MNI EUROPEAN OPEN: China Likens COVID To Flu, Heavy Central Bank Week Eyed

EXECUTIVE SUMMARY

• U.S. INFLATION WILL BE MUCH LOWER BY END OF 2023, YELLEN SAYS (RTRS)
• ECONOMISTS THINK INFLATION HAS PEAKED. MAIN STREET IS PREPARING FOR MORE PAIN (CNBC POLL)
• ECB’S STOURNARAS SAYS HE’D PREFER HALF-POINT HIKE (BBG)
• EU'S GENTILONI SAYS ITALY ON TRACK TO MEET REFORM TIMETABLE (RTRS)
• SENIOR US OFFICIALS TO VISIT CHINA TO FOLLOW UP ON XI-BIDEN MEET (BBG)
• CHINA’S RAPID COVID REVERSAL SPARKS WHIPLASH AS CASES SURGE (BBG)
• CHINA’S TOP MEDICAL ADVISER SAYS OMICRON’S RISKS SAME AS FLU (BBG)
• EU AT ODDS OVER GAS PRICE CAP AS 12 COUNTRIES CRITICISE LATEST PROPOSAL (RTRS)

Fig. 1: U.S. 2- & 10-Year Breakeven Inflation Expectations

Source: MNI - Market News/Bloomberg

UK

BOE: Britain’s darkening economic outlook is set leave Bank of England policy makers the most divided ever over how much to raise interest rates, with the prospect of the first-ever four-way split. (BBG)

ECONOMY/POLITICS: Rishi Sunak’s government is planning for military staff and civil servants to cover for striking workers at air and sea ports as the UK braces for industrial action set to cause major disruptions in the coming weeks. (BBG)

ECONOMY: The UK’s manufacturing sector shrank by more than 4% this year, a survey found, with predictions of another sharp decline in 2023. (BBG)

FISCAL/POLITICS: Conservative MPs have called for lower taxes and a new Tory campaign group has been launched in a fresh double headache for Rishi Sunak. (Sky)

FISCAL/POLITICS: Jeremy Hunt is facing a rebellion from 40 Conservative MPs over £7 billion of government spending on “woke” projects. (Telegraph)

BREXIT: Rishi Sunak has put the Northern Ireland Brexit protocol bill on ice until the new year after private talks with Brussels paved the way for a new deal by February. Senior officials say the bill will not be returned to the Lords this year, giving negotiators time to thrash out new trade rules for a St Valentine’s Day agreement. (The Times)

POWER: UK power prices for Monday jumped to record levels as freezing temperatures are set to cause a surge in demand, just as a drop in wind generation causes a supply crunch. (BBG)

RATINGS: RATINGS: Sovereign rating reviews of note from after hours on Friday include:

• Fitch affirmed the United Kingdom at AA-; Outlook Negative

EUROPE

ECB: European Central Bank Governing Council member Yannis Stournaras said he’d favor a smaller interest rate hike. (BBG)

EP: The European parliament is at the centre of a spreading corruption scandal after Belgian police seized €600,000 in cash and detained two MEPs as part of an international investigation into claims that football World Cup host Qatar sought to buy influence. (FT)

FRANCE: France’s conservative Republicans picked Eric Ciotti as their new leader in a bid to revive the moribund party that was trounced in the last presidential election and is struggling to remain relevant. (BBG)

FRANCE: France expects to avoid electricity cuts on Monday but faces a difficult week as the first cold snap of the winter tests Europe's resolve to save energy and mitigate the economic impact of the Ukraine war. (RTRS)

ITALY: Italy is sticking to the reform timetable required to access almost 200 billion euros ($210.6 billion) of European Union funding, European Economics Commissioner Paolo Gentiloni said on Sunday. (RTRS)

ITALY: The head of Italy's central bank stressed its independence on Sunday after it became dragged into a row with coalition lawmakers over the use of cash in shops. (RTRS)

POWER: Europe’s renewable power push will be a “big mistake” unless it significantly increases investment in the continent’s electricity grid to cope with mismatches in supply and demand, warns the chief executive of European energy major Eon. (FT)

RATINGS: Sovereign rating reviews of note from after hours on Friday include:

• DBRS Morningstar confirmed Slovenia at A (high), Stable Trend
• DBRS Morningstar confirmed Malta at A (high), Stable Trend

U.S.

