• Asian equity markets extended on declines as global risk appetite remained sapped by the turbulent trade climate
• Strong Chinese Caixin Services and Composite PMI numbers added to the country’s recent flurry of strong activity data 
• US House voted 407-1 in favour of passing the bill demanding sanctions on Chinese officials for treatment of Uighur Muslims.
• Looking ahead, highlights include Eurozone & UK Services & Composite PMIs, US ADP Employment, Markit Composite & Services PMI, ISM Non-Manufacturing PMI, EIA Weekly Inventories, BoC Rate Decision, JCT Meeting, French Finance Minister Le Maire & EU Agriculture Commissioner discuss EU response to US tariffs, Fed’s Quarles, supply from Germany

4th December 2019 

ASIA-PAC

Asian equity markets extended on declines as global risk appetite remained sapped by the turbulent trade climate following yesterday’s comments by US President Trump. ASX 200 (-1.6%) and Nikkei 225 (-1.0%) were lower with pressure in the trade-related sectors resulting in Australia’s continued underperformance which was also not helped by a miss in quarterly GDP growth, while the Japanese benchmark tracked the recent slide in USD/JPY and with reports noting the GPIF’s move to end stock lending could rattle markets. Hang Seng (-1.1%) and Shanghai Comp. (-0.4%) were dampened by the increased trade pessimism after President Trump’s comments and with Global Times suggesting the US appears to be back-pedalling in trade talks. The US House’s overwhelming support for the Uighur human rights bill demanding sanctions on Chinese officials, which it passed through 407-1 vote, also contributed to the bilateral tensions and spurred resolute opposition from China which will respond depending on how the situation develops. Nonetheless, losses in the mainland have been stemmed after strong Chinese Caixin Services and Composite PMI numbers added to the country’s recent flurry of strong activity data and as Chinese press op-ed suggested the PBoC are expected to cut RRR in Q1. Finally, 10yr JGBs were higher after the recent gains in T-notes due to safe-haven bids, but with prices off their best levels after failing to hold above the 153.00 level and with the lack of BoJ presence in the market contributing to the mild overnight retracement.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set USD/CNY reference rate at 7.0382 vs. Exp. 7.0325 (Prev. 7.0223)

US House voted 407-1 in favour of passing the bill demanding sanctions on Chinese officials for treatment of Uighur Muslims. China’s Foreign Ministry later expressed strong indignation and resolutely opposed the US bill, while it stated that Xinjiang is China's internal affairs and urged US to correct its mistakes, as well as stop the bill from becoming law. China’s Foreign Ministry added that China will steadfastly safeguard its sovereignty and security, while it will respond according to how the situation develops and the Chinese National Ethnic Affairs Commission also urged the US to stop interfering in China's domestic affairs or it will reap the bitter fruits that it sowed. (Newswires/Global Times)

US Vice President Pence said President Trump is willing to use tariffs and access to the US economy as he negotiates a variety of trade deals and wants reciprocal relations with other countries on trade, while he added they will continue to make clear that China must open up its market and reaffirmed that the Hong Kong issue must be solved peacefully. (Newswires)

US Commerce Secretary Ross reiterated that agreeing on a deal with China either this December or next, is less important than getting a proper deal, while he added that the details on products and quantities to be purchased by China still need to be decided. (Newswires)

Chinese Caixin Services PMI (Nov) 53.5 vs. Exp. 51.2 (Prev. 51.1). (Newswires)

Chinese Caixin Composite PMI (Nov) 53.2 (Prev. 52.0)

UK/EU

YouGov/Sky News Poll sees the differential in support between the Conservatives and Labour Party unchanged at 9 points; Conservatives 42% (-1), Labour 33% (-1), Liberal Democrats 12% (-1), Brexit Party 4% (+2), Greens 4% (+1). (Twitter)

UK Conservatives pledged to spend GBP 4.2bln on local public transport services if they win the election. (BBC)

