• Asian equity markets resumed the cautious global risk tone heading into this week’s plethora of risk events
• There were unconfirmed reports citing a trade source which noted the December 15th tariffs are going ahead and that China is preparing for them
• However, Chinese reports suggested a US-China trade deal is not expected this week with the US occupied by USMCA, although new tariffs are not expected
• Looking ahead, highlights include Norges Bank Reginal Network Report, UK GDP, Production Trade, German ZEW, APIs, YouGov MRP, supply from Germany and the US

ASIA-PAC

Asian equity markets resumed the cautious global risk tone heading into this week’s plethora of risk events and amid ongoing trade uncertainty from the looming US-China tariff deadline set for December 15th. ASX 200 (-0.3%) and Nikkei 225 (Unch.) were subdued with Australia pressured by underperformance in most of the trade sensitive sectors but with losses limited by resilience in commodity names, while favourable currency moves also helped stem the downside for Tokyo-listed exporters. Hang Seng (-0.1%) and Shanghai Comp. (Unch.) conformed to the lackadaisical picture as participants second-guessed whether the US will proceed with the 15% tariffs on virtually all of the remaining imports from China scheduled for Sunday and in which China have already set retaliatory tariffs due the same day. Furthermore, continued PBoC liquidity inaction, as well as warnings from a senior Chinese economist on looser fiscal and monetary policies next year also contributed to the subdued risk appetite. Finally, 10yr JGBs fluctuated in which prices were initially pressured and briefly slipped below the 152.00 level amid gains in yields in which the 10yr yield rose to 0.0% for the first time since March, with selling in JGBs exacerbated following the weaker results at the 5yr auction which showed a slightly softer b/c, a drop in accepted prices and wider tail in price, although 10yr JGBs then staged an aggressive rebound to recoup all the earlier losses.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set USD/CNY reference rate at 7.0400 vs. Exp. 7.0398 (Prev. 7.0405)

There were unconfirmed reports citing a trade source which noted the December 15th tariffs are going ahead and that China is preparing for them. In related news, Chinese importers are reportedly to begin purchasing US soybeans for January to February shipment after Beijing issued at least 1mln tonnes in tariff waivers, while US Congress is reportedly targeting China in a defense policy bill and are said to have agreed on language of the bill that would ban use of federal funds to purchase Chinese buses and railcars. (Newswires/WSJ)

A US-China trade deal is not expected this week with the US occupied by USMCA, although new tariffs are not expected according to Chinese press reports. (SCMP)

Chinese CPI (Nov) Y/Y 4.5% vs. Exp. 4.2% (Prev. 3.8%); Highest since January 2012 Chinese PPI (Nov) Y/Y -1.4% vs. Exp. -1.5% (Prev. -1.6%)

UK/EU

A Downing Street memo, dated Dec 7, says the chances of a Corbyn-led coalition have been “seriously underestimated”, as gains of just 12 seats by the SNP, Liberal Democrats and other minor parties would be enough to remove Boris Johnson from No 10. (Telegraph)

The French government is considering a delay to the implementation of pension reforms, according to reports. (Les Echos)

FX

DXY remained lacklustre heading into the upcoming FOMC with the ongoing US-China and USMCA trade uncertainty warranting cautiousness in the greenback, although the latest reports have noted expectations for a potential USMCA announcement on Tuesday afternoon as USTR Lighthizer, Trump Adviser Kushner and Canadian Deputy PM Freeland all head to Mexico for talks to complete the deal which has kept both CAD and MXN underpinned against the USD. In addition, House Democrats are to unveil articles of impeachment today in which 2 articles are expected to be drafted against President Trump regarding abuse of power and the obstruction of Congress. Elsewhere, EUR/USD was relatively flat with price action stuck near a large option expiry of EUR 1.8bln at 1.1070 for the upcoming New York cut and GBP/USD has again reverted to the 1.3150 level as attention turns to the latest YouGov MRP model due later at 2200GMT. Elsewhere, USD/JPY eked marginal gains, while antipodeans were also mildly supported following a stable PBoC reference rate and firmer than expected inflation data from China which showed CPI at its largest growth in almost 8 years amid a 19.1% increase in food prices as pork prices more than doubled Y/Y.

Australian NAB Business Confidence (Nov) 0 (Prev. 2). (Newswires) Australian NAB Business Conditions (Nov) 4 (Prev. 3)

COMMODITIES

Commodities were mixed in which WTI crude futures consolidated after last week’s OPEC-induced advances as overnight price action was contained by resistance at the USD 59.00/bbl, with reports of a ceasefire between Ukraine and Russia likely to reduce the risk of the conflict’s potential impact on gas supplies, while focus for the complex now shifts to the latest inventory reports beginning with today’s APIs. Elsewhere, gold prices remained subdued amid similar uneventful trade for the greenback as participants await the looming risk events including tomorrow’s FOMC, while copper conformed to the humdrum tone across the complex due to the broad tentative risk appetite.

GEOPOLITICS

US government believes that Iran is behind a series of increasingly sophisticated rocket attacks on joint US-Iraq military facilities in Iraq, according to reports citing US officials. (CNN)

US is said to now be refusing to sign a letter that would authorize the UN Security Council to hold a meeting on the human rights situation in North Korea according to reports citing diplomats. In related news, US State Department official said the US has asked the UN Security Council to discuss North Korea's missile launches and the possibility of an "escalatory DPRK provocation", while South Korea expects North Korea provocation and possible engine test before Christmas. (Newswires/Time)

Ukrainian President Zelenskiy announced that they agreed steps with Russia to implement full and unlimited ceasefire in the east of the country, with the leaders aiming for a new withdrawal of forces from Ukraine conflict zones by March 2020, Furthermore, Zelenskiy commented that many issues are unresolved but dialogue is good, although other reports noted he was said to regret that very little was achieved at the Paris summit. (Newswires/AFP) 

US 

Yields were little changed in the TPLEX, ahead of a key week for event risk (Fed, ECB, and the looming 15th December US/China tariff deadline); it has seen a cautious start to the week. Major curve spreads had a bias towards narrowing, though the size of the moves is within 2bps. The US Treasury today sold a new 3-year note (USD 38bln), which stopped through by 0.2bps. Cover came in above recent averages; the direct bid and the indirect bid were fairly steady, though directs stepped up participation. US T-note futures settle 3 ticks higher at 129-00.

US President Trump said we are doing well on USMCA and that he hears from unions it is looking very good, while it was also reported that USTR Lighthizer, Trump Advisor Kushner and Canadian Deputy PM Freeland are heading to Mexico today for talks on completing the USMCA trade agreement. (Newswires/CNBC) There were initial reports that White House and Democrats reached a tentative deal on USMCA in which the House could vote on the deal on 18th December according to sources, although US House Speaker Pelosi later stated that a USMCA trade deal is not agreed to in which that they must see implementing legislation and that we are close but not quite finished yet in reaching a deal. Furthermore, Pelosi commented she expects USMCA treaty to be set by Tuesday, while US House and Ways Committee Chairman Neal also anticipates a USMCA announcement on Tuesday afternoon. (Newswires)

House Judiciary Committee hearing on Trump impeachment concluded and its Chairman Nadler commented that President Trump's conduct is clearly impeachable, while House Democrats are to unveil articles of impeachment on Tuesday in which they are expected to draft 2 articles of impeachment on abuse of power and obstruction of Congress. (Newswires)