FED: Federal Reserve Chair Jerome Powell and his top two lieutenants are watched by Wall Street for the most explicit communication on monetary policy, but leading hawks provide guidance that’s almost as important. That’s according to a Bloomberg survey of economists who picked the chair and New York Fed President John Williams as the key voices to listen to, followed by Vice Chair Lael Brainard. (BBG)

FED: Slowing inflation will allow the Federal Reserve to cut interest rates next year without taking monetary policy out of restrictive territory, according to Marc Giannoni, who recently served as the Dallas Fed's research director. (MNI)

INFLATION: More players in the stock market and among the ranks of professional economists have come around to the view that inflation has peaked or already is in decline, but small business owners on Main Street don’t expect a reprieve from high prices any time soon, according to a new CNBC poll. (CNBC)

ECONOMY: There will be a substantial reduction in U.S. inflation in 2023, U.S. Treasury Secretary Janet Yellen told CBS' '60 Minutes' in an interview released on Sunday. "I believe by the end of next year you will see much lower inflation if there's not-- an unanticipated shock," she said. Asked about the likelihood of recession, she said: "There's a risk of a recession. But-- it certainly isn't, in my view, something that is necessary to bring inflation down." (RTRS)

POLITICS: Arizona Sen. Kyrsten Sinema announced her decision on Friday to leave the Democrats and register as an independent, but many members of Congress have said the switch likely won’t impact the Democrats’ narrow control of the U.S. Senate. (CNBC)

OTHER

GLOBAL TRADE: Turkish President Recep Tayyip Erdogan discussed ways to expand an agreement to safeguard global grain shipments with his Russian counterpart Vladimir Putin, according to a statement from Turkey’s presidency. (BBG)

GLOBAL TRADE: Traders have no plans to suspend grain shipments from Ukraine's Odesa Black Sea ports due to the latest Russian attack on the region's energy system, Agriculture Minister Mykola Solky said on Sunday. (RTRS)

GLOBAL TRADE: Belarus told the United Nations on Friday that it would allow, without preconditions, the transit of grain from Ukraine through its territory for export from Lithuanian ports, a U.N. spokesman said. (RTRS)

GLOBAL TRADE: The World Trade Organization said the US violated trade rules when it imposed steel and aluminum tariffs that former President Donald Trump said were necessary to protect America’s national security, according to an email from Norway’s Foreign Ministry. (BBG)

GLOBAL TRADE: The US directly asked Japan to cooperate on its chip export curbs against China, Kyodo reported, citing sources familiar with the matter. (BBG)

GLOBAL TRADE: Tech executives in Japan have warned that the latest US chip export controls are unlikely to suppress China’s progress in artificial intelligence and super computers, calling into question the long-term effectiveness of the sanctions. (FT)

USMCA: A dispute panel under the United States-Mexico-Canada Agreement (USMCA) has sided with Mexico and Canada against the United States in a dispute on the interpretation of regional content requirements for the automotive sector, Mexico's presidency said on Friday. (RTRS)

U.S./CHINA: The US will send a delegation to China in the coming days, following up on President Joe Biden’s meeting with Chinese President Xi Jinping last month at the G20 meeting in Indonesia. (BBG)

U.S./CHINA: The likely next chair of the U.S. House Foreign Affairs Committee called for tough enforcement of semiconductor curbs against China in an interview with Nikkei, signaling that President Joe Biden will face pressure to take a more hawkish line. (Nikkei)

GEOPOLITICS: Taiwan received its first visit from a top member of Japan’s ruling party in 19 years, a trip that comes as Tokyo prepares a hefty boost in military spending to counter threats from countries like China. (BBG)

BOJ: One of Japanese Prime Minister Fumio Kishida’s closest aides said current and former deputy central bank governors Masayoshi Amamiya and Hiroshi Nakaso are among possible candidates for replacing Haruhiko Kuroda after he steps down in April. (BBG)

BOJ: Japan's economy is not yet in a phase where the central bank can end yield curve control (YCC), its board member Hajime Takata was quoted as saying by the Nikkei daily, brushing aside the chance of a near-term exit from ultra-loose monetary policy. (RTRS)

BOJ: After a decade of battling deflation, the Bank of Japan is on the brink of achieving its target of stable 2% inflation. But its task is being complicated by the government's efforts to ease the strain on households. (Nikkei)

JAPAN: Japanese Prime Minister Kishida Fumio spoke at a news conference right after the Diet passed the religious donations bill. Kishida referred to a proposed tax hike to cover the country's defense budget. He is ordering the budget to be increased to 2 percent of Japan's GDP within about 5 years. But the government needs to find more than 29 billion dollars to finance the additional spending. It plans to raise taxes to cover about a quarter of the shortfall. (NHK)

JAPAN: Japan’s government and ruling parties are considering using corporate tax, income tax and tobacco tax to help fund a planned increase in defense spending, Nikkei reports without attribution. (BBG)

JAPAN: Japan's largest industrial union to seek base salary hike of about 4%, for total salary increase of about 6% at next wage negotiations in Spring. (RTRS)

AUSTRALIA: Australia's gas industry lobby group on Sunday called for urgent talks with Prime Minister Anthony Albanese after learning that the government's plan to cap gas prices for one year, announced on Friday, includes long-term measures to limit profit margins. (RTRS)

