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UK Q3 GDP growth was finalized at 1.1% qoq, revised down from first estimate of 1.3% increased. The level of GDP remained -1.5% below pre-coronavirus level in Q4 2019. Net borrowing position with the rest of the world lowered to -4.3% of GDP from Q2's -2.4%.

Full release here.

The European and the US markets rebounded yesterday, as investors shrugged off the worries of omicron, while of course, the news flow is far from ideal. New restriction measures are announced every other day and the impact on the economic activity is real. But despite the new restriction measures, many investors believe that omicron would only have a temporary impact on the economic activity and should not be a problem for the overall positive trend in equities.

Nasdaq for example jumped almost 2.50% yesterday due to a renewed optimism, while the S&P500 closed the session 1.80% higher.

Plus, the US Food and Drug Administration will likely authorize a Covid pill from Pfizer and Merck that would treat Covid-19, and that could be another brake to the pandemic and maybe a new milestone in humanity’s fight against Covid.

Of course, the thinning holiday volumes and the rising volatility is partly responsible for the strong jump in equity prices, as the moves are exacerbated by low liquidities. But the same would be true for the downside corrections. In this context, any price pullback would also be bigger than the normal times. Investors should remain cautious with big ups and downs into the Xmas break, as the tighter Federal Reserve (Fed) pricing remains in play as the US 2-year yield remains upbeat and the US dollar index consolidates above the 96.5 mark, and is set for a further extension toward the 98 level in the coming weeks.

And it’s good news that despite a broadly stronger US dollar, the Turkish lira managed to consolidate yesterday’s gains at about the 12 level. While I expect the lira depreciation to continue in term, the fact that the carry positions have been nicely cleared over last days massive rally should keep the positive momentum much contained in the dollar-try, at least for the next couple of weeks.

Elsewhere, the EURUSD is stuck within the 1.1230-1.1360 range, as the European Central Bank (ECB) hawks would like to take the upper hand due to the rising inflation, but the doves wouldn’t abandon the field as the slowing economic activity due to the omicron wave would prevent the ECB from making any bold move in the coming quarters. Not that the ECB would make any bold moves, but, the bad news support the doves in Europe as the ECB continues downplaying the risks of inflation being ‘not transitory’.

Finally, US crude rallied more than 4% yesterday. The major catalyzer was a better risk appetite, while news that the US crude inventories dropped by almost 4 million barrels certainly gave an extra push to the bulls. Pricewise, we are still below the medium term ascending channel, and within the short-term descending trend band. The actual levels are important for defining where the oil prices will be headed next. There is a chance that a move above the $72 pb mark gives a better hope to the bulls. But, omicron risks are looming, the global economic activity is slowing, and the risk appetite in recovery assets, like oil, remain very much fragile. Today, the more official EIA data is expected to confirm a 2.5 million drop in US crude inventories last week. If this is the case, it means that the US is right tapping into its strategic reserves, as the actual oil supply is clearly not enough to satisfy the market, and well OPEC is not ready to move an inch to make things look better.

Market movers today

• With two days to go until Christmas Eve, the markets are settling into quiet holiday trading. Today is a light day in terms of economic data releases with only November retail sales released from Sweden.
• The Czech National Bank will have a monetary policy meeting today, and it is widely expected to continue hiking rates by 75bp to 3.50%.
• Otherwise, we continue to keep an eye on any news relating to Omicron and potential new restrictions, the Russia-Ukraine tensions and energy prices, Erdogan-induced volatility in the Turkish lira and the Biden-Manchin struggle.

The 60 second overview

Optimism on Biden-Manchin deal: Biden's optimistic comments yesterday saying he and Manchin would eventually find common ground with regards to the Build Back Better investment plan provided a boost for risk sentiment yesterday. With two days to go until Christmas Eve, thin holiday trading has kicked in and poor liquidity has the potential to exaggerate market moves.

