• Asian equity markets retreated amid headwinds from the US where the major indices all but wiped out last week’s gains due to fresh trade concerns
• China Global Times said China will soon release an unreliable entity list and noted that US House is expected to pass a Xinjiang-related bill that will harm the interests of Chinese firms
• USTR office said France's digital services tax discriminates against US companies and that it will take action against regimes that discriminate against US companies
• The US has proposed 100% tariffs on USD 2.4bln of French goods as a response to the digital services tax
• Looking ahead, highlights include UK Construction PMI, US APIs, ECB’s Coeure, Board Candidates Panette and Schnable, NATO Summit Begins, supply from the UK

ASIA-PAC

Asian equity markets retreated amid headwinds from the US where the major indices all but wiped out last week’s gains due to fresh trade concerns with lacklustre ISM Manufacturing data also adding to downbeat tone. ASX 200 (-2.0%) and Nikkei 225 (-0.7%) were lower with underperformance in Australia due to hefty losses across its sectors including financials amid continued Westpac-related woes and with life insurers facing increased capital penalties, while sentiment in Tokyo was dragged by the adverse currency flows. Hang Seng (-0.4%) and Shanghai Comp. (-0.1%) also weakened on the trade uncertainty with some analysts reading in between the lines of the metal tariff resumption on Brazil and Argentina, suggesting that it could be another front in the trade war following the nations’ recent agricultural deals with China. In addition, China’s retaliation to the Hong Kong bill by sanctioning US non-profit groups and barring US military visits to Hong Kong, as well as expectations for the US House to pass a Xinjiang-related bill further exacerbated the already-opaque trade environment. Finally, 10yr JGBs failed to take advantage of the widespread risk averse tone, as prices remained dejected following the recent bond rout and with selling also triggered after the 10yr JGB auction showed weaker results across all metric including the lowest b/c since August 2016.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 7.0223 vs. Exp. 7.0223 (Prev. 7.0262)

US President Trump Adviser Conway said she is very glad that China continues to stay at the table but added that President Trump is in no rush to make a deal. Furthermore, Conway stated that a US-China trade deal is possible before the end of the year and that a Phase 1 deal is being written up. (Newswires/Twitter)

China Global Times said China will soon release an unreliable entity list and noted that US House is expected to pass a Xinjiang-related bill that will harm the interests of Chinese firms. Furthermore, it suggested the possible retaliatory measures after US passes Xinjiang-related bill include the release of an unreliable entity list to include relevant firms, to blacklist relevant US people and firms to restrict their entry to China, while it could sanction US politicians including Senator Rubio and others behind the bill. (Global Times)

Sources suggested that China's retaliation to the US signing of the Hong Kong bill by sanctioning US non-profit groups and barring US military from stopping in Hong Kong was not enough to derail trade talks, according to Fox's Lawrence. In related news, US State Department official said China has made false accusations of foreign interference in its sanction of US NGOs in Hong Kong. (Newswires/Twitter)

UK/EU

UK BRC Retail Sales (Nov) Y/Y -4.9% (Prev. 0.1%). (Newswires)

USTR office said France's digital services tax discriminates against US companies and that it will take action against digital tax regimes which discriminate against US companies. Furthermore, USTR office said it is exploring whether to open Section 301 investigations on digital services taxes in Austria, Italy and Turkey, while it is soliciting comment on proposed duties of up to 100% of certain French products over digital services tax and that list of French products subject to potential duties are valued at USD 2.4bln. (Newswires) USTR office said there is no basis in WTO report for Airbus (AIR FP) claims that US tariffs in aircraft subsidy case should be lowered by USD 2bln. In related news, USTR spokesperson said the US will consider higher EU tariffs following the WTO ruling that the EU aid to Airbus (AIR FP) continues to cause adverse effects at the expense of US firms and noted that strong action is needed, while the US reportedly may add other items to the current tariff list. (Newswires)