NEW ZEALAND: The latest NZIER Consensus Forecasts show a stronger starting point for the New Zealand economy over the coming year but a downward revision for 2025 and 2026. (NZIER)

NEW ZEALAND: The Labour Party has conceded its loss in the Hamilton West by-election, partially pinning it on the low voter turnout, but opposition parties say it shows people want a change in government. (RNZ)

SOUTH KOREA: South Korea’s National Assembly passed a motion calling for the dismissal of Interior Minister Lee Sang-min amid criticism over the management of a deadly pre-Halloween crowd crush. (BBG)

SOUTH KOREA: Gangwon province repaid 205b won of debt for Legoland Korea project, borrowed by Gangwon Jungdo-development Corp., at 10:25am Seoul time, Yonhap News reports, citing Governor Kim Jin-tae. (BBG)

CANADA: Sentiment among exporters in Canada -- one of the most trade-dependent industrialized economies -- is dropping back to the lowest since Covid or the global financial crisis, the chief economist of the country's trade finance bank told MNI. (MNI)

TURKEY: Turkey’s banking regulator changed a rule to push commercial lenders to hold less foreign currency for their needs following a warning letter last week. (BBG)

TURKEY: Turkey warned Greece that a missile could hit the Greek capital unless “you stay calm,” further escalating its rhetoric against Greece. (POLITICO)

BRAZIL: Lawmakers in at least four Brazilian states are pushing for higher taxes on goods and services, in a move that analysts warn is set to drive higher inflation. (BBG)

BRAZIL/RATINGS: Government of Brazil: Senate approves amendment to increase spending ceiling, a credit negative. The amendment raises the risk of an increased debt burden and higher interest payments over the next two years. (Moody's)

RUSSIA: Russia's concerns about the Minsk agreements being ignored was the precursor to Moscow launching what it calls a special military operation in Ukraine, Russian news agencies quoted Kremlin spokesman Dmitry Peskov as saying on Sunday. (RTRS)

RUSSIA: Russia is expanding and modernizing its nuclear arsenal, U.S. Defense Secretary Lloyd Austin said on Friday, at a time Russian President Vladimir Putin has repeatedly suggested he could use nuclear weapons to protect Russia. (RTRS)

RUSSIA: The White House said on Friday that the United States will work with Russia in an attempt to gain the release of Paul Whelan, a day after Washington traded convicted arms dealer Viktor Bout for WNBA star Brittney Griner. (RTRS)

RUSSIA/IRAN: Russia is now providing an "unprecedented level" of military and technical support to Iran in exchange for Tehran supplying weapons for the war in Ukraine, senior Biden administration officials say. (NBC)

SOUTH AFRICA: Just hours after implementing Stage 4 power cuts, the power utility announced South Africans would once again have to contend with Stage 5 load shedding. (EWN)

PERU: Peruvian President Dima Boluarte on Saturday named her cabinet, tapping former deputy finance minister Alex Contreras as economy minister and chemical engineer Oscar Vera as energy and mines minister, following the ouster of ex President Pedro Castillo. (RTRS)

MIDDLE EAST: U.S. Central Command forces killed two ISIS officials, including a Syrian province official, in a helicopter raid on Sunday morning. (Axios)

ENERGY: A dozen countries including Belgium, Italy, Poland and Slovenia have made a push to "significantly" lower a planned European Union cap on gas prices, as the bloc struggles to strike a deal on the measure. (RTRS)

ENERGY: Czech Industry Minister Jozef Sikela called on European Union governments to break a deadlock over a proposed price cap for natural gas to help limit energy costs for households and business. (BBG)

ENERGY: Russian President Vladimir Putin and his Turkish counterpart Tayyip Erdogan discussed their two countries' joint energy projects, especially in the gas sector, in a phone call on Sunday, Russian news agencies cited the Kremlin as saying. (RTRS)

OIL: Saudi energy minister Prince Abdulaziz bin Salman said on Sunday that he insists every OPEC+ alliance member take part in decision-making, adding that latest global developments have proved the group took the right decision. (RTRS)

OIL: Saudi energy minister Prince Abdulaziz bin Salman said on Sunday the impact of European sanctions on Russian crude oil and price cap measures "did not bring clear results yet" and its implementation was still unclear. (RTRS)

OIL: Turkey’s maritime authority said on Sunday that four tankers, carrying some 475,000 tonnes of oil, had provided the necessary insurance letters according to regulations and would cross the Istanbul Strait on Dec. 12. (RTRS)

OIL: The United States is in touch with Turkey about a dispute that is leading to oil tankers being blocked in the region, the White House said on Friday. (RTRS)

OIL: TC Energy Corp. is continuing recovery efforts at its shuttered Keystone oil pipeline and hasn’t yet set a date to restart operations. (BBG)

