• Choppy session thus far across equities as the region looks for direction, ES circa. 4k.
• Followed mixed APAC trade given the hawkish Wall St. handover eased on further China COVID control adjustments
• DXY briefly eclipsed Monday's best to a 105.50 peak before fading in relatively limited newsflow and as UST yields ease.
• Aussie is the modest outperformer following a 25bp RBA hike and guidance for further inflation-justified tightening
• Core fixed benchmarks are firmer, but off best levels, having digested initial UK/German supply reasonably well
• Looking ahead, highlights include Canadian Trade Balance.
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EUROPEAN TRADE

EQUITIES

• A choppy session thus far across equities as the region looks for direction following the mixed APAC handover and after the post-ISM losses.
• Currently, European bourses are lower by circa. 0.5% having dipped a touch heading into US trade with fundamental drivers limited.
• Sectors in Europe are predominantly in the red with a slight defensive tilt, with Utilities, Media, Telecoms, Food & Beverages and Optimised Goods in the green, whilst Energy, Autos, Retail and Financial services reside at the foot of the bunch.
• US equity futures move between mild losses and gains in search of the next catalyst, with a relatively broad-based action seen across the ES, NQ, YM, and RTY.
• TSMC (TSM) is to more than triple its investment in Arizona, US to USD 40bln, via FT; will, on Tuesday, announce plans for a second fab to manufacture 3NM/N3 chips from 2026, according to FT sources.
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FX

• DXY briefly eclipsed Monday's best to a 105.50 peak before fading in limited newsflow and as UST yields ease.
• Action which comes to the modest benefit of peers, ex-CAD given softer benchmark crude prices and pre-BoC; USD/CAD 1.3600.
• Aussie is the modest outperformer following a 25bp RBA hike and guidance for further inflation-justified tightening, AUD/USD 0.673+ at best.
• JPY has derived some modest benefit from the USD pullback, though USD/JPY remains near Monday's peak.
• GBP and EUR were unfased by the morning's data points, while remarks from ECB's Lane are notable but haven't altered December's pricing much.
• PBoC set USD/CNY mid-point at 6.9746 vs exp. 6.9773 (prev. 7.0384)
• Norges Bank Regional Network (Q4): output index 6-months ahead -0.57 (Prev. -0.16).
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Notable FX Expiries, NY Cut:

• USD/CAD: 1.3615-25 (1.04BN), 1.3660 (310M)
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FIXED INCOME

• Core benchmarks are little changed overall, with USTs and Bunds marginally outpacing their UK peer at present.
• However, this relative outperformance is limited in nature and has eased from best levels, while EGBs/Gilts have absorbed the morning's supply well thus far.
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COMMODITIES

• WTI and Brent futures were consolidating after yesterday’s ISM-induced declines which saw the most liquid contract settle lower by almost USD 3/bbl a piece; however, pressure has resumed as the morning progresses, benchmarks lower by circa. USD 1/bbl.
• Spot gold is flat under USD 1,775/oz with some overnight resistance seen near that level, whilst the 200 DMA resides at 1,794/oz and the 21 DMA at 1,757.90/oz.
• Base metals are mixed, in-fitting with the cautious risk tone and swings in the Dollar, with 3M LME still under the USD 8,500/t mark but within a contained range.
• Russian Deputy PM Novak says they may reduce oil production, but not by much, via Tass. Domestic oil production in December will remain at November's level.
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NOTABLE EUROPEAN HEADLINES

• ECB's Lane said he is confident that the EZ is near the peak of inflation but more hikes are needed, and added that inflation peak may have been reached or will come in early 2023 and the bulk of the work has been done. Re. rates: "... when we take future interest rate decisions, including in December, we should take into account the scale of what we have already done. So the basis for the decision will be different."
• ECB's Herodotou said does not see a "hard-landing" in the Eurozone economy; no material de-anchoring of inflation expectations. There will be another hike but we are very close to the neutral rate, via Reuters.
• Barclaycard UK November consumer spending rose 3.9% Y/Y vs prev. 3.5% increase in October.