FX

DXY only partially nursed recent losses as it languished below 98.00 after it was pressured by weak data, with President Trump’s fresh trade offensive doing little to reverse the USD woes. The greenback’s major counterparts held on to most of their recent gains although EUR/USD slightly pulled back after the US proposed 100% tariffs on USD 2.4bln of French goods as a response to the digital services tax, and with GBP/USD suppressed again by resistance at the 1.2950 level. Elsewhere, USD/JPY briefly slipped to the 108.00 handle on a double-whammy from the weaker USD and safe-haven flows, while NZD/USD remained near a 4-month high and AUD/USD was eventually lifted after the RBA rate decision where the central bank kept rates unchanged as expected and reiterated it will easy policy if needed and that a gentle turning point appears to have been reached, which continues to suggest a data dependant approach for the central bank.

RBA maintained the Cash Rate Target at the record low 0.75% as expected, while it reiterated it will ease policy if needed to support sustainable growth and that rates are to remain low for extended period. Furthermore, the RBA also repeated that the economy appears to have reached a gentle turning point with the central scenario is for domestic economy to gradually pick up to around 3% in 2021 and noted the global economy is reasonable but risks are tilted to the downside. (Newswires)

COMMODITIES

Commodities were mixed overnight with price action relatively uneventful as WTI crude futures were kept rangebound near the USD 56.00/bbl level as participants await this week’s inventory numbers beginning with the API report later today and more importantly, the OPEC meetings beginning on Thursday. Gold was subdued as the greenback attempted to nurse some of its recent losses and copper was also kept lacklustre by the mostly risk averse tone following US President Trump’s tariff offensive.

Goldman Sachs said it expects Brent prices to remain around USD 60/bbl in 2020 with persistent backwardation, while it expects an extension of current OPEC+ cuts through next meeting in June. (Newswires)

GEOPOLITICS

Chinese President Xi said they will work with Russia to counter western interference during talks with Russian Security Council Secretary Patrushev. In other news, China Global Times tweeted that China and Iran have reached several agreements on the Iranian nuclear issue and will keep deepening their ties and amid the difficulties and challenges caused by US sanctions and the withdrawal from the JCPOA. (Newswires/Twitter)

North Korea Foreign Ministry said dialogue with US has been nothing but a trick and that it will not continue talks with US which is using them for the upcoming election, while it warned of a year-end deadline in which it stated it is up to US what Christmas gift it will receive. (KCNA)

US Senators Chris Van Hollan (D) and Lindsey Graham (R) urged Secretary of State Pompeo to sanction Turkey over its purchase and testing of the Russian S-400 system, adding that "time for patience has long expired". (The Hill) 

US

Fixed Income was already on the downside on Monday morning post the positive Chinese PMIs, with Bunds leading the sovereigns on potential German fiscal expansion. Although support for the T-Note was found heading into the US session as the manufacturing ISMs continued to fall into contraction and trade woes stirred, particularly with the metal tariffs announcement. The Treasury curve bear steepened on the day, with 2s10s now sitting 6bps wider at 22bps. The disappointing ISM saw the front-end little changed, whereas the 30-year yield rose by approximately 7.5bps. T-note (Z9) futures settled 13 ticks lower at 128-28+.

US President Trump stated that manufacturers are being held back by the strong USD that is being propped up by ‘ridiculous’ policies from the Fed which has called interest rates and quantitative tightening wrong. (Twitter)

Senator Chuck Grassley suggested a final deal over USMCA is “close” and that the USMCA deal is needed this week for year-end completion. In related news, US is reportedly considering scaling back IP protections for big drugmakers to help win Democratic support for the new USMCA, while Democrats said more needs to be done to strengthen labour and environmental provisions in the USMCA deal. (Newswires/WSJ/NYT/Twitter)

US President Trump's nomination of Dan Brouillette for Energy Secretary was confirmed through vote at the Senate. (Newswires)