• EZ PMIs were mixed with manufacturing beat but services subdued, UK missed across the board
• European bourses are slightly firmer this morning on little in the way of trade updates and mixed data
• ECB’s Lagarde speech delivered little in the way of surpises for markets
• DXY is flirting with the 98.0 mark to the upside, with G10 peers mixed and the core debt complex firmer
• US President Trump signed the continuing resolution to avert a government shutdown to December 20th
• Looking ahead, highlights include US Flash Markit PMIs; US University of Michigan Sentiment, Baker Hughes Rig Count, G20 Finance Ministers Meeting in Japan
• Speakers: ECB’s 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 (+0.3%) 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 (+0.5%) 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)

Chinese President Xi says US and China should strengthen communication on strategic issues to avoid misjudgment, adding that the two nations should push bilateral relations on the right path of development. (Newswires)

Microsoft (MSFT) 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%)

US

US President Trump signed the continuing resolution to avert a shutdown and fund government agencies through to December 20th as expected. (Newswires)

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)

UK Flash Services PMI (Nov) 48.6 vs. Exp. 50 (Prev. 50)

- UK Flash Manufacturing PMI (Nov) 48.3 vs. Exp. 49 (Prev. 49.6)

- UK Flash Composite PMI (Nov) 48.5 (Prev. 50)

- "The weak survey data puts the economy on course for a 0.2% drop in GDP in the fourth quarter, and also pushes the PMI further into territory that would normally be associated with the Bank of England adding more stimulus to the economy. -IHS Markit

ECB President Lagarde says monetary policy could achieve its goal faster and with fewer side effects if other policies were supporting growth alongside it. Monetary policy will continue to support the economy and respond to future risks in-line with our price stability mandate, we will continuously monitor side effects of policies; adds, monetary policy will undergo a strategic review due to begin in the near future. (Newswires)

EU Markit Manufacturing Flash PMI (Nov) 46.6 vs. Exp. 46.4 (Prev. 45.9)

- EU Markit Services Flash PMI (Nov) 51.5 vs. Exp. 52.5 (Prev. 52.2)

- EU Markit Comp Flash PMI (Nov) 50.3 vs. Exp. 50.9 (Prev. 50.6)

- "The eurozone economy remained becalmed for a third successive month in November, with the lacklustre PMI indicative of GDP growing at a quarterly rate of just 0.1%, down from 0.2% in the third quarter." - IHS Markit

German Markit Manufacturing Flash PMI (Nov) 43.8 vs. Exp. 42.9 (Prev. 42.1)

- German Markit Services Flash PMI (Nov) 51.3 vs. Exp. 52 (Prev. 51.6)

- German Markit Comp Flash PMI (Nov) 49.2 vs. Exp. 49.4 (Prev. 48.9)

French Markit Manufacturing Flash PMI (Nov) 51.6 vs. Exp. 50.9 (Prev. 50.7)

- French Markit Services Flash PMI (Nov) 52.9 vs. Exp. 53 (Prev. 52.9)

- French Markit Comp Flash PMI (Nov) 52.7 vs. Exp. 52.8 (Prev. 52.6)

EQUITIES

Major European bourses (Euro Stoxx 50 +0.2%) are modestly firmer, with the bulk of the gains coming right after the European cash open, before the indices proceeded to give back some gains following downbeat EZ PMI data, which saw manufacturing beat expectations but raised some concerns over the health of the larger services sector. Elsewhere, a speech by ECB President Lagarde failed to deliver much by way of a bang, while the pace of updates on the trade front also appears to have slowed down somewhat, giving equity markets a breather from the prior day’s whipsaw action. Most notably, the news of further freedom of navigation operations by the US in the South China Sea, nor the news of the Trump Administration mulling alternative trade investigations against the EU appears to have changed the dial much. Sectors are all in the green; energy (+0.7%) and materials (+0.6%) are for now the outperformers, while Utilities (+0.3%) and Consumer Staples (+0.3%) lag. In terms of the notable stock movers; Edenred (-2.2%) are at the bottom of the Stoxx 600 table after the Co. stated that it is still investigating the extent of a malware infection and has contacted relevant government authorities and regulators. Elsewhere, Wirecard (-0.1%) nursed earlier losses after Uber (UBER) denied reports that it was considering hiring Wirecard as its main payments partner.

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) Subsequently, China's Foreign Ministry has lodged stern representation with US after US ships sailed in South China Sea near islands claimed by China. (Newswires)

South Korean Finance Minister will be visiting Japan ahead of the expiry of the South Korean-Japanese Military Information Agreement, according to sources cited by Yonhap. Subsequently, South Korea told Japan it will extend the General Security of Military Information Agreement (GSOMIA) intel-sharing pact, according to NHK; however, Japan says there are no changes to export restrictions on materials for South Korea, according to Japanese trade official. (Newswires)

Iran is holding "massive air defence drills" over the Persian Gulf and the strategic Strait of Hormuz, according to Tasnim News. (Twitter)

