• A firmer but contained start for European bourses following a similar APAC handover; US futures are positive but in a holding pattern pre-data
• In FX, the DXY has been pressured to near 96.00 at worst to the benefit of peers as Cable reclaims 1.3400 sending EUR/GBP below 0.8450
• UK PM Johnson will not make an announcement this week on whether COVID restrictions are needed post-Christmas; waiting for more hospitalization data, according to Politico.
• Russian President Putin says Russia meets gas supply obligations under long-term deals, Gazprom has not booked Yamal transit due to a lack of requests
• Looking ahead, highlights include US Personal Income, Consumption, PCE Price Index, Durable Goods, New Home Sales

CORONAVIRUS UPDATE

UK PM Johnson will not make an announcement this week on whether COVID restrictions are needed post-Christmas, and is waiting for more hospitalisation data, according to Politico. Additionally, Senior UK government sources have said Britain should not be subjected to further COVID restrictions. (Politico/Telegraph)

UK is reportedly mulling a fourth round of vaccinations against COVID. (Telegraph)

Novavax (NVAX) development of Omicron-specific vaccine is on track for initiation of GMP manufacturing in early January; two-dose demonstrated cross-reactive immune response against Omicron and other variants. (Newswires)

White House warned the Pfizer (PFE) COVID pill will not be widely available for months. (FT)

France cancelled orders for Merck (MRK) COVID vaccines amid efficacy fears - orders were replaced by Pfizer (PFE). (FT)

The US Supreme Court agreed to hear legal challenges to the Biden administration’s mandates that employees of large companies and health-care workers be vaccinated against COVID. (CNBC)

China reports 100 COVID cases in Mainland on Dec 22nd vs 77 the prior day. (Newswires)

ASIA

Asia-Pac equities traded modestly higher amid some tailwinds from Wall Street in holiday-thinned trade and the absence of fresh catalysts. The US majors closed in the green across the board, with the S&P 500 and Nasdaq propelled higher by Tesla shares which jumped 7.5% to regain USD 1tln market cap. US equity futures resumed trade relatively flat with an upside bias. In APAC, the ASX 200 (+0.3%) was supported by its gold miners following the recent gains in the yellow metal. Japan’s Nikkei 225 (+0.6%) was underpinned by its mining names, while South Korea’s KOSPI (+0.2%) saw gains in Tech mostly offset by losses in Autos. The Hang Seng (+0.3%) and Shanghai Comp (+0.2%) quickly dipped at the open into modest negative territory but later recovered. The overnight focus was on Tencent declaring an interim dividend payable in JD.com shares – which would reduce Tencent's holding of JD to about 2.3% vs prev. nearly 17% reported earlier this month. JD.com shares extended downside in early trade to losses of over 10%, whilst Tencent rose over 3%. US 10yr Treasury futures traded with no firm direction overnight despite the mild positivity seen across APAC stocks, with the debt now looking ahead to the November PCE report.

• PBoC set USD/CNY mid-point at 6.3651 vs exp. 6.3570 (prev. 6. 3703)
• PBoC injected CNY 10bln via 7-day reverse repo and CNY 10bln via 14-day for a net neutral daily injection of CNY 10bln, at maintained rates of 2.20% and 2.35% respectively

Tencent (700 HK) declared an interim dividend payable in JD.com shares (9618 HK), to pay one Class A of JD.com for every 21 shares held. (Newswires) Tencent's shareholding of JD will be about 2.3% (vs prev. nearly 17% stake, according to S&P Capital IQ)

Japan cuts issuance of 2yr JGBs by JPY 2.4tln; to boost issuance of 10yr and 40yr JGBs; Maintains issuance of 5yr, 20yr, 30yr and 10yr I/L JGBs - Reuters source state. (Newswires)

Japan raised FY22 real GDP growth forecast to 3.2% from 2.2% seen previously; cut FY21 forecast to 2.6% from 3.7%, according to the Cabinet Office. (Newswires)

CENTRAL BANKS

BoJ Governor Kuroda said FX rates must move in a stable fashion and reflect economic fundamentals; Negative impact of weak JPY on Japanese household income may be increasing, benefits of weak JPY exceeds demerits. (Newswires)

South Korean Central Bank to join US Fed's Foreign and International Monetary Authorities (FIMA) Repo Facility. (Newswires)

US

Tesla (TSLA) CEO Musk exercised 2.1mln options at USD 6.24/contract and sold 934k shares for a total of USD 928.6mln, according to a filing. (Newswires) Musk has sold around 14.76mln Tesla shares since November 8, according to a tracker, equating to 86.62% of his target.

GEOPOLITICAL

Iranian Vienna negotiations are set to resume on December 27th, according to a WSJ journalist (WSJ)

EQUITIES

European bourses are firmer in very thin trading conditions, with a distinct holiday-feel setting in. News flow has been minimal, and remains focused on the familiar themes of Omicron and geopolitics. The Euro Stoxx 50 trades around +0.5%, after a constructive handover from Asia, although there are some very modest regional discrepancies. Sectors are predominantly in the green, with the likes of Travel & Leisure, Oil & Gas, and Autos benefitting from the generally constructive tone of news flow around Omicron. US futures are firmer, though the magnitude is limited, and benchmarks have essentially been in a holding pattern since the US cash close on Wednesday.