Russia-Ukraine: The US assistant secretary of state, Karen Donfried, said yesterday that the US would start talks with Russia over the situation in Ukraine next month. After having deployed about 100,000 troops on the Ukraine border, Russia has warned the West of 'appropriate military-technical' measures if they do not agree to Kremlin's demands it laid out last week, including a demand that NATO and the US should restore the lines of their military presence in Europe to where they were before 1997, basically cutting presence in former-Soviet NATO member states. It is hard to see how the upcoming dialogue would bring any significant relief to the tensions since Russian demands are widely unacceptable by the West, and at the same time, publication of these demands have made it impossible for Russia to back down. The US and the EU have reportedly been consulting on 'specific packages of sanctions' but any sanctions would also entail dire consequences for Western companies while their desired negative impact on Russia would be mitigated by the fact that Russia has been preparing itself for further financial and economic isolation for years.

Equities: Equities zig-zag continuing with risk-on being the name of the game yesterday. Cyclicals, growth and small cap in strong outperformance, regaining some of the lost territory. Drivers being exactly the same that took equities down Monday and hence investors are still struggling to find out whether Omicron is going to be a big threat to economic growth or whether it will be the beginning of the end of Covid. In the US, Dow +1.6%, S&P 500 +1.8%, Nasdaq +2.4% and Russell 2000 +2.9%. Asian markets are calming down this morning, though with mostly green numbers. The same goes for European and US futures, with Europe slightly better than US futures.

FI: Positive risk sentiment in markets yesterday sent yields higher. The 10y point rose 6-7bp across most European countries, with a minor underperformance in the periphery. The general bear steepening move from the long end was driven by a combination of surging energy prices with natural gas touching new highs (+20% on the day), Italian PPI suggesting that the high inflation prints will linger into 2022, but also that markets will be faced with low growth. De Guindos, Muller and Kazimir also voiced concerns about more persistent inflation. ECB QE has now paused until 3 January.

FX: G10 funding currencies underperformed as risk appetite returned.

Credit: Sentiment improved drastically in credit markets yesterday where iTraxx Xover tightened almost 5bp (to 255bp) and Main 1.2bp (to 50.3bp). HY bonds tightened 3bp while IG was unchanged.

Nordic macro

Sweden: November retail sales and PPI on the agenda this morning. It remains to be seen to what extent the former has been affected by Omicron fears (if any). The latter is likely to take another hit from surging electricity prices despite printing a record high 16.8 % yoy last month. Yesterday the Government reintroduced a set of Covid restrictions to be in place from December 23 and roughly one month ahead.

General trend

• Risk appetite resumed in US session, reversing a 3 day decline, giving the direction to the session, with little catalyst of its own from data or otherwise, heading into a holiday weekend.
• Israel Govt now recommending a 4th COVID booster shot, preparations are underway to start with those age 60 or older and health care workers.
• Deal flow remains strong heading into the end of the year, latest is Link in Australia announcing it will be acquired by Canadian company.
• Japan Oct meeting minutes stay the course until reaching 2% inflation.
• Currency little changed all session but USD edged higher across the majors as the session moved into the second part of the day.
• On the omicron front: Aussie leaders met but do not announce new measures, Singapore freezes quarantine free ticket sales until Jan 20th, New Zealand delays border reopening (yesterday), S. Korea considering tighter measures then what was announced already.
• Note: Tomorrow is the last full trading day for most markets ahead of Christmas holiday. Friday, Dec 24th Australia, New Zealand, Hong Kong, Singapore all trade half day.

Headlines/Economic data

Australia/New Zealand

• ASX 200 opened +0.0%.
• LNK.AU To be acquired by Dye & Durham at A$5.50/shr cash or C$3.2B; Board unanimously recommends deal.
• (NZ) New Zealand Fin Min Robinson: Work to establish a Parliamentary Budget Office that would oversee Govt fiscal strategy and provide independent cost analysis has stalled.
• (AU) Australia Nov Westpac Leading Index: 0.1% v 0.3% prior.
• (NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: -1.5% v +1.4% prior.
• Australia PM Morrison: Cabinet agreed to respond to surge in coronavirus cases, to increase payments to doctors to administer coronavirus vaccines.

