MNI EUROPEAN OPEN: PBOC Pour More Cold Water On Yuan

EXECUTIVE SUMMARY

• POLL BLOW FOR TORIES AS TRUST IN BORIS JOHNSON FALLS (Times)
• BIDEN ASSURES ZELENSKIY OF U.S. SUPPORT IN RUSSIA STAND-OFF (BBG)
• U.S. SENATE PASSES, SENDS BIDEN BILL PAVING WAY FOR DEBT LIMIT HIKE (RTRS)
• PBOC STEP UP EFFORTS TO REIGN IN YUAN APPRECIATION

Fig. 1: Deviation Between PBOC USD/CNY Fix & BBG USD/CNY Fix Estimate (pips)

Source: MNI - Market News/Bloomberg

UK

POLITICS: The Conservatives have slumped to their worst poll rating in 11 months as the prime minister battles on several fronts. Tory MPs turned on Boris Johnson over plans for new Covid restrictions as a YouGov poll for The Times found that Labour had a four-point lead, its biggest since January when the country was in the middle of the winter lockdown. More than two thirds of voters are also now questioning Johnson’s integrity over his response to a Downing Street Christmas party held while London was, in effect, locked down. He has said he was repeatedly assured that there was no party and that no Covid rules were broken. (Times)

POLITICS: Boris Johnson is set to be forced to rely on Labour votes to put his Christmas Covid restrictions into law, as a slew of Tory rebels spoke out against his plan for vaccine passes. Labour support means no threat of defeat for the prime minister in the key vote next Tuesday, but a record revolt would represent a further indication of waning confidence in his leadership, already reeling over the Downing Street Christmas party scandal. Rebels were confident of topping the tally of 40 needed to neutralise Mr Johnson’s 79-seat majority, and there were expectations that the revolt could surpass the 49 Tories who opposed the extension of lockdown measures in June with some Tories branding the new restrictions “authoritarian”. (Independent)

POLITICS: Boris Johnson's most senior communications adviser addressed staff and handed out awards on the night of the alleged Downing Street party last year during a time of strict COVID restrictions, it is understood. Jack Doyle, the director of communications in Number 10, thanked staff working there "like he does every week". The political adviser in overall charge of Mr Johnson's communications also gave out "thank you awards" on the night of 18 December, Sky News understands. ITV News was first to report Mr Doyle was present on the evening in question. (Sky)

POLITICS: Boris Johnson was accused of misleading his own ethics adviser last night, exposing the prime minister to a potential suspension from the House of Commons, as MPs demanded a fresh probe into his personal donors. With pressure mounting after a disastrous series of mistakes and scandals, Johnson’s integrity was once again under the spotlight after an official report suggested he gave differing accounts to investigators looking into the redecoration of his Downing Street flat. Their calls were provoked by a report published yesterday by the Electoral Commission, which had spent eight months investigating the funding of the costly redecoration. The commission fined the Conservative party £17,800 for serious donation reporting failures relating to the work. But documents released by the commission also revealed Johnson sent a WhatsApp message to the Tory donor Lord Brownlow in November last year seeking more money for the costly makeover. In an earlier inquiry into the matter, Johnson had assured Lord Geidt, the independent adviser on ministers’ interests, that he did not know who had given money for the work until it was revealed by the media in February this year. (Guardian)

POLITICS: But is Johnson still ultimately a winner? One of the most immediate tests is the North Shropshire byelection next week, prompted by Paterson’s resignation after the fallout from his sanction for lobbying by the standards commissioner. The Liberal Democrats believe they have a strong chance of taking the seat, though Labour has also begun to campaign more in earnest, with local activists there affronted by suggestions that they should keep quiet in favour of the Lib Dems. A Lib Dem source said the party issue was coming up repeatedly on the doorsteps. “Many people in North Shropshire, including lifelong Tories, are furious about the No 10 Christmas party. (Guardian)

POLITICS: Senior Conservative Party officials have ordered the party’s North Shropshire by-election candidate not to speak to media amid concerns he knows so little about the area, insiders say. Birmingham barrister Neil Shastri-Hurst has been parachuted in to fight the safe seat after its previous MP Owen Paterson resigned amid a sleaze scandal. (Independent)

ECONOMY: The government has ruled out new financial support for companies, including hospitality and retail businesses that face losing crucial sales over the Christmas period, despite introducing fresh coronavirus restrictions. Business lobby groups have called for extra state help to cover losses expected to result from Boris Johnson’s new Covid-19 measures for England, which include guidance for people to work from home and a requirement for vaccine passports to gain access to large venues. Many pubs and restaurants have already reported a rise in cancellations because of public concern about the new Omicron variant of coronavirus, and demand in city and town centres is expected to be further hit by the work-from-home guidance that takes effect on Monday. (FT)

