahead, US Employment Trends, US NY Fed Survey of Consumer Expectations, Chinese M2 Money Supply, FDI, Speech from RBA’s Bullock, Supply from US.

EUROPEAN TRADE

EQUITIES

• European equities are mixed, Eurostoxx50 (U/C) with the FTSE 100 (-0.4%) the clear underperformer, hampered by losses in Basic Resources after Chinese inflation metrics on Saturday, which showed deeper deflation in both CPI and PPI.
• European sectors are mixed with the breadth of the market to the upside fairly narrow. Healthcare is lifted by Roche (+3.2%).
• US equity futures are flat/mixed, with markets ultimately lacking direction as markets await US CPI tomorrow ahead of the FOMC meeting on Wednesday; NQ (-0.2%) marginally lags with fresh fundamentals light.
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FX

• DXY is off to a strong start to the week, with the index holding above 104.00 for most of the European session after edging higher from a 103.92 APAC low, before seeing a boost via JPY weakness following BoJ sources.
• The JPY is the marked laggard this morning following reports that the BoJ is said to see little need to end negative rates in December, according to Bloomberg citing sources; which took USD/JPY to a 146.45 peak.
• GBP & EUR stand as the very modest G10 outperformers, with specifics light ahead of their policy announcements on Thursday.
• AUD, NZD, CAD are also modestly softer but to varying degrees amid the overall cautious mood in markets, whilst the Antipodeans feel some headwinds from Chinese inflation data.
• BoJ said to see little need to end negative rates in December, via Bloomberg citing sources; intends to come to a decision based on data up to the last minute. Lacks proof of sustainable inflation. Not yet seen sufficient evidence of wage growth which would support sustainable inflation; officials view the potential cost of waiting for more data as not very high.
• PBoC set USD/CNY mid-point at 7.1163 vs exp. 7.1690 (prev. 7.1123).
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FIXED INCOME

• Core benchmarks began the morning under modest pressure, with catalysts in European hours somewhat limited initially and the follow-through from Chinese deflation dissipating and only a short-lived boost from BoJ sources.
• USTs are contained, but with a slight negative bias and modest upside at the short end of the curve - action which occurs without US-specific catalysts, but with participants cognisant of early US supply given Wednesday’s FOMC.
• Bunds are holding around 134.70 with nothing specific on the agenda today but domestic participants are focused on German fiscal talks as weekend negotiations on the 2024 budget ended without agreement.
• Once again, Gilts are the standout laggard as expectations continue to trim from dovish extremes ahead of Thursday’s BoE announcement.
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COMMODITIES

• WTI and Brent futures edged higher overnight with the momentum somewhat petering out in early European hours, despite a lack of pertinent newsflow. As such, benchmarks are now in the red by circa. USD 0.50/bbl, but well within recent parameters.
• Spot gold is on a softer footing amid a firmer Dollar and in a week littered with G10 central bank events; base metals are mixed amid the broader cautious tone coupled with the downbeat Chinese inflation data over the weekend.
• OPEC Secretary General Al-Ghais said at COP28 that they need an all-energies and all-technologies approach, while he added that realistic approaches are needed to tackle emissions, according to Reuters.
• UN climate chief Stiell said at COP28 that the areas where options need negotiating have narrowed and they must clear blockages to get a deal, while Stiell added everything is on the table and everyone is focused on getting an outcome in the next 24 hours.
• Sellers of sanctioned oil from Iran and Russia are said to be hiking prices to China after Venezuelan crude spiked following the suspension of US sanctions, according to trade sources cited by Reuters
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NOTABLE EUROPEAN HEADLINES

• A split within the UK government regarding migration policy widened as PM Sunak braces for a crucial week ahead which includes a vote on the Rwanda bill and a grilling in the UK Covid inquiry, according to FT.
• Goldman Sachs sees the first BoE rate cut in August 2024, with the pace of reductions faster than previously forecast, according to Bloomberg.
• Public sector workers in Germany's federal states agreed on a wage deal with employers, according to Reuters citing the Verdi union.
• German government spokesperson says budget talks are at an advance stage, have cleared many issues