Japan

• Nikkei 225 opened +0.3%.
• (JP) Japan Osaka Prefecture finds 4 cases of the Omicron Variant; unable to trace origins of 3 cases to overseas travel.
• (JP) Japan Govt said to be looking at a FY22/23 Budget of ~¥107.6T - Press (in line).
• (JP) Bank of Japan (BOJ) Oct Meeting Minutes: Discussed weak yen impact on economy; Will continue to maintain favorable monetary policy until hitting 2.0% CPI target.
• (JP) Another press report notes they expect Japan Govt to raises GDP outlook to 3% range – NHK.
• 4502.JP Receives Complete Response Letter from the U.S. FDA for TAK-721, will not be approved in present form.
• 8473.JP CEO Kitao: In conjunction with the government, has the option to delist Shinsei Bank Ltd. in order to pay back funds the lender owes to taxpayers - press briefing.
• 9984.JP Softbank said to be finalizing a $4B loan from an Apollo led group that would be secured by its Second Vision Fund – press.
• Z.IN To merge with Sony Pictures Networks India; Sony to hold 50.9% stake in Zee after scheme of arrangement; Zee to allot ~265M shares via bonus issue to Essel Holdings.
• (JP) Japan Nov Crude Steel Production 8.04Mt, -2.2% m/m, +10.7% y/y.

Korea

• Kospi opened +0.6%.
• (KR) South Korea Ministry Joint Statement: Coronavirus resurgence adding burden to economy; Korea faces economic uncertainties to stabilize prices.
• 003605.KR CEO Chey Tae-won fined KRW1.6B by antitrust regulator for allegations that he unfairly received huge profits from the company's 2017 business deal.

China/Hong Kong

• Hang Seng opened +1.1%; Shanghai Composite opened +0.2%.
• (CN) China PBOC has dismissed rumor that an official from China Banknote Printing and Minting surrendered himself on suspicion of “printing CNY2.0T of bank notes with the same serial number.
• (CN) China Premier Li: Hope that Hong Kong can have deeper integration with China; We hope Hong Kong can directly connect to China’s development strategy - comments while HK Chief Lam is in China for her annual trip.
• (CN) China PBOC sets Yuan reference rate: 6.3703 v 6.3729 prior.
• (CN) China PBOC Open Market Operation (OMO): Sells CNY10B in 7-day reverse repos v CNY10B prior and CNY10B in 14-day reverse repos v CNY10B prior; Net inject CNY10B v Net inject CNY10B prior.
• (CN) Satellite pictures show China military build up in the South China Sea using new warfare style weapons and tactics – press.
• (CN) Heilongjiang, China Govt called for "all out efforts" to promote the growth of real estate industry - press.

Other

• (IL) Israel government advisory panel of health experts recommends giving the 4th booster shot.

North America

• (US) Weekly API Crude Oil Inventories: -3.7M v -0.8M prior.
• TSLA CEO Musk files form 4 to exercise options for ~2.1M shares at $6.24/share; Sells ~584K shares for ~$528M; Follow Up: CEO Musk: Have sold enough stock to satisfy selling 10% holding in Tesla - tweet.

Levels as of 00:15ET

• Hang Seng +0.1%; Shanghai Composite -0.2%; Kospi +0.3%; Nikkei225 +0.0%; ASX 200 +0.1%.
• Equity Futures: S&P500 -0.1%; Nasdaq100 -0.3%, Dax -0.2%; FTSE100 +0.2%.
• EUR 1.1297-1.1271; JPY 114.18-113.95; AUD 0.7157-0.7127; NZD 0.6772-0.6743.
• Commodity Futures: Gold -0.0% at $1,788/oz; Crude Oil +0.2% at $71.28/brl; Copper -0.3% at $4.34/lb.

Daily Pivots: (S1) 150.39; (P) 150.90; (R1) 151.91; More...

Intraday bias in GBP/JPY remains neutral at this point. On the downside, firm break of 148.94 will resume larger fall from 158.19 to 145.10 medium term fibonacci level next. For now, outlook will stay bearish as long as 152.60 resistance holds, in case of stronger recovery.