EUROPE

ECB: The European Central Bank will seek to cushion the exit from emergency bond-buying next year before a stronger inflation outlook allows for an end to all quantitative easing in 2023, according to economists polled by Bloomberg. Policy makers will decide on Thursday to stop net purchases under their 1.85 trillion-euro ($2.1 trillion) pandemic plan in March, the survey shows, with a temporary boost to the pace of its regular program expected to soften the impact. Just under half of respondents expect the first interest-rate increase in more than a decade the following year. (BBG)

EU/RUSSIA: The EU is poised to sanction eight people and four entities linked to the Russian private military contractor Wagner, according to draft documents seen by POLITICO. The shadowy mercenary group first attracted international attention in 2014 when it supported pro-Russian separatists in eastern Ukraine. Since then, it has been involved in conflict zones including in Syria, Sudan, Mozambique and the Central African Republic (CAR). (Politico)

GERMANY: Germany's new coalition government will pass a supplementary budget on Monday to enable more public investments in the shift towards a greener and more digitalized economy, sources told Reuters on Thursday. The coalition parties agreed to channel more than 60 billion euros ($67.73 billion) of unused debt in this year's federal budget into a climate and transformation fund, three people familiar with the matter told Reuters on condition of anonymity. The debt-financed injection means that Berlin will now make nearly full use of the 240 billion euro debt ceiling originally granted by its parliament for 2021, the sources added. (RTRS)

FRANCE: French President Emmanuel Macron called for a strong, sovereign, and united Europe on Thursday, ahead of France’s six-month rotating EU presidency, which starts on January 1, 2022. Macron encapsulated his priorities for France’s presidency of the EU with the motto: “Recovery, power, belonging”. France’s aim was "to move towards a Europe that is powerful in the world, fully sovereign, free in its choices and in charge of its own destiny", Macron said at a news conference in Paris. (France24)

FRANCE/CHINA: France will not follow the lead of some other Western governments and launch a diplomatic boycott of the Winter Olympics in Beijing although human rights abuses in China must be condemned, the education minister said on Thursday. (RTRS)

ITALY: Italy’s government plans to set aside additional funds to address surging energy costs this winter, said people familiar with the matter. Prime Minister Mario Draghi’s cabinet discussed allocating a significant share of more than 3 billion euros ($3.4 billion) saved from planned 2021 spending to shield consumers from soaring heating bills. That would be on top of some 2 billion euros in the 2022 budget and another 800 million the government already decided to add, said the people, who asked not to be named because the discussions were not public. A final decision on the amount is expected in the coming days, the people said. (BBG)

CROATIA: European Union governments agreed on Thursday for Croatia to join the bloc's passport-free Schengen travel area after Zagreb convinced Brussels that it was able to effectively manage its section of the bloc's external borders. The step for Croatia, which became an EU member in 2013 and also wants to join the single-currency euro zone, has long been a sensitive issue due to migration. "Croatia is ready," European Commissioner for Home Affairs, Ylva Johansson told a news conference after agreement was reached among the bloc's interior ministers. The Commission had recommended Croatia's inclusion into Schengen in October 2019. (RTRS)

EASTERN EUROPE: U.S. President Joe Biden promised central European NATO members "additional military capabilities" on Thursday and pledged to involve them in decisions about the region, Lithuania's presidential advisor said. Biden reassured the allies nothing will be agreed with Russia about the region behind the backs of its countries, Lithuanian president's adviser Asta Skaisgiryte told reporters. "Biden said, 'nothing about you without you'", said Skaisgiryte. (RTRS)

US

FISCAL: The U.S. Senate on Thursday passed and sent to President Joe Biden the first of two bills needed to raise the federal government's $28.9 trillion debt limit and avert an unprecedented default. The Senate voted 59-35 for the measure, with 10 Republicans, including Minority Leader Mitch McConnell, backing the bill, which allows an upcoming vote on raising the debt ceiling to pass the chamber with a simple majority. McConnell said earlier this week that he believed the procedure was in the best interests of the country because it avoids default. (RTRS)

