• Initial momentum for APAC equities was faded amid downbeat comments from the Moderna CEO
• Moderna chief predicts that existing vaccines will be much less effective against the Omicron variant
• Chinese Manufacturing PMI (Nov) 50.1 vs. Exp. 49.6 (Prev. 49.2)
• Fed Chair Powell stated that the Omicron variant pose downside risks to employment and increased uncertainty for inflation
• The DXY heads into the European session just north of 96.00, JPY outperforms in the G10 space
• Looking ahead, highlights include German Unemployment, EZ Flash CPI, Canadian GDP, US Consumer Confidence, Fed’s Powell, Williams, Clarida, supply from Italy and Germany

CORONAVIRUS UPDATE

Moderna (MRNA) chief predicts that existing vaccines will be much less effective against the Omicron variant. (FT)

US President Biden said travel restrictions provide time to take more actions and that sooner or later, Omicron will be in the US which is a cause for concern but not panic. Biden added that he doesn’t believe further measures are yet necessary and will put forward a COVID strategy on Thursday, while his team is working with Pfizer (PFE) and Moderna (MRNA) on a contingency plan. Furthermore, he stated that in the unlikely event updated vaccines or boosters are needed for Omicron, the US will speed up development and deployment. There were also later comments from the White House Press Secretary that President Biden is not taking any options off the table regarding COVID and the White House also noted that President Biden supports an intellectual property waiver, as well as suggested that everyone has a role to play in fighting COVID-19. (Newswires)

NIH’s Dr Fauci said the US is unlikely to impose further restrictions amid the anticipated arrival of the Omicron COVID-19 variant, while he responded that he "doesn't think so" when asked if he expected more travel restrictions due to the Omicron variant and stated that he cannot predict if Omicron will become the dominant variant in the US. (Newswires)

US CDC expanded COVID-19 booster recommendation to those aged 18-years old and above, while it was also reported that Pfizer (PFE) and BioNTech (BNTX) are expected to ask the FDA during the coming days to authorise a booster shot for 16- and 17-year olds. (Newswires)

Medical professionals said that big pharma are confident they can make a vaccine specifically for the Omicron Variant and can produce it fairly quickly, while they are first waiting on the data about its virulence and whether it evades current vaccines, according to FBN's Gasparino. (FBN)

Leader of the UK House of Commons Jacob Rees-Mogg announced a debate and vote in the Commons tomorrow to approve the new Omicron variant restrictions, according to Times Radio's' Dunn. (Twitter)

ASIA

Asian equities traded mixed with early momentum seen following the rebound on Wall Street where risk assets recovered from Friday’s heavy selling pressure as liquidity conditions normalized post-Thanksgiving and after some of the Omicron fears abated given the mild nature in cases so far, while participants also digested a slew of data releases including better than expected Chinese Manufacturing PMI. However, markets were later spooked following comments from Moderna's CEO that existing vaccines will be much less effective against the Omicron variant. ASX 200 (+0.2%) was underpinned by early strength across its sectors aside from utilities and with gold miners also hampered by the recent lacklustre mood in the precious metal which failed to reclaim the USD 1800/oz level but remained in proximity for another attempt. In addition, disappointing Building Approvals and inline Net Exports Contribution data had little impact on sentiment ahead of tomorrow’s Q3 GDP release, although the index then faded most its gains after the comments from Moderna's CEO, while Nikkei 225 (-1.7%) was initially lifted by the recent rebound in USD/JPY but then slumped amid the broad risk aversion late in the session. Hang Seng (-2.5%) and Shanghai Comp. (-0.1%) were varied in which the mainland was kept afloat for most the session after a surprise expansion in Chinese Manufacturing PMI and a mild liquidity injection by the PBoC, with a central bank-backed publication also suggesting that recent open market operations demonstrates an ample liquidity goal, although Hong Kong underperformed on tech and property losses and with casino names pressured again as shares in junket operator Suncity slumped 37% on reopen from a trading halt in its first opportunity to react to the arrest of its Chairman. Finally, 10yr JGBs were initially contained following early momentum in stocks and somewhat inconclusive 2yr JGB auction which showed better results from the prior, albeit at just a marginal improvement, but then was underpinned on a haven bid after fears of the Omicron variant later resurfaced.

