• European bourses are firmer as risk sentiment has been lifted on US-China sources
• US and China are reportedly moving closer to a trade deal despite the heated rhetoric, according to sources
• US House voted in favour of passing the bill demanding sanctions on Chinese officals for the treatment of Uighurs
• FX complex is mixed vs. USD with Sterling underperforming above 1.30 mark and AUD subdued after GDP metrics missed
• Looking ahead, highlights include 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

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 (-1.3%) and Shanghai Comp. (-0.2%) 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 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. Sources familiar with the talks say Beijing and Washington are still wrangling over the details including whether existing U.S. tariffs on Chinese goods will be removed and how much in additional U.S. agricultural products China will buy. Foreign Ministry adds that no one should underestimate our resolve to safeguard China's interests, the US' Xinjiang bill will affect China-US cooperation in important areas (Newswires)

A Chinese official warned that US implementation of the new round of tariffs will be countered by China with retaliatory tariffs, an outcome the official said would seriously disrupt ongoing negotiations, according to sources

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)

Following on from the overnight news flow, US and China are reportedly moving closer to a trade deal despite the heated rhetoric, according to sources. (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 defence and administration officials. (Twitter)

US

US House Ways and Means Committee Chairman Neal said USMCA deal is possible this week. (Newswires)

UK/EU

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 Markel. (FT)

UK Markit/CIPS Services PMI Final (Nov) 49.3 vs. Exp. 48.6 (Prev. 48.6); Composite PMI Final (Nov) 49.3 vs. Exp. 48.5 (Prev. 48.5)

EU Markit Services Final PMI (Nov) 51.9 vs. Exp. 51.5 (Prev. 51.5); Comp Final PMI (Nov) 50.6 vs. Exp. 50.3 (Prev. 50.3)

German Markit Services PMI (Nov) 51.7 vs. Exp. 51.3 (Prev. 51.3); Comp Final PMI (Nov) 49.4 vs. Exp. 49.2 (Prev. 49.2)

French Markit Services PMI (Nov) 52.2 vs. Exp. 52.9 (Prev. 52.9); Comp PMI (Nov) 52.1 vs. Exp. 52.7 (Prev. 52.7)

EQUITIES

Major European bourses (Euro Stoxx 50 +1.3%) are firmer following reports that the US and China are moving closer to a deal despite recent “heated” rhetoric gave a boost to risk appetite. The FTSE 100 (+0.3%) is a laggard due to a firmer sterling. In terms of further fundamental catalysts on the horizon; Day 2 of the NATO summit begins and traders will be on the look-out for further clues as to the state of play on the US/EU and US/China front, quite possibly in the form of off-the-cuff comments from the US President, with the former two in the midst of clashes over the WTO’s ruling on EU Airbus subsidies and most recently France’s proposed Digital Services Tax, while tensions between the latter two have most recently been worsened following the US House’s passing of the Uighur Human Rights Bill. Sectors are mostly in the green, with Telecoms (unch.) the laggard as the sector is weighed by underperformance in heavyweight Orange (-3.8%), with traders reportedly disappointed by the Co.’s most recent dividend outlook. Elsewhere, Italian banks, including Intesa Sanpaolo (+1.8%) and UniCredit (+1.6%), are on the front foot after Moody’s upgraded the outlook for Italian banking to stable from negative. Solid earnings from US Microchip last night is acting as supportive for European chipmakers, including Infineon Technologies (+2.2%). In terms of other notable individual movers; Elior (+7.8%) opened higher after the Co. posted strong earnings, in which FY net profit posted solid Y/Y gains. Further gains were seen for easyJet (+2.1%), with the Co. set to join the FTSE 100, and Hiscox (-1.0%) and Fresnillo (-3.8%) to be dropped. In terms of the losers; Aviva (+0.2%) lags the FTSE 100, having been downgraded at Barclays. Elsewhere, Securitas (unch.) underperforms following a downgrade at Deutsche Bank.

Arm China, in a move that is likely to cause concern with the US, has developed a code that enables Chinese semiconductors to run state-approved cryptographic algorithms, according to the Nikkei. (Nikkei)

FX

GBP, EUR - Sterling rose to the top of the G10 ranks in early EU hours following a relatively sideways APAC session in which GBP/USD meandered on either side of 1.3000. The pair gained momentum after tripping stops at 1.3013 and advanced to a current intraday high of 1.3063 (ahead of its 200 WMA around 1.3100) before waning off highs and back below its 100 WMA at 1.3048. News-flow has been light for Sterling, with the currency little influenced by a revision higher to its November services and composite PMI metrics. That said, IHS noted that the PMI figures point to a GBP contraction of ~0.1% in the Q4, but the December numbers are yet to be released. Meanwhile, the Eur has been moving at the whim of the Buck and largely shrugged off upward revisions to the pan-European services and composite numbers – with the GDP tracker suggesting growth of 0.1% in Q4 for the EZ. IHS did warn that the services sectors are poised for its weakest QQ expansion for fives years, “hinting strongly that the slowdown continues to spread”. EUR/USD moved into negative territory and back below its 100 DMA (1.1069) after hitting an intraday peak 1.1088, with little EU-specific data/speakers left on the docket.