ECONOMY: While small countries are often perceived as major havens for hiding or laundering money, "enormous amounts of illicit funds" end up in the US financial system, Treasury Secretary Janet Yellen said Thursday. "There's a good argument that, right now, the best place to hide and launder ill-gotten gains is actually the United States," Yellen said in a speech to the Summit on Democracy. Switzerland or the Cayman Islands have long been the focuses of regulators looking to find hidden cash. But Yellen challenged the view that the proceeds of corruption or illegal activity are sent only to those "countries with histories of loose and secretive financial laws," saying they are instead likely to "pass through -- or land -- in our markets." (AFP)

POLITICS: A U.S. appeals court on Thursday rejected a request by former President Donald Trump to withhold records from the House of Representatives probe of the deadly Jan. 6 attack on the Capitol, saying he had provided "no basis" for his request. "Former President Trump has provided no basis for this court to override President Biden's judgment," a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit wrote. (RTRS)

POLITICS: New York Attorney General Letitia James announced Thursday that she would suspend her campaign bid for governor in 2022, citing a desire to "finish her work" as attorney general. Why it matters: The attorney general had announced her bid for governor just over a month ago and was seen by Democratic strategists, operatives and progressives as a potentially strong candidate for the position. (Axios)

BANKING: The Federal Deposit Insurance Corp. (FDIC) on Thursday rebuked a move by Democrats on its board to seek public feedback on ways the agency analyzes potential bank mergers, a stunning break in nearly a century of stable relations between agency leaders. Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra and FDIC Director Martin Gruenberg had asked for public feedback Thursday on the ways the FDIC analyzes potential bank mergers. The regulator disavowed the request, saying the document was not approved or vetted during a meeting of the board. (Hill)

OTHER

GEOPOLITICS: East European countries have reacted critically to a U.S. proposal that a handful of North Atlantic Treaty Organization allies could meet with Russia to discuss its military build-up along Ukraine’s borders. One government in the region is furious and seeking immediate clarification on what exactly President Joe Biden is planning, according to a diplomat from the country who declined to be named speaking on a confidential issue. Another diplomat was more specific. The unease among the eastern flank, where countries that were once dominated by the Soviet Union now find themselves on the front lines against an aggressive Russia, centers on just what kind of concessions the talks might lead to in terms of political guarantees and curbs on NATO’s freedom of movement and its ability to carry out actions. “Russia should under no circumstances be given a say in who may or may not be a member of NATO,” Estonian Prime Minister Kaja Kallas said at a news conference on Thursday. Moscow’s “most worrying wish is to divide Europe into spheres of influence. We remember these kinds of moments from our own history and we are in no way naive on this issue.” (BBG)

GEOPOLITICS: President Joe Biden underscored U.S. support for Ukraine in its standoff with Russia and pledged not to hold talks about the country’s future without its representatives at the table during a phone call Thursday with Ukrainian President Volodymyr Zelenskiy. “The United States and its allies and partners are committed to the principle of ‘no decisions or discussions about Ukraine without Ukraine,’” the White House said in a statement. The call, which lasted more than an hour, was warm and saw Biden affirm a commitment to Ukraine’s sovereignty and territorial integrity as well as warnings that Russian aggression would be met with unprecedented economic penalties, according to a senior U.S. official who described the conversation on the condition of anonymity. (BBG)

GEOPOLITICS: U.S. President Joe Biden assured Ukrainian President Volodymyr Zelenskiy that Kyiv's bid to join the NATO military alliance was in its own hands, Zelenskiy's chief of staff said after the two leaders spoke on Thursday. "President Biden said very clearly ... that any negotiations, any decisions that concern Ukraine, cannot be taken without Ukraine," Zelenskiy chief of staff, Andriy Yermak, told the 1+1 TV channel. "President Biden said very clearly that the decision on Ukraine's accession to NATO is the decision of the Ukrainian people only, this is a sovereign and independent Ukrainian state," he said. "And it depends on Ukraine and NATO members." In a call which Zelenskiy said lasted 1-1/2 hours, Ukraine's president also told Biden that he had "clear proposals to unblock the peace process" in eastern Ukraine and was ready to discuss them in various formats. (RTRS)

U.S./CHINA: U.S. Commerce Secretary Gina Raimondo said legislation to spur domestic semiconductor manufacturing needs rules to prevent funds from going toward production in China but deferred to Congress on the details of such provisions. “Congress will decide what, if any, legislative guardrails they want to put on this, versus if they want to defer on that and let Commerce handle it in the regulations,” Raimondo said Thursday during an interview with Bloomberg reporters and editors in New York. “But it’s something we have to grapple with. The intention is to protect ourselves from China.” (BBG)