NOTABLE EUROPEAN DATA

• UK BRC Retail Sales YY (Nov) 4.1% (Prev. 1.2%); Total Sales Y/Y (Nov) 4.2% (Prev. 1.6%)
• German Industrial Orders MM (Oct) 0.8% vs. Exp. 0.1% (Prev. -4.0%, Rev. -2.9%)
• UK S&P Global/CIPS Construction PMI (Nov) 50.4 vs. Exp. 52 (Prev. 53.2)
• French S&P Global Construction PMI (Nov) 40.7 (Prev. 44.3)
• Italian S&P Global Construction PMI (Nov) 52.0 (Prev. 48.1)
• German S&P Global Construction PMI (Nov) 41.5 (Prev. 43.8)
• EU S&P Global Construction PMI (Nov) 43.6 (Prev. 44.9)

NOTABLE US HEADLINES

• Click here for the US Early Morning Note.

CRYPTO

• US FTC is reportedly investigating crypto firms over misleading advertising, according to Bloomberg.
• UK finalises plans to regulate the crypto industry which includes limits on foreign companies selling into the UK and provisions for how to deal with a collapse of companies, as well as restrictions on the advertising of products, according to FT.

GEOPOLITICS

RUSSIA-UKRAINE

• Kyiv reportedly used unmanned drones to strike two bases in the heart of Russia, while the drones were launched from Ukrainian territory and two planes were destroyed at one of the Russian bases with several more damaged, according to NYT citing a Ukrainian official.

OTHER

• North Korea ordered its military to fire artillery into the sea in response to South Korean drills, according to KCNA.
• North Korea fires 10 additional artillery shots in the maritime buffer zone... A total of 100 rounds, according to Yonhap.
• China's Defence Ministry dismissed a Pentagon report from last month which stated that China would likely have a stockpile of 1,500 nuclear warheads by 2035 if it continues at the current pace of its nuclear build-up, while China dismissed the report as unfair "gesticulation" and speculation, according to Reuters.

APAC TRADE

EQUITIES

• APAC stocks were somewhat mixed with early headwinds from Wall St where risk assets were pressured as yields and the dollar gained following strong ISM Services PMI data which stoked concerns for a more aggressive Fed. However, some of the initial losses in the regional bourses were reversed owing to further China reopening efforts.
• ASX 200 was subdued amid mixed data releases and after the RBA rate decision where the central bank delivered an 8th consecutive rate increase, as well as signalled further hikes ahead.
• Nikkei 225 was kept afloat after BoJ Governor Kuroda reaffirmed sticking with current monetary policy but with gains capped by mixed Household Spending data and the largest decline in real cash earnings in 7 years.
• Hang Seng and Shanghai Comp were choppy with initial pressure amid the uninspired mood across the region although the losses were briefly pared owing to further reopening efforts in which Shanghai and Beijing scrapped COVID test requirements for more public venues, while reports also noted that China could announce 10 supplementary COVID measures as soon as Wednesday and could downgrade COVID to a category B management as early as January.

NOTABLE ASIA-PAC HEADLINES

• Beijing city government said it no longer requires negative PCR test results for people entering supermarkets and commercial buildings, while it still requires a negative test result to enter internet cafes, bars, KTV lounges, gyms and elderly care institutions. It was also later reported that the Beijing capital airport no longer requires negative COVID test results from people entering the airport, according to Reuters.
• PBoC's recent RRR cut could push the 5-year LPR lower this month, according to Shanghai Securities News.
• BoJ Governor Kuroda said it is premature to debate specifics on the BoJ's monetary policy framework, when asked about board member Tamura's comments calling for a review of the current framework, while Kuroda added that when the achievement of the inflation target comes into sight, the BoJ will likely debate a path toward an exit from easy policy. Kuroda also said the benefits of the current monetary policy currently outweigh the costs and that the BoJ will continue QQE to ensure companies can smoothly raise wages.
• RBA hiked rates by 25bps to 3.10%, as expected, while it repeated that the board expects to increase interest rates further over the period ahead but is not on a pre-set course and that inflation in Australia is too high. RBA said the board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that, while its priority is to re-establish low inflation and return inflation to the 2%–3% target over time.

DATA RECAP

• Japanese All Household Spending MM (Oct) 1.1% vs. Exp. 1.5% (Prev. 1.8%); YY (Oct) 1.2% vs. Exp. 1.0% (Prev. 2.3%)
• Japanese Real Cash Earnings YY (Oct) -2.6% vs Exp. -2.1%, largest decline since June 2015; Labour Cash Earnings YY (Oct) 1.8% vs Exp. 2.0% (Prev. 2.1%)
• Australian Current Account Balance (AUD)(Q3) -2.3B vs. Exp. 6.2B (Prev. 18.3B); Net Exports Contribution (Q3) -0.2% vs. Exp. -0.5% (Prev. 1.0%)