US Commerce Secretary Ross said the US has not ruled out future tariffs on imported autos and noted that the EU threat of retaliating against US tariffs is "nothing new". (Newswires)

A senior German SPD minister has warned members that voters will punish the Social Democrats if they ended their coalition with Chancellor Merkel. (FT) 

FX 

In FX market, the DXY remained firmly below the 98.00 level as the US faces trade battles across several fronts and with President Trump also plagued by issues closer to home after the House Intelligence Committee approved the report that found evidence of overwhelming misconduct and obstruction regarding his conduct with Ukraine. The recent weakness in the greenback benefitted its transatlantic peers in which EUR/USD held onto its recent spoils after having broken through the 5- to 100-DMA levels and with GBP/USD eyeing the 1.3000 handle. Elsewhere, USD/JPY tested the prior day’s lows near 108.50 amid the broad risk averse tone, while antipodeans marginally pulled back due to their high beta statuses and weaker PBoC reference rate setting, as well as the miss in Australian quarterly GDP.

Australian Real GDP (Q3) Q/Q 0.4% vs. Exp. 0.5% (Prev. 0.5%). (Newswires) Australian Real GDP (Q3) Y/Y 1.7% vs. Exp. 1.7% (Prev. 1.4%)

COMMODITIES

Commodities saw mild gains overnight despite the broad risk averse tone and trade-related concerns with WTI crude futures underpinned by a larger than expected drawdown in headline API crude inventories, as well as comments from Iraq’s Oil Minister who continued to the tout the prospect of a 400k bpd extension to the output cut and suggested that deeper cuts were also preferred by other members including Saudi. Elsewhere, gold eked mild gains with a lacklustre greenback and downbeat sentiment providing a floor for prices, while the attempts in copper to nurse losses were only marginal but still provided relief from the prior day’s selling that had been triggered by the increased trade pessimism. 

US API Weekly Crude Stocks (29 Nov) -3.7mln vs. Exp. -1.7mln (Prev. +3.6mln). (Newswires)

Iraq Oil Minister stated that an additional 400k bpd cut for OPEC+ is in circulation but not final and that all members should share the burden, while he added that slower demand is a bigger impact next year than non-OPEC supply. Furthermore, the Oil Minister added that it is his understanding that Saudi prefers a deeper cut and that deeper cuts are preferred by members. However, there were also earlier reports that the OPEC+ committee did not discuss deeper output cuts ahead of the meetings this week according to delegates. (Newswires)

GEOPOLITICS

CNN’s Pentagon correspondent Starr tweeted that the Pentagon team stated there is fresh intelligence in the last month of a potential Iranian threat against US forces and interests in the Middle East according to several US defense and administration officials. (Twitter) US

The TPLEX reversed its sell off from Monday following Trump’s announcement that a deal may not come before the 2020 election. The T-Note found support through the session and stayed close to highs in the last few hours of cash trade. The curve saw pronounced bull-flattening, predominantly in the front to belly, following Monday’s steepening, where the 2s10s narrowed from highs above the 22bps figure, to settle at lows below 18bps, closer to the lower end of the spread’s two-month range, further pressure could exhibit itself if Wednesday’s non-manufacturing ISMs paint a similarly dismal picture as the manufacturing figures did, although expectations are for 54.5 in the headline, a touch lower from the resilient 54.7 in October; of course the usual risk of further deterioration in global trade relations remains. At settlement, yields were acutely lower across the curve, with the 2-year down 7.5bps, 7-year down 13bps and 30-year down 12bps. US T-note futures (z9) settled 1 point and 2+ ticks higher at 129-31.

US House Ways and Means Committee Chairman Neal said USMCA deal is possible this week. In related news, Mexico's Deputy Foreign Minister Seade is reportedly heading back to Washington to meet with US Trade Representative Lighthizer this week, according to sources familiar with the plans. (Newswires/Politico)