BOC: The Bank of Canada will maintain its 2% inflation target in a mandate review that will be announced in coming days, according to a person familiar with the matter. The new five-year mandate, however, will include some new language around employment, the person said on condition they not be identified because the announcement isn’t yet public. (BBG)

CANADA: Canada hopes more immigration can boost economic growth and allay a worsening post-pandemic labor shortage, but new migrants could pour gasoline on that red-hot housing market that the central bank has warned was stoked by "a sudden influx of investors." Prime Minister Justin Trudeau's administration is on track to meet this year's goal of 401,000 new permanent residents and is set to revise up next year's target of 411,000, a government source said. (RTRS)

JAPAN: Prime Minister Fumio Kishida is following last month’s record economic stimulus package with a move to boost worker pay as part of his campaign to revamp Japanese capitalism so prosperity is shared more widely and growth is more sustainable. Japan’s ruling party on Friday is set to unveil a set of carrots and sticks that use the tax code to try to coax businesses into raising worker pay and punish those that don’t. The promised tax breaks are roughly 50% more generous than ones already on the books, according to a draft of the Liberal Democratic Party’s tax plan for fiscal 2022 seen by Bloomberg. (BBG)

SOUTH KOREA: Booster shots for adults can be administered three months after their primary vaccination, Prime Minister Kim Boo-kyum said Friday, amid rising concerns over a surge in COVID-19 infections. The decision to cut the dosage interval between primary vaccination and booster shots for people aged 18 or older was announced as the country's daily new coronavirus infections surpassed 7,000 for the third straight day amid worries about the omicron variant, while the number of serious COVID-19 cases showed no signs of letup. "Our medical response capability is quickly burning out as daily cases remained in the 7,000s for a third day in row, with seniors aged 60 or older accounting for 35 percent of the cases," Kim said during a meeting of the Central Disaster and Safety Countermeasures Headquarters. "Our top priority task is a swift inoculation of vaccines." (Yonhap)

NICARAGUA/CHINA: China and Nicaragua re-established diplomatic ties on Friday after the country broke relations with Chinese-claimed Taiwan, boosting Beijing in a part of the world long considered the United States' backyard and angering Washington. (RTRS)

BRAZIL: Brazil's Senate on Thursday approved the extension of a payroll tax exemption for 17 economic sectors until December 2023, a measure seen as necessary to save jobs during a period of stagnant growth caused by the coronavirus pandemic. The bill has already passed the lower chamber of Congress and advances to President Jair Bolsonaro to be signed into law. Bolsonaro praised the approval. "If it had not passed, we would have mass unemployment." (RTRS)

RUSSIA: Russia is not opposed to US joining the Normandy Four format, but it does not quite understand what Washington may bring to it, Russian Deputy Foreign Minister Sergey Ryabkov told journalists Thursday. "First, we are not opposed to [the US joining the Normandy Four format]. Second, it is not us who have doubts about it. Third, we don’t quite understand what the Americans can bring to this format," he said. (TASS)

IRAN: The U.S. is preparing a fresh round of sanctions against Iran and will press other nations to comply with existing restrictions as talks on limiting the country’s nuclear program languish, the Biden administration warned Thursday. President Joe Biden “has asked his team to be prepared in the event diplomacy fails,” White House Press Secretary Jen Psaki told reporters. If talks in Vienna to revive a 2015 agreement curbing Iran’s program fail, “we will have no choice but to take additional measures” to restrict Iran’s revenue, she said. Psaki’s comments came as the administration announced that a team of officials from the departments of Treasury and State would go to the United Arab Emirates to discuss compliance with sanctions that seek to limit Iranian income. The UAE is purchasing Iranian oil and some of its banks have facilitated Iranian commerce in apparent violation of the sanctions. (BBG)

IRAQ: The top U.S. commander for the Middle East said Thursday that the United States will keep the current 2,500 troops in Iraq for the foreseeable future, and he warned that he expects increasing attacks on U.S. and Iraqi personnel by Iranian-backed militias determined to get American forces out. Marine Gen. Frank McKenzie said in an interview with The Associated Press at the Pentagon that despite the shift by U.S. forces to a non-combat role in Iraq, they will still provide air support and other military aid for Iraq’s fight against the Islamic State. Noting that Iranian-backed militias want all Western forces out of Iraq, he said an ongoing uptick in violence may continue through December. “They actually want all U.S. forces to leave, and all U.S. forces are not going to leave,” he said, adding that as a result, “that may provoke a response as we get later into the end of the month.” (AP)

