• Asian equity markets were mostly positive after yesterday’s positive US-China trade updates
• China Global Times tweeted an opinion that if US ignores China's warning and continues interfering in Hong Kong affairs, the Chinese government will certainly step up countermeasures
• DXY traded subdued and looked to retest the 97.50 level to the downside after yesterday’s soft data ahead of Friday’s NFP
• Looking ahead, highlights include OPEC Meeting, Eurozone GDP, US Trade, Initial Jobless, Factory Orders, Fed’s Quarles, supply from France, Spain and the UK

ASIA-PAC

Asian equity markets were mostly positive as they took their cue from global peers after the trade mood flip-flopped once again to a more positive tone yesterday. ASX 200 (+1.2%) was led by outperformance in the tech and energy sectors amid the trade optimism and recent 4% surge in crude prices, with banks also welcoming the RBNZ’s increased capital requirements as some now expect a lower impact than they had previously anticipated. Nikkei 225 (+0.7%) was underpinned by recent currency moves and with Japan set for a multi-trillion stimulus package, as well as talks with South Korea this month to address the trade spat. Elsewhere, Hang Seng (+0.2%) and Shanghai Comp. (+0.5%) were also lifted on the trade hopes and following the announcement of measures to support the Hong Kong economy, but with gains capped given the lack of actual meaningful breakthrough on the trade front and amid continued PBoC liquidity inaction. Finally, 10yr JGB were initially lower on spill-over selling from USTs and as demand was sapped by the gains across equities, although prices were later rebounded which was helped after the results of the 30yr JGB auction showed slight improvements across all metrics.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set USD/CNY reference rate at 7.0521 vs. Exp. 7.0515 (Prev. 7.0382)

China Global Times tweeted an opinion that if US ignores China's warning and continues interfering in Hong Kong affairs, the Chinese government will certainly step up its countermeasures. (Twitter)

Japan government will compile JPY 26tln stimulus package including JPY 13.2tln of fiscal spending which is expected to boost GDP by 1.4%, according to government sources. (Newswires)

UK/EU

UK Election Savanta/ComRes poll showed Conservatives 42% (-1), Labour 32% (-1), Lib Dems 12% (-1), Brexit Party 3% (-1), conducted December 2nd-3rd. (Newswires)

UK PM Johnson pledged millions will get a GBP 200 tax cut within weeks of the Conservatives being elected. In other news, PM Johnson said he will bring forward measures to tax internet companies, but it won't be heavy handed and won't start a trade war. (Telegraph/Newswires)

US Treasury Secretary Mnuchin raised concerns regarding global tax talks including OECD tax proposals and urged countries, particularly France, to suspend digital services taxes, according to a letter. (WSJ) 

FX

DXY traded subdued and looked to retest the 97.50 level to the downside after yesterday’s soft data ahead of Friday’s NFP, with the greenback also suffering from the gains in its major counterparts including CAD following a hawkish hold from the BoC. EUR/USD was steady after its recent attempt to surmount the 1.1100 level and GBP/USD rested on the prior day’s outperformance in which it tripped through stops and longer-term weekly moving averages (100 WMA and 200WMA) on its climb to above 1.3100. Elsewhere, USD/JPY was kept afloat by the risk appetite with comments from BoJ board member and dissenter Harada not providing much to sway the currency, while antipodeans saw mixed price action with AUD/USD pressured by disappointing Trade and Retail Sales data, whereas NZD/USD gained from the increased bank capital requirement rules by the RBNZ which Westpac suggested will not spur a rate cut.

Indian Repo Rate 5.15% vs. Exp. 4.9% (Prev. 5.15%); Decision was unanimous. RBI says is to continue with accommodative monetary policy, stance is to be retained as long as inflation remains within target and as long as necessary to revive growth, adding that there is monetary space for future action. Revises down 2019/20 real GDP growth forecast to 5.0% vs. Prev. 6.1%. (Newswires)

RBNZ raised capital requirement for banks as expected, with the four largest banks to hold 18% in total capital and smaller banks to hold 16% in total capital from current 10.5%, while the time frame to meet the requirements was set for 7 years from July 2020. (Newswires)

Australian Retail Sales (Oct) M/M 0.0% vs. Exp. 0.3% (Prev. 0.2%). (Newswires) Australian Trade Balance (AUD)(Oct) 4.50B vs. Exp. 6.10B (Prev. 7.18B) Australian Exports (Oct) M/M -5.0% (Prev. 3.0%) Australian Imports (Oct) M/M 0.0% (Prev. 3.0%) 

COMMODITIES

Commodities were quiet overnight with a slight pullback in WTI crude futures following its 4% rally during the prior session in which prices were underpinned following back-to-back bullish inventory reports in which this week’s API and EIA releases, while Iraq’s Oil Minister continued his jawboning for deeper cuts. Conversely, there were reports that suggested consensus within OPEC that a deeper cut will be harder to pull off this time and that Saudi is threatening to increase production to its quota level amid growing frustration by other producers’ insufficient compliance with the deal, although this did little to halt the rally in WTI which surged to above the USD 58.00/bbl. Elsewhere, gold prices edged marginal gains as support from the subdued greenback was mostly offset by a lack of safe-haven demand, while copper conformed to the uneventful tone across the complex and failed to benefit from the improved risk appetite.

GEOPOLITICS

US is considering sending 14k more troops to the Middle East to counter threats from Iran, according to WSJ. There were also separate reports that US Navy warship has reportedly seized suspected Iranian missile parts headed for Yemen, while Iran special forces are said to be using "suicide drones" near US military personnel although the reports added there is no indication of an imminent threat. (WSJ/AP/Newsweek)

US 

The reversal to a more optimistic outlook on US-China trade saw the TPLEX sell-off on Wednesday, paring back somewhat of Tuesday’s strong bid. The sell-off saw some additional pressure after the release of the non-manufacturing ISMs, where participants weren’t dissuaded by the headline miss (sub-components fared better), with the T-Note continuing to move lower after the release. The curve bear-steepened, but not to the same magnitude as yesterday’s bull-flattening; 2s10s rose by 2bps to approximately 20bps, as the 2-year yield rose by 5.2bps whilst the 7-/10-/30-year yields rose collectively by 7.2bps. T-note (z9) futures settled 18 ticks lower at 129-13.

The mood is reportedly not upbeat after USMCA talks between Mexico’s Seade and USTR Lighthizer, while Seade commented there is no deal yet and they need to resolve “very difficult issues”, according to Politico's Rodriguez. (Twitter)