DATA RECAP

• UK Rightmove House Price Index MM (Dec) -1.9% (Prev. -1.7%); YY -1.1% (Prev. -1.3%)
• Norwegian Consumer Price Index MM (Nov) 0.5% vs. Exp. 0.7% (Prev. 1.0%); YY 4.8% vs. Exp. 4.9% (Prev. 4.0%)
• Norwegian Core Inflation YY (Nov) 5.8% vs. Exp. 6.0% (Prev. 6.0%); Norwegian Core Inflation MM (Nov) -0.2% vs. Exp. -0.1% (Prev. 0.6%)

NOTABLE US HEADLINES

• US President Biden says over the coming years, the Commerce Department will award billions to boost chip manufacturing and R&D, according to Reuters
• Click here for the US Early Morning Note.

GEOPOLITICS

ISRAEL/HAMAS/MIDDLE EAST

• Israeli PM Netanyahu said Israel will continue the war to eliminate Hamas and achieve its objectives, while he added that countries cannot both support Israel’s elimination of Hamas whilst pressing it to end the Gaza war prematurely, according to Reuters.
• Israeli PM Netanyahu spoke with Russian President Putin on Sunday and voiced disapproval of Russian statements against Israel at the UN and Russia’s dangerous cooperation with Iran, while he also told Putin that any country would have responded as Israel has to the Hamas attack, according to Reuters.
• Israel's National Security Adviser Hanegbi suggested Israel may have to go to war against Hezbollah once Hamas is defeated and said it could no longer dare to tolerate the danger of the prevailing situation in the north with Hezbollah’s forces at the border, according to The Times of Israel.
• Al Jazeera reported heavy Israeli raids and artillery shelling on Khan Younis in the southern Gaza Strip, via social media platform X.
• Israeli national security advisor says the country 'can no longer accept' Hezbollah's presence on the northern border, according to The Spectator Index.
• Hezbollah lawmaker Fadallah said Israeli air strikes in south Lebanon mark a new escalation and Israeli escalation will not deter Hezbollah from continuing to defend Lebanon and supporting Gaza. Furthermore, Hezbollah is said to be responding to Israeli escalation with new types of attacks whether in the nature of weapons or targeted sites, according to Reuters.
• US Secretary of State Blinken said it is imperative that Israeli military operations protect Palestinian civilians and that durable, sustainable peace must follow the military operations. Blinken also said durable peace must lead to a Palestinian state, according to CNN.
• Qatar’s PM said talks for a fresh Gaza pause are ongoing and Qatar will continue to pressure Israel and Hamas to continue a truce despite narrowing chances, while he added that the entire generation in the Middle East is at risk of being radicalised because of the Gaza war.
• Yemen’s Houthi military spokesman said they warn all shipping companies against cooperating with Israel and said if Gaza does not receive the food and medicine it needs, all ships in the Red Sea bound for Israel ports will become a target for their armed forces regardless of their nationality, according to Reuters.
• Jordan’s Foreign Minister said Israel is implementing a systematic policy to push Gazans out of the enclave beyond eliminating Hamas, while an Israeli government spokesperson called Jordan’s allegation that Israel wants to expel Gazans ’outrageous and false’.
• UN General Assembly is likely to vote on Tuesday on demanding an immediate humanitarian ceasefire in Gaza, according to diplomats cited by Reuters.
• Iraqi Kataeb Hezbollah militia said jihad operations against US forces will continue until the last US soldiers exit Iraq, while the Iran-aligned group added that an attack on US interests on Friday was just the beginning of a new engagement although they didn’t claim responsibility for the attack.
• Syria’s air defence intercepted Israeli rockets fired on Damascus surroundings, according to state media.
• A Swede jailed in Iran faces charges of acts against national security and spying for Israel, while the Swede also faces the charge of corruption on earth which can carry the death penalty, according to ISNA news agency.