OIL: The White House’s chief energy adviser has described as “un-American” the refusal of US shale investors to ramp up drilling, even as Moscow’s invasion of Ukraine causes havoc on global oil and gas markets. (FT)

OIL: A loophole in British sanctions on Russian oil allows imports through the backdoor, campaigners have claimed, threatening to undermine efforts to squeeze the Kremlin’s vast fossil fuel revenues. (Telegraph)

CHINA

CORONAVIRUS: Covid is rapidly spreading through Chinese households and offices, especially in the capital, after the country’s pandemic rules were unexpectedly unwound last week. It’s straining the medical system and rendering official numbers that show infections at the lowest in a month meaningless. (BBG)

CORONAVIRUS: China scraps a mobile app that has been used to track people’s travel history in a further effort to loosen Covid controls, according to a statement. (BBG)

CORONAVIRUS: Chinese officials continued to downplay the risks of Covid-19 as restrictions are eased, with a top medical adviser saying the fatality rate from the omicron variant of the virus is in line with influenza. (BBG)

CORONAVIRUS: China has lifted tough pandemic restrictions on transport workers that have slowed the flow of freight in the country, as Beijing rapidly eases its economically damaging zero-Covid policy. (FT)

CORONAVIRUS: Heads of the World Bank, International Monetary Fund and other global organizations were allowed to skip quarantine and mingle with China’s premier and journalists at a summit this week, illustrating the country’s pivot from a Covid Zero policy that left it isolated and sparked protests. (BBG)

CORONAVIRUS: Global Times commentator Hu Xijin tweeted the following on Sunday: "The epidemic in Beijing is severe.Many people I know are infected,but all with mild symptoms. It doesn't matter how many people are infected in the next two weeks,the key is whether there will be many deaths. It’ll determine whether the psychological impact intensifies or fades." (MNI)

CORONAVIRUS: A CNBC reporter tweeted the following on Saturday: “Beijing health authority stops releasing cases by district. Local media report change suggests #China capital has ended releasing infections by district and will only disclose overall reported cases (those tested by PCR officially at #Covid19 test points).” (MNI)

CORONAVIRUS: The flight volume of two airports in Beijing are expected to reach 70 percent of daily flights in the same period in 2019 in the near future, CAAC North China Region Administration said on Sunday, showing a rising demand as China has announced a new set of measures to optimize its epidemic control. (Global Times)

ECONOMY: China’s 2023 GDP growth target should be above 6% , according to Jia Kang, former director of the Institute of Fiscal Science of the Ministry of Finance. (MNI)

INFLATION: Despite November CPI rising 1.6% year-on-year, down 0.5pp from the previous month, experts believe overall 2022 CPI will be around 2%, according to the Securities Daily. (MNI)

FISCAL: The recent issue of CNY750 billion in special treasury bonds by the Ministry of Finance was mainly to replace maturing bonds this month, but also boosts the link between fiscal and monetary policy for next year, according to the Securities Daily. (MNI)

PBOC: China's central bank on Saturday warned that climate change and a global move to a low-carbon economy posed risks for domestic financial institutions and said stronger regulation was required. (RTRS)

EQUITIES: Chinese companies raised a record amount in initial public offerings at home this year, defying a global slump. And with the end of Covid Zero in sight, 2023 could be set for another strong showing. (BBG)

POLICY: China’s inflation may edge higher after April but will remain tame in 2023, giving policymakers leeway to provide additional
support to an economic recovery and ward off deflationary pressures, policy advisers and economists told MNI (MNI)

CHINA MARKETS

PBOC INJECTS CNY2 BILLION VIA OMOS, LIQUIDITY UNCHANGED

UP TODAY (Times GMT/Local)

Date	GMT/Local	Impact	Flag	Country	Event
12/12/2022	0700/0700	**		UK	UK Monthly GDP
12/12/2022	0700/0700	**		UK	Trade Balance
12/12/2022	0700/0700	***		UK	Index of Production
12/12/2022	0700/0700	**		UK	Index of Services
12/12/2022	0700/0700	**		UK	Output in the Construction Industry
12/12/2022	1330/0830	*		CA	Household debt-to-disposable income
12/12/2022	1600/1100	**		US	NY Fed survey of consumer expectations
12/12/2022	1630/1130	*		US	US Treasury Auction Result for 26 Week Bill
12/12/2022	1630/1130	***		US	US Note 03 Year Treasury Auction Result
12/12/2022	1800/1300	**		US	US Note 10 Year Treasury Auction Result
12/12/2022	1800/1300	*		US	US Treasury Auction Result for 13 Week Bill
12/12/2022	1900/1400	**		US	Treasury Budget
12/12/2022	2025/1525			CA	Governor Macklem speech in Vancouver
12/12/2022	2200/1700			CA	BOC Governor Macklem press conference