• Asian equity markets eventually traded mixed after the region’s early attempts to shrug-off the headwinds from the losses on Wall St. proved to be short-lived
• Chinese President Xi said China did not start the trade dispute with US and is not afraid of a trade war, nor will it flinch from such a fight but added he wants to work out a phase one agreement
• US President Trump's administration is reportedly mulling a trade investigation against the EU as time for imposing auto tariffs is limited, according to Politico
• Looking ahead, highlights include EZ, UK and US Flash Markit PMIs; German GDP (Detailed); US Uni of Michigan Sentiment, Baker Hughes Rig Count, G20 Finance Ministers Meeting in Japan
• Speakers: ECB’s Lagarde, de Guindos, Riksbank’s Ohlsson, Jansson

ASIA-PAC

Asian equity markets eventually traded mixed after the region’s early attempts to shrug-off the headwinds from the losses on Wall St. proved to be short-lived, as trade uncertainty remained the state of play. ASX 200 (+0.5%) and Nikkei 225 (+0.4%) were higher with outperformance in Australia’s tech and energy sectors prevailing over the lacklustre tone in financials and weakness in gold miners, while Japanese exporters coat-tailed on the gradual upside seen in USD/JPY and with SoftBank mildly benefitting from reports the Co. is in discussions to reduce the WeWork offer and payout to its founder. Hang Seng (+0.2%) and Shanghai Comp.(-0.6%) initially conformed to the improved risk appetite after some of the recent trade rhetoric added to cautious optimism including comments from MOFCOM that they will strive to reach a phase one deal and after source reports suggested the US may delay the December 15th tariffs even if a trade pact is not reached. However, the mainland gradually deteriorated due to the lack of trade clarity and with the recent freedom of navigation operations by the US in the South China Sea also irking China, while Hong Kong kept afloat with the city set to proceed with local elections on Sunday. Finally, 10yr JGBs were lower amid spill over selling from USTs, with prices also weighed by the somewhat improved risk appetite and following weaker demand at the enhanced liquidity auction for longer-dated JGBs.

PBoC skips open market operations for a net weekly injection of CNY 300bln vs. net neutral position last week. (Newswires) PBoC set CNY mid-point at 7.0306 vs. Exp. 7.0314 (Prev. 7.0217)

Chinese President Xi said China did not start the trade dispute with US and is not afraid of a trade war, nor will it flinch from such a fight but added he wants to work out a phase one agreement with US on basis of respect and equality. Furthermore, Xi added we will fight back when necessary but have been working actively to try to not have a trade war. (Newswires)

15 US Senators reportedly called on US President Trump to halt Huawei license approvals to US companies who conduct business with the Chinese telecom giant, according to reports citing a letter. In related news, Microsoft announced it received a license on November 20th to export mass-market software to Huawei. (Newswires/SCMP)

Hong Kong Police Chief said high profile patrols will be deployed for elections this Sunday and urged protesters not to resort to violence, while he added there is no deadline set for the campus clearance and wants a peaceful resolution. (Newswires)

Japanese National CPI (Oct) Y/Y 0.2% vs. Exp. 0.3% (Prev. 0.2%). (Newswires) Japanese National CPI Ex. Fresh Food (Oct) Y/Y 0.4% vs. Exp. 0.4% (Prev. 0.3%) Japanese National CPI Ex. Fresh Food & Energy (Oct) Y/Y 0.7% vs. Exp. 0.6% (Prev. 0.5%)

UK/EU

UK PM Johnson's Conservatives pledged an additional 3% levy on property purchases by non-UK tax residents. (Newswires)

Dame Helena Morrissey appeared to rule herself out as a candidate to be the first ever female governor of the Bank of England after agreeing to go on to the board of St James’s Place yesterday. (Times)

ECB's De Guindos said risks to the EU economy are on the downside and that he is convinced the possibility of a recession is very small which he calls an unlikely event, while he also highlighted the importance of fiscal policy increasing its role. (Newswires)

US President Trump's administration is reportedly mulling a trade investigation against the EU as time for imposing auto tariffs is limited, according to Politico citing people briefed on the matter. (Politico)

FX

DXY was softer as it marginally pulled back from the 98.00 level to retrace some yesterday’s gains which were spurred by some of the positive-leaning US-China trade headlines, while its transatlantic counterparts partially nursed losses in which EUR/USD and GBP/USD rebounded from this week’s support around the 1.1050 and 1.2900 levels respectively. Elsewhere, USD/JPY was kept afloat amid the slight improvement in risk sentiment and CAD remained firmer after the recent strength in oil prices, as well as comments from BoC Governor Poloz, while antipodeans traded subdued due to a lack of tier-1 data, flimsy risk appetite and following a weaker reference rate setting from the PBoC.

COMMODITIES

Commodities traded mixed with a slight pullback in oil prices amid the indecisive risk appetite brought on by ongoing trade uncertainty, although WTI crude futures have retained the USD 58.00/bbl level and the majority of the prior day’s extended advances helped by recent source reports that OPEC+ is likely to extend its existing production cut agreement until June 2020. Elsewhere, gold remained despondent after its recent losses and failed to benefit from the mild pullback in USD, while copper was also restricted by the overnight indecision. 

GEOPOLITICS

US Navy warships conducted 2 freedom of navigation operations in the South China Sea earlier this week, while China’s military later stated its navy tracked US ships that sailed near islands claimed by China in the South China Sea, while it urged US to stop provocative actions. (Newswires)

US President Trump tweeted that Iran has become "so unstable", citing Iranians as being oppressed by the government blocking internet access and stopping news spreading of violence in Iran. (Twitter)

US

The Treasury curve flattening found some pause on Thursday, where the T-note drifted lower throughout the session. Treasury market participants were cautiously more optimistic about the state of the US-China trade updates, as was Chinese Vice Premier Liu He, where it was also reported the US had been invited to Beijing for further talks. The TPLEX failed to catch a bid on the Hong Kong bill pessimism and the whole curve was approximately 3.5bps higher by settlement. Elsewhere, the US sold USD 12bln in 10-year TIPS at a high yield of 0.149%, stopping through the WI by 0.3bps with decent domestic demand. US T-note (Z9) futures settled 10 ticks lower at 129.15+.

US stopgap bill to fund the government advanced in the Senate with lawmakers voting 75-19 to invoke cloture, or limit debate on the House passed continuing resolution, while US President Trump later signed the continuing resolution to avert a shutdown and fund government agencies through to December 20th as expected. (Newswires)

Senior White House officials and Senate Republicans agreed that a full trial should be conducted if the House impeaches President Trump according to reports citing multiple people familiar with the matter. (Politico)

US House Speaker Pelosi said made progress on USMCA trade agreement with USTR Lighthizer, while there were also comments from House Ways and Means Chair Neal that there was no deal on USMCA following the meeting although he noted a House vote is still possible by the end of 2019 and that progress has been made on the enforcement issue. (Newswires)