Intel (INTC) reportedly looks to expand capacity in Europe, including in Germany, France and Italy, Bloomberg reports citing sources. (Newswires)

FX

DXY - In stark contrast to this time yesterday, the Dollar index is trying to grind higher from a fractionally firmer base between 96.018-199 parameters, though well below Tuesday’s range amidst an ongoing improvement in overall risk sentiment based on the latest Omicron analysis. In short, studies continue to find lower hospital admissions and generally less acute symptoms even though the mutation is more virulent, while the current batch of vaccines provide varying degrees of protection and new drugs designed specifically for the new strain are in the pipeline. On the fundamental front, the final full trading day before the Xmas break contains some potential market-moving US data, including the Fed’s preferred inflation measure, core PCE, plus jobless claims, new home sales and the often volatile durable goods.

NZD/GBP/AUD - The Kiwi, Pound and Aussie have all picked up where they left off on Wednesday, with impetus from the aforementioned positive market tone allied to increasingly bullish technical impulses. Indeed, Nzd/Usd didn’t encounter much in the way of psychological resistance at 0.6800, while Sterling has breached 1.3350 more emphatically to expose/probe 1.3400 and Aud/Usd overcame any sentimentality that might have hampered its progress beyond 0.7200. Cable has also advanced with the aid of Eur/Gbp tailwinds as the cross approaches 0.8450 following sell orders above, and an element of relief after reports suggesting that UK PM Johnson is now likely to hold off from making any further decisions on pandemic measures until after Xmas. Back down under, some good news for the Aussie via a pickup in private sector credit and loans for housing.

CAD/EUR - Both narrowly mixed vs their US counterpart, but the Loonie has extended its rebound towards 1.2800 in advance of Canadian monthly GDP and average weekly earnings, while the Euro is forming a firmer base on the 1.1300 handle as EGBs continue to underperform/outperform in futures and cash terms respectively. However, Eur/Usd topped out around 1.1341/2 again and may be wary of decent option expiry interest between 1.1330-40 in 1.3 bn as much as 1.6 bn rolling off at 1.1300-05.

CHF/JPY - The Franc and Yen are still lagging on risk factors and their carry characteristics, with the former unable to sustain advances through 0.9200 against the Buck and the latter failing to overcome offers/resistance into 114.00. Hence, Usd/Jpy remains poised for more attempts to scale the next Fib retracement at 114.38 in the run up to Japanese inflation data and post-remarks from BoJ Kuroda who adhered to pretty standard lines on currency matters. To recap, he repeated that FX rates must move in a stable fashion and reflect economic fundamentals, while the negative impact of a weak Jpy on Japanese household income may be increasing, though the benefits outweigh the demerits.

SCANDI/EM - Although the recovery in crude has stalled somewhat, inertia has propelled the Nok further above 10.1000 vs the Eur and beyond a key chart level at 10.0300 to leave the Sek trailing in its wake, while the Huf has taken on board the latest 20 bp 1 week depo rate hike by the NBH and Try is consolidating its break of 12.0000 against the Usd via a double repo by quantity auction from the CBRT rather than reports suggesting new FX swap lines are being sought by Turkey to be in place before the end of 2021.

FIXED

Seasonally low turnover is undoubtedly exacerbating price action, but there’s no guarantee that debt would be cushioned by underlying buying interest if market depth was back up to more normal levels given less angst over Omicron, more signs of inflation rising and the majority of the global Central Bank community switching to the hawkish side of the policy divide. Hence, further downside in futures and upside in yields as Bunds decline to 172.65 (-44 ticks on the day) and inch closer to -25 bp in cash, while BTPs continue to underperform, Gilts tumble to 125.23 (42 ticks below parity) and US Treasuries tip back into negative territory with the curve flat to a tad steeper. Ahead, several US data points that could prompt a reaction as the last proper and complete session before Xmas draws to a close, and for bonds in particular also the announcements for 2, 5, 7 year note and 2 year FRN auctions next week.

COMMODITIES

Crude benchmarks continue to see modest pressure that crept in during APAC trade; Brent is pivoting USD 75.00/bbl, with losses of circa USD 0.30/bbl. News flow has been minimal. Russia’s President Putin is making some geopolitical noises, although he is largely reiterating familiar themes. Elsewhere, Exxon’s (XOM) Baytown complex (560k BPD capacity) in Texas reported a fire at a gasoline component processing unit; reports thus far indicate no facility impact from this incident. Moving to metals, spot gold and silver remain contained as the yellow metal holds onto the USD 1800/oz mark it reclaimed amid USD weakness in APAC hours. While base metals are firmer but again within familiar ranges.

Russian President Putin says Russia meets gas supply obligations under long-term deals, prior to providing gas to spot markets; adds that Gazprom has not booked gas via the Yamal-Europe line due to a lack of requests, pipeline in reverse mode. Europe has created its own gas problems, should resolve this themselves; are prepared to assist.Germany is selling Russian gas to Poland, think it ends up in Ukraine. (Newswires)

Exxon (XOM) Baytown complex (560k BPD capacity) in Texas has reported a fire at the facility, according to the community alert system; Some injuries have been reported following a 'major industrial accident' at the Exxon (XOM) Baytown complex (560k BPD capacity) in Texas, via the Harris County Sheriff - No reports to evacuate/shelter in place after the fire. Based on current information, no adverse impact. (Newswires/County Sherriff)

China has set up a national rare earth group, according to state media. (Newswires)

Kremlin spokesperson says Russia will meet all gas supply obligations, Bloomberg reports. (Bloomberg)

Japan Q1 2022 crude steel output seen +1.9% Y/Y; -1.4% Q/Q; Q1 2022 steel product demand incl. exports seen +1.9% Y/Y; steel product exports seen -1.4% Y/Y. (Newswires)

South Korea is to release oil reserves (details light). (Newswires)