• Asian equity markets traded mostly lower as investor sentiment continued to hang on the US-China trade uncertainty
• US and China could reportedly tie tariff relief to the deal from May in order to decide how much tariffs should be rolled-back as part of a phase one deal
• However, scepticism remains over whether a more comprehensive phase 2 agreement can ever be reached
• US Senate unanimously approved the Hong Kong Human Rights bill and sent it to House of Representatives
• UK poll by YouGov/Sky News poll on who performed the best at the leader debate showed Johnson at 51% and Corbyn at 49% based on 1,600 respondents
• Looking ahead, highlights include Canadian CPI, DoEs, FOMC Minutes, ECB’s Lane, Makhlouf, Riksbank Governor Ingves, supply from Germany

ASIA-PAC

Asian equity markets traded mostly lower as investor sentiment continued to hang on the US-China trade uncertainty and after the US Senate unanimously passed the legislation aimed at supporting Hong Kong protests, which was met by condemnation from China and spurred concerns of a derailment in trade talks. ASX 200 (-1.4%) and Nikkei 225 (-0.7%) were both negative with Australia pressured by losses in its largest weighted financials sector after Westpac was accused by AUSTRAC of 23mln breaches related to anti-money laundering, while the weakness in Japan was a function of the JPY-risk dynamic, tumultuous trade headlines and disappointing data including a larger than expected contraction in the nation’s Exports. Elsewhere, Hang Seng (-0.7%) and Shanghai Comp. (-0.5%) conformed to the subdued picture following China’s stern response to the US Senate’s passage of the Hong Kong Human Rights Bill, in which it called on the US to stop interfering in its affairs and suggested that it must take necessary measures to safeguard its sovereignty and security. However, losses in the mainland were somewhat limited by optimistic comments from US Commerce Secretary Ross that they still think there's hope a China deal can be done and following the PBoC’s 5bps reduction to its Loan Prime Rates. Finally, 10yr JGBs tracked the gains in T-notes and was spurred by safe-haven demand following China’s retaliation threat, while the 20yr JGB auction was inconclusive as the results showed stronger demand at lower accepted prices.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 7.0118 vs. Exp. 7.0115 (Prev. 7.0030)

PBoC 1-Year Loan Prime Rate 4.15% vs. Exp. 4.20% (Prev. 4.20%). PBoC 5-Year Loan Prime Rate 4.80% vs. Exp. 4.85% (Prev. 4.85%)

US Senate unanimously approved the Hong Kong Human Rights bill and sent it to House of Representatives. (Newswires) China Foreign Ministry said it strongly condemns the US Senate measure on Hong Kong and resolutely opposes the action, while it called for the US to stop interfering in Hong Kong and China affairs, as well as stop the latest bills on Hong Kong from becoming law. Furthermore, it added China must take necessary measures to safeguard its sovereignty and security, while it summoned the US Embassy representative in China and lodged stern representations with US over the Senate action on Hong Kong. (Newswires)

US President Trump said China has got to make a trade deal and reiterated that he will hike tariffs if they do not make a deal, while he added 'we'll see what happens' on China trade. In related news, there were later comments by US Commerce Secretary Ross who said we think there's hope we can get a China deal done and deal is still a work in progress. (Newswires) US and China are said to tie tariff relief to the deal from May in order to decide how much tariffs should be rolled-back as part of a phase one deal, according to sources familiar with the talks. However, the report also suggested that there was now wide scepticism on both sides on whether a more comprehensive phase 2 agreement (which would include provisions on structural reforms and enforcement) can ever be reached. (Newswires) Other reports suggest, a phase 1 trade deal between US-China could turn into something much larger if US President Trump agrees to Beijing's demands to roll back existing tariffs, according to reports citing sources familiar with the discussions. (Newswires)

China Global Times tweeted that US President Trump again threatened the US will raise tariffs even higher if a deal he likes isn't reached, while it added the 18-month trade war shows that China does not respond to such threats and that it is not a good way to negotiate. (Twitter)