PBoC injected CNY 100bln via 7-day reverse repos with the rate at 2.20% for a CNY 50bln net injection. (Newswires) PBoC set USD/CNY mid-point at 6.3794 vs exp. 6.3793 (prev. 6.3872)

US Department of Defense announced the completion of its Global Posture Review and plans improvements to bases in Guam and Australia to counter China. (Newswires/WSJ)

• Chinese Manufacturing PMI (Nov) 50.1 vs. Exp. 49.6 (Prev. 49.2)
• Chinese Non-Manufacturing PMI (Nov) 52.3 (Prev. 52.4)
• Chinese Composite PMI (Nov) 52.2 (Prev. 50.8)
• Japanese Industrial Production MM (Oct P) 1.1% vs. Exp. 1.8% (Prev. -5.4%)
• Japanese Unemployment Rate (Oct) 2.7% vs. Exp. 2.8% (Prev. 2.8%)
• Japanese Jobs/Applicants Ratio (Oct) 1.15 vs. Exp. 1.17 (Prev. 1.16)

UK/EU

ECB's de Guindos said he is watching the Omicron variant closely and recommended that banks be cautious with provisions, while he added that the COVID-19 situation is different from last year in which he emphasised that there are vaccines now. (Newswires)

• UK Lloyds Business Barometer (Nov) 40 (Prev. 43)

FX

In FX markets, the DXY softened overnight heading into month-end and this week’s risk events including the latest NFP data on Friday. There were comments from Fed Chair Powell’s prepared testimony to the Senate Banking Committee in which he noted that COVID cases and Omicron variant pose downside risks to employment and increased uncertainty for inflation, while he noted that factors pushing inflation upward will linger well into next year but continues to expect inflation will recede significantly over the next year, while focus for lawmakers this week will be on funding the government beyond the December 3rd deadline. EUR/USD reclaimed the 1.1300 handle with further gains in late trade on what was seemingly an unwind of the carry trade amid a spike in volatility, but with upside limited. GBP/USD was uneventful after recently oscillating through 1.3300 and amid a lack of notable headlines from the UK aside from the Omicron temporary measures which take effect from today. USD/JPY was initially kept afloat after finding support at 113.50 and amid the early positive mood in Japanese stocks although USD/JPY then slumped in late trade along with the risk sentiment after the comments from Moderna's CEO which, also pressured antipodeans due to their high beta characteristics and with relevant currencies not helped by the earlier disappointing Building Approvals in Australia and a deterioration in New Zealand business surveys.

• Australian Building Approvals (Oct) -12.9% vs. Exp. -2.0% (Prev. -4.3%, Rev. -3.9%)
• Australian Current Account Balance SA (AUD)(Q3) 23.9B vs. Exp. 27.8B (Prev. 20.5B)
• Australian Net Exports Contribution (Q3) 1.0% vs. Exp. 1.0% (Prev. -1.0%)
• New Zealand NBNZ Business Confidence (Nov) -16.4% (Prev. -13.4%)
• New Zealand NBNZ Activity Outlook (Nov) 15.0% (Prev. 21.7%)

COMMODITIES

Commodities were mixed with late selling pressure in WTI crude futures which retreated below the USD 68/bbl level as risk appetite was spooked after the comments from Moderna's CEO, while participants are also cautious ahead of this week's OPEC+ meeting and after source reports that US officials told Energy Intelligence if prices continue to rise, then they would consider a second SPR release as early as February although the White House later noted that it was not reconsidering a release of oil reserves. Elsewhere, gold prices benefitted from a late haven bid as Omicron fears resurfaced with the precious metal edging to closer to a retest of the USD 1800/oz level and copper was subdued with prices later pressured amid the late risk aversion.

US energy envoy said more oil reserve release is possible, while there were later comments from the White House that it is not reconsidering release of oil reserves. (Newswires/CNBC)

GEOPOLITICAL

White House said their objective remains for Iran to return to full compliance with the nuclear deal, while it was separately reported that Israel told US that Iran is taking technical steps to enrich uranium to 90% purity which is the level needed to produce a nuclear weapon, according to US sources. (Newswires/Axios)

Iran's top negotiator said he is optimistic after the nuclear talks on Monday and that all parties in the meeting agreed that focus of the talks should be lifting of sanctions, while he added that guarantees should be given to Iran that no new sanctions will be imposed on the nation. (Newswires)

EU's Mora said he feels extremely positive about what he saw in the Iran meeting on Monday and clearly a will of the new Iranian admin to engage seriously. Mora added that Iran is insisting on sanctions lifting which will be discussed on Tuesday, while there were separate comments from the Russian envoy who stated Iran nuclear deal talks started "successfully". (Newswires)