In the bigger picture, strong rebound from 148.93 key structural support will retain medium term bullishness. Firm break of 158.19 high will resume whole up trend from 123.94 (2020 low). Nevertheless, firm break of 148.93 will bring deeper correction to 38.2% retracement of 123.94 to 158.19 at 145.10, and possibly further lower, as a correction to up trend from 123.94 at least

Daily Pivots: (S1) 128.27; (P) 128.51; (R1) 128.97; More....

Range trading continues in EUR/JPY and intraday bias remains neutral first. On the downside, firm break of 127.36 will resume fall from 133.44 and larger pattern from 134.11. Next target is 126.58 medium term fibonacci level. For now, outlook will stay bearish as long as 129.62 resistance holds, in case of stronger recovery.

In the bigger picture, as long as 38.2% retracement of 114.42 (2020 low) to 134.11 at 126.58 holds, up trend from 114.42 is still in favor to continue. Break of 134.11 will target long term resistance at 137.49 (2018 high). However, sustained break of 126.58 will raise the chance of medium term bearish reversal. In this case, deeper decline would be seen to 61.8% retracement at 121.94, and possibly below.

Daily Pivots: (S1) 0.8486; (P) 0.8517; (R1) 0.8534; More...

Intraday bias in EUR/GBP remains neutral for the moment. On the upside, firm break of 0.8593 resistance will be the first sign of larger bullish reversal and target 0.8656 resistance next. On the downside, however, break of 0.8452 will turn bias back to the downside to retest 0.8379 low instead.

In the bigger picture, price actions from 0.9499 (2020 high) are still seen as developing into a corrective pattern. Deeper fall could be seen as long as 0.8593 resistance holds, towards long term support at 0.8276. We'd look for bottoming signal around there to bring reversal. Meanwhile, firm break of 0.8593 will now be an early sign of medium term bottoming. Further break of 0.8656 will pave the way to 38.2% retracement of 0.9499 to 0.8379 at 0.8807.

Daily Pivots: (S1) 1.5725; (P) 1.5804; (R1) 1.5852; More...

Intraday bias in EUR/AUD stays neutral for the moment. On the upside, break of 1.5905 minor resistance will argue that pull back form 1.6168 is complete. Intraday bias will be turned back to the upside for retesting 1.6168 first. Break there will resume rise form 1.5354 to 1.6434 resistance. On the downside, below 1.5655 will target 1.5354 support instead.

In the bigger picture, medium term outlook remains neutral for the moment. Rise from 1.5354 is seen as the third leg of the corrective pattern from 1.5250 low. Further rise cannot be ruled out, but even in that case, strong resistance should be seen at 38.2% retracement of 1.9799 to 1.5250 at 1.6988. Larger down trend from 1.9799 is in favor to extend through 1.5250 at a later stage.

Daily Pivots: (S1) 1.0394; (P) 1.0411; (R1) 1.0437; More....

Range trading continues in EUR/CHF above 1.0365 and intraday bias remains neutral for the moment. Further decline is expected as long as 1.0511 resistance holds. On the downside, break of 1.0365 will resume larger down trend from 1.1149 to 161.8% projection of 1.1149 to 1.0694 from 1.0936 at 1.0200 next.

In the bigger picture, long term down trend from 1.2004 (2018 high) is now extending. Next target is 61.8% projection of 1.2004 to 1.0505 to 1.1149 at 1.0223. On the upside, break of 1.0694 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will remain bearish even in case of rebound.

Daily Pivots: (S1) 1.2902; (P) 1.2925; (R1) 1.2937; More...

Intraday bias in USD/CAD is turned neutral with current retreat, but further rise is expected as long as 1.2762 support holds. ON the upside, break of 1.2963 will resume the rise from 1.2005 to 1.3022 key medium term fibonacci level. Sustained break of 1.3022 will carry larger bullish implications. Next target will be 100% projection of 1.2005 to 1.2947 from 1.2286 at 1.3228.

In the bigger picture, focus will be on 38.2% retracement of 1.4667 (2020 high) to 1.2005 (2021 low) at 1.3022. Sustained break there should confirm that the down trend from 1.4667 has completed after defending 1.2061 long term cluster support. Further rise would then be seen towards 61.8% retracement at 1.3650. On the downside, however, break of 1.2286 will turn focus back to 1.2005 low again.