FX

EUR, GBP - Both softer with the Single Currency subdued in wake of the EZ PMIs which show a clear spillover effect into the services sector from the manufacturing recession, thus negatively effects domestic demand. Services and Composite missed, and Manufacturing showed a mild bounce, but remain damped (albeit participants may have expended more of a rebound given the French and German metrics). Further, the GDP tracker pointed to a Q4 QQ rate of just 0.1%, down from 0.2% in Q3. Elsewhere, Lagarde’s first speech as ECB President was far from a fanfare release; she noted of a strategic review of monetary policy policy in “the near future” and reaffirmed her call for fiscal policy. EUR/USD took its cue from the PMIs and currently resides towards the bottom of its 1.1048-87 band (just above its 10 DMA at 1.1047) having earlier eclipsed its 100 DMA at 1.1085 on the initial French and German manufacturing bounce backs. The pair now eyes around EUR 1bln of options expiring at strikes 1.1040-60, although the next notable tranche could also come into play in later trade (EUR 1.3bln between 1.1075-90).  Similarly, UK’s Flash PMI debut missed expectations across the board and showed Services tipping over the fence into contraction. Further, IHS noted the data points to a 0.2% drop in GDP in Q4, which would usually be associated with BoE stimulus, albeit the Central Bank did downplay the credence it gives to this release at its latest MPR. Cable resides at the bottom the current 1.2873-2927 intraday parameter.

DXY, Yuan - DXY has reversed overnight losses, albeit more on EUR weakness as there is little by way of new substance on the US-Sino trade front. President Xi overnight sang from the same hymn sheet as Chinese officials, highlighting that China is not afraid of trade conflict but will actively try to avoid a trade war and called on increased communication. DXY is comfortably in the green in having surpassed 98.00 to the upside and attempted multiple breaches of its 100 DMA at 98.04 with no success. USD/CNH remains firmer, although mostly on the back of a stronger Dollar with the pair at session highs and eyeing its 100 DMA (7.0441) vs. an intraday low of 7.0264.

JPY, CHF - Safe-haven FX trade relatively flat in early hours, potentially as overall downbeat EZ PMI counter the positive geopolitical developments in Japan-South Korea relations, with the latter two agreeing to extend its intelligence-sharing pact which was due to be eradicated amid their deteriorating bond. USD/JPY meanders 108.50 and remains near the bottom of a tight 108.50-70 range. The Franc meanwhile sees downside bias, with EUR/CHF just under 1.1000 having early briefly breached the mark after clocking a 1.0980-1.1010 daily band thus far.

AUD, NZD - Both modestly firmer albeit off highs with the Kiwi outperforming its Aussie counterpart, which seems more of a technical move as AUD/NZD fell through 1.0600, with traders on the lookout for any pertinent US-Sino trade headlines for impetus.

FX Expiries, NY Cut:

- EUR/USD: 1.1040-60 (1BLN), 1.1075-90 (1.3BLN), 1.1100-10 (1.1BLN)

- AUD/USD: 0.6785 (330M), 0.6795 (1.1BLN), 0.6900 (500M)

FIXED INCOME

Government bonds are modestly firmer with Gilts currently leading the upside as they rounded off this data deluge. UK debt took a significant boost from the UK PMI metrics, which were the first flash readings for the UK, all missing on expectations, though it is worth caveating that BoE’s Carney has downplayed the importance of PMIs. Prior to this, the morning’s EZ metrics began with France where manufacturing convincingly beat as did the German and EZ wide figures albeit the latter two’s manufacturing sector remains in contractionary territory. ING note that growth is slowing significantly in Q4 which is largely due to the knock-on effects of the manufacturing recession to services, illustrated via all services prints missing on expectations this morning. In terms of reaction, the French manufacturing numbers knocked debt the most, although this has since reversed with Bunds at the top of session boundaries and comfortably above the 171.0 mark, with resistance at 171.35 ahead. The German release was partially sidelined as it coincided with remarks via ECB’s Lagarde, although these weren’t particularly ground-breaking, in-line with expectations given she has only just taken the helm and is yet to conduct a policy meeting; additionally, she did repeat familiar language calling for other policy help and that monetary policy will undergo a strategic review soon. In contrast to yesterdays outperformance, BTPs are the clear laggard at present, potentially retreating on the resurfacing of Italian political tensions as Di Maio’s 5SM members rejected his call to pause on upcoming regional elections until March. Looking ahead, as it is PMI day we will see US metrics later alongside further ECB speak to round off a relatively quiet week; ahead of US participants treasuries are mirroring the movement of EZ peers, although not quite as pronounced, while the curve is very modestly bull-flattening

COMMODITIES                                      

Crude markets are mixed but off lows in consolidative Friday morning trade, after ECB President Lagarde’s speech and mixed EZ PMI data failed to give direction to broader macro sentiment, and amidst a lack of fresh crude specific fundamental drivers. WTI Dec’ 19 futures are languishing below the USD 58.50/bbl mark, off overnight lows around USD 58.10/bbl. Brent Jan’ 20 futures meanwhile have made slightly better progress from USD 63.50/bbl overnight lows, coming within a whisker of yesterday’s high just above the USD 64.00/bbl level. In terms of the metals; gold has been on the front foot, with upside seen alongside European bonds after EZ PMI data raised concerns about service sector weakness despite a stronger than expected recovery in manufacturing. The precious metal managed to reclaim USD 1470/oz to the upside, ahead of yesterday’s USD 1476/oz high. Meanwhile, copper has also seen upside since the European open; given its status as an industrial metal, better than expected EZ manufacturing PMI results may be providing some support, while there has also been positive news on the South Korea/Japan trade front – both important industrial hubs and consumers of the red metal.