CHINA

ECONOMY: China’s top leaders are set to convene this week to decide the economic agenda for 2022, and analysts are expecting the focus to shift to supporting growth from deleveraging and regulatory crackdowns. The annual Central Economic Work Conference, attended by members of the Politburo Standing Committee including President Xi Jinping, will be keenly watched for signs that reinforce the move to looser economic policy signaled by a Politburo meeting last week. The dates of the meeting haven’t been officially announced, but officials from the Communist Party, government and central bank are scheduled to explain the meetings’ decisions Saturday morning, indicating it should have finished by then. (BBG)

ECONOMY: The Chinese economy should grow just over 5% in 2022 given that the two-year average growth of this year is around 5%, 21st Century Business Herald reported citing analysts. China should further expand domestic demand as exports may slow with the recovery of global supply, including promoting consumption, investment and upgrading manufacturing, the newspaper said. China may need a significant effort to keep growth above 5% next year given the current "relatively big" downward momentum, the newspaper said citing Yang Weimin, a high-ranked advisor and the deputy director of the economy of the Chinese People's Political Consultative Committee. (MNI)

BONDS: Foreign investors continue to snap up Chinese bonds with holdings rising for the 36th month to over CNY3.6 trillion, a sign of confidence in China’s economic prospects, the China Securities Journal reported citing data by China Central Depository & Clearing. China's sovereign bonds were the major component, up by CNY513.7 billion in November and totaling CNY2.39 trillion so far, the newspaper said. The pace of gain may slow though and investors may focus on long-term and diversified assets with the recovery of the global economy and nations' normalization of liquidity and interest rates, the newspaper said. (MNI)

YUAN: The PBOC signaled its intention to correct the market's bullish expectation on the yuan on concerns that of risk of the currency deviating from economic fundamentals, the Economic Information Daily reported citing Guan Tao, chief global economist of BoC International and a former forex official. The PBOC’s hike of banks' forex reserve ratio by 2 percentage points on Thursday will help soak up U.S. dollar liquidity in China and narrow domestic yuan-dollar interest spreads, Guan was cited as saying. Hiking up reserve ratio can reduce speculative trading as well as avoid impacting exports with a stronger yuan, the newspaper said citing analysts. Offshore yuan quickly retreated to around 6.38 against the dollar from the previous 6.35 after the move, the newspaper said. (MNI)

EVERGRANDE: Fitch has become the first rating agency to declare that China Evergrande’s overseas bonds are in default after the world’s most indebted developer failed to make a crucial interest payment this week. The announcement marked the most significant moment yet in the developer’s marathon liquidity crisis that has spread to other businesses across the country’s vast real estate sector and fuelled global concerns about the potential impact on China’s economy. (FT)

OVERNIGHT DATA

JAPAN NOV PPI +9.0% Y/Y; MEDIAN +8.5%; OCT +8.3%
JAPAN NOV PPI +0.6% M/M; MEDIAN +0.4%; OCT +1.4%

NEW ZEALAND NOV BUSINESSNZ M'FING PMI 50.6; OCT 54.2

The Performance of Manufacturing Index (PMI) underwhelmed in November. It fell to 50.6, after a spurt higher to 54.2 in October. So back below average. Disconcertingly, all sub-components were below their respective long-term norms in November. Perhaps the most disappointing number in today’s PMI was employment. It had been slowing over recent months but slipped further to 48.2 in November from 51.7 in October. All we can reasonably say from the PMI’s October and November employment readings is that they suggest minimal manufacturing employment growth so far in Q4. (BNZ)

NEW ZEALAND NOV CARD SPENDING RETAIL +9.6% M/M; OCT +10.0%
NEW ZEALAND NOV CARD SPENDING TOTAL +9.1% M/M; OCT +9.4%

CHINA MARKETS

PBOC INJECTS CNY10BN VIA OMOS, LIQUIDITY UNCHANGED

The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.2% on Friday. This keeps the liquidity unchanged after offsetting the maturity of CNY10 billion repos today, according to Wind Information.

• The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.
• The 7-day weighted average interbank repo rate for depository institutions (DR007) fell to 2.1838% at 09:59 am local time from the close of 2.2099% on Thursday.
• The CFETS-NEX money-market sentiment index closed at 39 on Thursday vs 45 on Wednesday.

PBOC SETS YUAN CENTRAL PARITY AT 6.3702 FRI VS 6.3498

The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 6.3702 on Friday, compared with 6.3498 set on Thursday.

MARKETS