OTHER

• US President Biden invited Ukrainian President Zelensky to the White House for a meeting on Tuesday and Zelensky was also invited to address US Senators on Tuesday at 14:00GMT/09:00EST, while Zelensky’s office said he will concentrate on defence cooperation and unity in his US visit, according to Reuters.
• Russian Foreign Minister Lavrov said the West’s 500-year domination of the world is coming to an and that the West has ignored everything that happened in Ukraine before February 2022, while he added that Russia has become stronger due to the conflict in Ukraine.
• Philippines Coast Guard said supply vessels were water cannoned and rammed by Chinese Coast Guard vessels in the South China Sea. Furthermore, Philippines President Marcos said aggression and provocations by China's coastguard and maritime militia have only further steeled determination to defend and protect the nation's sovereignty, while Philippines Foreign Ministry spokesperson said they are utilising all forms of diplomatic actions available and the Chinese ambassador had been summoned, according to Reuters.
• US State Department said China interfered with lawful Philippine maritime operations and China has no lawful maritime claims to waters around the Second Thomas Shoal. US State Department said it stands with Philippine allies in the face of these dangerous and unlawful actions, as well as reaffirmed Article IV of the 1951 US-Philippines Defense Treaty.
• China’s Coast Guard said Japanese ships intruded into the territorial waters of the Senkaku/Diaoyu Islands on December 9th.
• White House National Security Adviser Sullivan travelled to South Korea to meet with Japanese and South Korean counterparts and had an extended discussion on deepening ties between Russia and North Korea, while the US has confidence shared by Japan and South Korea that North Korea is supplying weapons to Russia being used in the battlefield in Ukraine. Sullivan also commented that North Korea is irresponsible to walk away from the inter-Korean agreement and that the US and South Korea are preparing for all scenarios. Furthermore, it was reported that the US, Japan and South Korea reached an agreement on expanding their security partnership, according to Reuters.
• A US fighter jet crashed in South Korea during drills, while North Korea denounced South Korea and the US for staging joint military drills and called it a "futile" provocative act that will only hasten the South's destruction, according to Yonhap.

CRYPTO

• Bitcoin, -4.95%, remains subdued after its recent rally, though has climbed back above the USD 42k level after losing it in early trade.

APAC TRADE

• APAC stocks traded mixed after recent data releases including stronger-than-expected jobs data from the US and worsening deflation in China, while this week’s upcoming risk events, including US CPI data and a slew of central bank updates, added to the cautious mood.
• ASX 200 just about kept afloat as outperformance in the energy sector atoned for the lacklustre mood in metal miners and tech.
• Nikkei 225 gained following a pushback on recent BoJ speculation in which a source report on Friday noted recent comments by BoJ Governor Ueda were taken out of context and there was no intention to signal anything about the timing for a policy change.
• Hang Seng and Shanghai Comp were pressured amid weakness in tech and property, while the data over the weekend showed a larger-than-expected decline in China’s consumer inflation and factory gate prices which suggests weak domestic demand.
• US equity futures were lacklustre was participants braced for the looming risk events.
• European equity futures are indicative of a flat/firmer open with Euro Stoxx 50 future +0.1% after the cash market closed up 1.1% on Friday.

NOTABLE HEADLINES

• China’s Industry Minister met with the Saudi Investment Minister and said that China is willing to cooperate with Saudi Arabia on new energy vehicles, aviation, photovoltaics and AI, according to Reuters.
• Japanese PM Kishida plans to replace Industry Minister Nishimura, Chief Cabinet Secretary Matsuno and ruling party policy chief Haguida, while it was later reported that PM Kishida said he wants to consider appropriate measures at an appropriate time when asked about a cabinet reshuffle, according to Reuters.
• China's Industry Ministry says over 90% of existing NEV models would continue to enjoy purchase tax breaks as part of new technical requirements

DATA RECAP

• Chinese CPI MM (Nov) -0.5% vs. Exp. -0.1% (Prev. -0.1%); YY -0.5% vs. Exp. -0.1% (Prev. -0.2%)
• Chinese PPI YY -3.0% vs. Exp. -2.8% (Prev. -2.6%)