MNI EUROPEAN MARKETS ANALYSIS: Risk Better Bid To Start The Week On Brexit & COVID Matters

BOND SUMMARY: Core FI Calm After Initial Flurries

A lack of meaningful concrete developments re: some of the early risk-positive factors, namely the extension of Brexit discussions and the U.S. fiscal impasse, ultimately limited trading after the initial flurry of flow surrounding market re-opens. While the initial deployment of Pfizer's COVID-19 vaccine in the U.S. is a positive, that was at least partially negated by the aforementioned sources of uncertainty and short term COVID-19 pain, in addition to pockets of geopolitical unrest. That left T-Notes -0-04 at 137-31, a little off lows and within a 0-03 range after the small gap lower at the open, while cash Tsys have seen some light bear steepening, with 30s ~1.5bp cheaper on the day.

• JGB futures coiled on Monday, finishing +6, while the long end of the cash JGB curve underperformed, which likely stemmed from the light underperformance in longer dated U.S. Tsys during Friday's session and generally risk-positive start to the new trading week (although the broad risk-positive move has faded from extremes and wasn't particularly fierce). The latest BoJ Tankan survey saw all of the major survey metrics edge closer to the neutral 0 level as they topped exp., although all of the readings remained in negative territory. Meanwhile, the large firms' CapEx estimates missed expectations, surprisingly printing in negative territory. Participants now look to a government meeting re: COVID-19, which will be held after hours today.
• XM saw a brief blip higher, to new highs of the day, on the back of the previously flagged Westpac view re: RBA QE extension, although the move faded, with YM closing +0.2 & XM +2.1 based on the H1 contracts. Cash ACGB trade saw the curve flatten, with swaps widening vs. ACGBs across the curve. Residual roll volume dominated outside of the Westpac-inspired XM move, given the lack of headline news flow after the re-open, while the weekend headline-related swings in the broader risk tone dictated price action early on. Local weekend news flow focused on Sino-Aussie tensions, with matters surrounding Australian coal exports and restrictions of Chinese purchases of Australian assets dominating, although both these matters are very familiar.

US TSYS: Little Significance In CFTC CoT Moves, Uniform In Direction

Little of any real significance in the latest weekly CFTC CoT report, with a relatively marginal, albeit broad, narrowing of net short positions/lengthening of net long positions seen across the major Tsy and STIR futures contracts.

FOREX: Ready To Go Extra Mile

Sterling went bid in Asia after the Johnson/vdL duo agreed to scrap Sunday's deadline for breaking the Brexit impasse and instructed their negotiating teams to continue attempts at striking a deal. The leaders refrained from setting a fresh deadline, while the FT reported that talks may continue until Christmas. EU Chief Brexit Negotiator Barnier will brief EU Ambassadors on the "state of play of EU-UK negotiations" this morning, while European Commission chief von der Leyen will head to Paris to discuss the matter with French Pres Macron. Sterling remained comfortably the best performer in G10 FX space, even as it pared some of its initial gains. EUG/GBP gapped lower at the re-open, but closed the gap later in the session.

• Brexit news added to broader optimism inspired by the $908bn draft stimulus package to be presented by a bipartisan group of U.S. lawmakers today (although its passage is not guaranteed) & the emergency approval of Pfizer's Covid-19 jab, which cleared the way for its rollout as soon as today. Resultant risk-on flows moderated somewhat, as caveats/foreign cyberattack on U.S. Tsy countered earlier enthusiasm.
• That being said, USD & JPY remained on the back foot, struggling to erase initial losses. NZD joined them at the bottom of the G10 scoreboard, despite little in the way of local catalysts.
• The AUD also underperformed, hampered by developments in China, the key among these were comments from China's Iron and Steel Association over the weekend saying the price of iron ore has diverged from fundamentals, and blaming speculation. This is a move that could pave the way for intervention.
• USD/Asia generally softened, with USD/CNH shedding ~160 pips & testing last Friday's low. IDR lagged its peers from the region as well as the greenback ahead of Thursday's monetary policy meeting from Bank Indonesia.
• On that note, central bank activity picks up this week, with more than a dozen of monetary policy decisions due. Meanwhile today's economic docket is rather unimpressive, with just EZ industrial output & comments from ECB's de Cos coming up.