China's envoy to Iran talks said the US should lift all sanctions inconsistent with the 2015 nuclear deal including those against China. (Newswires)

Saudi-led coalition carries out airstrikes on military targets in Yemen's Sanaa and asked civilians to not gather or approach the target sites, while it later stated that it targeted a secret site belonging to Iran's IRGC experts in Yemen's Sanaa. (Newswires)

US

Treasuries bear-steepened on Monday as markets fade their Friday turmoil while Omicron uncertainty lingers. At settlement, 2s -0.8bps at 0.512%, 3s -0.8bps at 0.812%, 5s +0.0bps at 1.181%, 7s +1.3bps at 1.420%, 10s +3.4bps at 1.519%, 20s +4.9bps at 1.932%, 30s +4.0bps at 1.870%. 5yr TIPS +1.2bps at -1.759%, 10yr TIPS +3.9bps at -1.041%, 30yr TIPS +4.9bps at -0.434%. Treasury futures saw big volume go through amid the downside in the Monday APAC and Europe session, where US players added to the downside at the handover; roll activity remains a factor, although over 90% of the combined Dec'21 and Mar'21 T-Note future open interest is now in the latter. As an aside, note that open interest saw a decline across the rates derivatives space on Friday, indicative of short-covering driving the rally then. For Monday, Mar'21 contracts made lows of 129-28 at the open in APAC trade, only to pare into Europe, finding resistance around 130-06 before resuming their downside efforts into the NY handover, assisted by a pick-up IG issuance and the related hedging flows in cash Treasuries. But, the contracts failed to retest their APAC lows and found better bidding heading into the European close. That came despite a new YTD peak in the forward-looking US Pending Home Sales data, and after a firmer-than-expected German Nov flash CPI print applied pressure out of the EGB space. The curve did keep its steepening tilt, however, assisted by a chunky 15k block buy in the five-year Mar'22 future, although all tenors on the curve pared from their earlier supports into the NY afternoon. T-Notes still sit a fair way above last week's trading range, before the Friday rally, of 129-09+/128-24+, which no doubt will be eyed for support if downside picks up, although month-end buying (+0.11yr month-end index extension estimated) and no coupon auctions this week will be working against that for the time being. Otherwise, attention for the week moves to the US jobs report (Friday) and ISM surveys (Mfg. on Wednesday and Services on Friday), provided developments around the Omicron variant don't make data redundant, while another peppering of Fed speak this week shall keep thumbs from twiddling too much. T-note (H2) futures settled 5 ticks lower at 130-09.

Fed Chair Powell said in prepared testimony to the Senate Banking Committee that the rise in COVID cases and Omicron variant pose downside risks to employment and increased uncertainty for inflation, while he noted that factors pushing inflation upward will linger well into next year but continues to expect inflation will recede significantly over the next year. Powell also stated that wages are rising at a brisk pace and conditions in the labour market have continued to improve although there is still ground to cover to reach maximum employment and he expects that progress will continue. Furthermore, he noted greater concerns about the virus could restrain labour supply and that strong demand for goods has exacerbated supply-chain problems. (Newswires)

US Treasury Secretary Yellen said in prepared remarks to the Senate Banking Committee that she is confident at this point the US recovery remains strong and cannot overstate importance for Congress to deal with the debt limit, while she warned that a failure to deal with the debt limit would eviscerate the US economic recovery. (Newswires)

White House Press Secretary said to expect action on the social spending bill in the coming weeks. In other news, White House was reportedly telling federal agencies they can hold off on suspending or firing federal workers for not complying with the vaccine mandate until after the holidays, according to a memo obtained by ABC. However, the White House later said that nothing has changed in its deadline for required vaccinations of federal workers. (Newswires/ABC News)

US Senator Manchin said he wouldn't commit to Senate Majority Leader Schumer's Christmas timeframe regarding the Build Back Better bill and wouldn't commit to voting to proceed to the bill, while he stated "we will wait to see what we have", according to CNN's Manu Raju. There were also separate reports that the US House intends to go first on a short-term spending bill to avoid a shutdown this week in which the bill will likely run through January. (CNN/Fox)

US Commerce Secretary Raimondo said the House needs to pass the CHIPS Act immediately to ease semiconductor shortage. In relevant news, the FTC said it launched an inquiry into supply chain disruptions and is ordering nine large retailers, wholesalers, and consumer good suppliers to provide information to shed light on causes behind the supply chain disruptions. (Newswires/CNBC)