Japanese Trade Balance (JPY)(Oct) 17.3B vs. Exp. 301.0B (Prev. -123.0B, Rev. -124.8B). (Newswires) Japanese Exports (Oct) Y/Y -9.2% vs. Exp. -7.6% (Prev. -5.2%) Japanese Imports (Oct) Y/Y -14.8% vs. Exp. -16.0% (Prev. -1.5%)

UK/EU

UK poll by YouGov/Sky News poll on who performed the best at the leader debate showed Johnson at 51% and Corbyn at 49% based on 1,600 respondents. (Newswires)

YouGov UK election voting intention poll sees at Conservatives 42% (-3), Labour 30% (+2), LibDem 15% (unch), Brexit Party 4% (unch) with the survey conducted on 18th-19th November. (Newswires)

FX

In FX markets, the downbeat risk tone was the main driving force for the hard currencies in which the DXY benefitted from a mild safe-haven bid as it made its way back towards the 98.00 level amid the US-China trade concerns, which also pressured CNH. The greenback’s major counterparts were lacklustre with EUR/USD stuck in a tight range amid several key DMA levels in close proximity and GBP/USD was also subdued following the recent pullback to briefly test support at 1.2900 as the latest polls pointed to a varied picture regarding the extent of the Conservatives’ lead and with the leadership debate not providing much to shift the status quo as a survey suggested 51% thought PM Johnson won the debate vs. 49% for Labour leader Corbyn. Elsewhere, USD/JPY and JPY-crosses were briefly rattled by the trade concerns and China’s stern response to the US, which also dampened antipodeans due to their high-beta statuses and China exposure, while a recent note from Macquarie suggested an easing bias for the RBA remains in place and that even the outside threat of unconventional policy should restrict gains for the Australian currency.

BoC's Wilkins said there is still policy room to manoeuvre and has other options such as forward guidance or large-scale asset purchases to help weather storms, while Wilkins added that Canada's economy and financial system are in a good position to weather a potential global economic storm. (Newswires)

COMMODITIES

Commodities were lacklustre overnight amid the risk-averse tone which kept WTI crude futures at the prior session’s lows after having slumped more than 3% amid reports Russia is unlikely to agree to further oil output cuts at the December OPEC+ meeting and that producers are concerned of weak demand growth next year, with a larger than expected build in API crude inventories also providing no favours for the energy complex. Elsewhere, gold marginally benefitted from a safe haven bid but with upside limited by a slightly firmer greenback and as participants await today’s FOMC minutes, while copper prices reflected the subdued risk appetite brought on by the US-China trade uncertainty.

US API Weekly Crude Stocks (19 Nov) +6.0mln vs. Exp. +1.5mln Prev. -0.5mln). (Newswires)

GEOPOLITICS

Israel attacked buildings belonging to Iranian militias in southern Damascus where heavy explosions were reported. (Newswires)

US aircraft carrier strike group Abraham Lincoln transited through the Strait of Hormuz on Tuesday according to US Navy statement, which officials had been considering and suggested would send a strong message to Iran. (Newswires)

Russia's Foreign Ministry said the US decision to remove sanction waivers for the Iranian Fordow nuclear plant violates US international commitments and that Moscow continues to cooperate with Iran on Fordow reconfiguration. (Newswires)

US

T-notes moved modestly higher throughout the European and US session where the curve continued to flatten on Tuesday without a material market update, the 2s30s narrowed by over 4bps, whilst the 2s10s narrowed by approximately 2.5bps, bringing the 2s10s back below 20bps. US T-note (Z9) futures settled 3+ ticks at 129.14.

Majority of US house voted (231-192) to avoid a government shutdown through the stop-gap bill which extends government funding through to December 20th, as expected. (Newswires)

US President Trump said House Speaker Pelosi is delaying the USMCA trade agreement to secure votes for impeachment. (Newswires)