DXY, JPY - The broad Dollar and Index has recouped earlier losses with upside coinciding with constructive trade headlines from sources, prompting the DXY to rebound off its 200 DMA at 97.63 back to yesterday’s closing levels around 97.75. Meanwhile, USD/JPY ekes mild losses amid the aforementioned headlines with the pair back above the 108.50 mark (coincides with its 50 DMA), to a high of 108.80 ahead of the rough figure. Traders will be eyeing any trade/geopolitical headlines with NATO summit day 2 underway and US President Trump’s presser scheduled for 15:30GMT.

AUD, NZD - Both lower on the day, but more-so the Aussie on the back of disappointing GDP figures with the QQ metric showing growth of only 0.4%, down from the prior of 0.5%. Analysts mention that the most concerning aspect of the release is the representation of a fifth consecutive quarter which private demand contracted or was flat. Westpac notes that the RBA will be disappointed with the figure and believes that the Central Bank and the Government will have to revisit their growth forecasts. AUD/USD climbed off lows in wake of optimistic US-China trade headlines, but gains remain capped due to the overnight data. The pair remains in the red around the middle of its 0.6813-0.6846 band having briefly dipped below its 100 DMA at 0.6816. The Kiwi piggybacks on the Aussie’s losses and hovers just above the 0.65 mark, off highs of 0.6530.

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%)

Notable FX Expiries, NY Cut:

-        USD/CHF: 0.9985-0.9900 (500mln).

-        EUR/GBP: 0.8500 (480mln)

-        USD/JPY: 108.85-95 (1bln)

FIXED INCOME

Market narrative, once again, remains focused on the ongoing US-China trade saga; most recent updates are significantly more positive via source reports intimating that the two sides are, in-spite of the heated rhetoric, moving closer to a deal. Note, US President Trump is due to give a press conference at around 15:30 GMT today on NATO. As a result of this, the debt complex is subdued across the board at present with Bunds modestly beneath their opening value and below the 173.0 handle; technicians note that, aside from psychological figures, there is very little in the way of resistance through the 172.0 handle. Trade aside, this morning has also seen the release of final EZ PMIs which showed the German and EZ metrics revised slightly higher; however, data this morning has been overshadowed by the aforementioned trade news flow. Turning to the UK, focus remains on next week’s general election - as such the PMIs were largely overlooked. Earlier in the session (and before the trade headlines) UK debt came under pressure as GBP/USD took out stops around the 1.3013 mark to the upside. Stateside, apart from trade headlines, focus will be on the ISM Non-Manufacturing prints and whether a firm picture can be illustrated for the services sector, also on the docket are comments from Fed’s Quarles. In terms of current performance USTs are similarly subdued in-line with their European counterparts.

COMMODITIES 

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.

Crude markets are bolstered (in line with other risk assets) on the news that the US and China are moving closer to a deal despite recent “heated” rhetoric. Elsewhere, the latest batch of comments from the Iraqi oil minister continues to support prices; an additional 400k bpd cut for OPEC+ is apparently in circulation but not final, while the Saudi’s also reportedly prefer deeper cuts, although this contradicts sources reports seen last month. “If all members were compliant with the [current] deal this may be the case, however, with a number of members falling well short in cutting output, including Iraq, other members may be reluctant to cut further” says ING, who goes on to conclude that “reassurance of stronger compliance will likely be needed before other members agree to deeper cuts.” Moreover, yesterday saw the OPEC+ Joint Technical Committee meet in Vienna ahead of the full ministerial meetings on Thursday and Friday and they reportedly did not discuss deeper cuts. Reports did suggest that the Joint Technical Committee is considering Russia’s request to exclude condensate from its oil production cuts, which has been rising as of late in line with the country’s rising gas output and has been cited as the reason for the country’s poor OPEC+ compliance. Elsewhere, also underpinning the crude complex is last night’s larger than expected draw in headline API Inventories; traders will now focus on EIA Inventory data this afternoon for further confirmation. WTI futures meanders around USD 57/bbl while its Brent counterpart eyes USD 62/bbl to the upside having earlier eclipsed the level. Moving onto metals, risk on has hit gold prices, which have fallen to just above USD 1470/oz from earlier highs of USD 1490/oz. Meanwhile, copper has been buoyed, popping to USD 2.6450/lbs highs from its earlier USD 2.62-2.63/lbs range. Elsewhere, iron ore prices found further impetus after data showed that shipments from Brazil had dropped since the last week; prices have been underpinned in recent days by the news that Vale, the world’s largest miner of Iron Ore, cut its production outlook and production at its Brutucu mine has been halted due to safety issues regarding a nearby dam.