FOREX OPTIONS: Expiries for Dec14 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1900(E521mln), $1.2000(E1.1bln),
  $1.2050-60(E664mln), $1.2175(E860mln-EUR puts),
  $1.2240-50(E614mln-EUR puts)
• USD/JPY: Y103.00-10($800mln), Y103.50-55($878mln), Y104.00($557mln), Y104.94-00($519mln), Y105.15($500mln), Y106.00($2.1bln)
• EUR/JPY: Y126.00(E606mln)
• GBP/USD: $1.3300(Gbp400mln), $1.3500(Gbp545mln), $1.3600(Gbp657mln)
• EUR/GBP: Gbp0.8800-20(E540mln), Gbp0.9015-25(E564mln)
• AUD/USD: $0.7450(A$607mln-AUD puts)
• AUD/JPY: Y78.30-35(A$574mln-AUD calls)
• AUD/NZD: N$1.0623(A$678mln-AUD puts)
• USD/CAD: C$1.3300($692mln)

EQUITIES: Risk Positive Headlines Support In Asia, But Ranges Quite Contained

Positive developments surrounding the initial deployment of Pfizer's COVID-19 vaccine in the U.S., the extension of Brexit talks and the seemingly impending unveiling of the bi-partisan fiscal stimulus proposal in DC (although that doesn't go anywhere near guaranteeing its passage) supported risk sentiment in early Asia trade.

• Still, the shorter-term impact of COVID-19, pockets of geopolitical worry and continued lack of ultimate progress/end games surrounding the previously flagged risk-positive moves meant that the early risk-positive flows didn't see much in the way of follow-through, as e-minis meandered through Asia hours.
• The Hang Seng struggled on some punitive fines for some of the the index's larger constituents, courtesy of the CCP.
• FTSE 100 futures also backed away from their early high, and last sit unchanged on the day.
• Nikkei 225 +0.3%, Hang Seng -0.5%, CSI 300 +0.6%, ASX 200 +0.3%.
• S&P 500 futures +16, DJIA futures +173, NASDAQ 100 futures +29.

GOLD: As You Were

Spot gold is little changed vs. this time on Friday, operating around $1,835/oz, virtually unchanged vs. Friday's closing levels. U.S. real yields are unchanged to a touch higher vs. comparable times on Friday, with the DXY still hovering a little above cycle lows. Elsewhere, total known ETF holdings of gold operate ~4% off their recent all-time peak.

• The EUA of Pfizer's COVID-19 vaccine in the U.S. has been welcomed but hasn't really had any meaningful impact on broader markets, with continued focus on the broader COVID picture (near term pain), Brexit dynamic, fiscal situation in DC and pockets of geopolitical risk evident in early trade this week.
• The technical lines in the sand are unchanged.

OIL: A Melting Pot Of News Flow

The major crude benchmarks chopped around in early trade this week, with Brent struggling for direction around the $50.00 mark. Still, both WTI & Brent have managed to register modest gains thus far, last printing ~$0.30 above settlement levels.

• As we have mentioned elsewhere, risk-positive headline flow from the weekend was countered by the a lack of firm progress re: most of the matters that saw favourable headlines, while geopolitical tension and the short-term pain of COVID-19 further limited any exuberance witnessed in early trading.
• In terms of crude specific news flow, the week saw Iran continue to point to a fairly immediate ramping up of crude production, while neighbour Iraq continued to fight fires at oilfields.
• Elsewhere, a RTRS source report did the rounds suggesting that "Mexico is wrapping up purchases for the 2021 edition of an oil hedging program that insures its revenues from oil sales."
• Middle East tensions were also at the fore, as Asia-Pac hours saw the Associated Press report that "an explosion rocked a ship off Saudi Arabia's port city of Jiddah on the Red Sea, authorities said Monday, without elaborating. The kingdom did not immediately acknowledge the blast, which struck off a crucial port and distribution center for its oil trade." This particular headline was supportive of crude during the second half of Asia-Pac trade.