• A non-committal tone persisted across Asia-Pac equity markets following conflicting US-China trade headlines
• White House Trade Adviser Navarro said he has no indication the December tariffs won't be put on
• YouGov MRP model showed Conservatives are on track for a 28-seat majority vs. Prev. forecast of 68-seat majority
• GBP lagged, USD eked mild gains ahead of the FOMC policy announcement, EUR/USD was contained just shy of 1.1100
• Looking ahead, highlights include Swedish and US CPI, DoEs, US FOMC Rate Decision and Press Conference, OPEC Monthly Oil Report

ASIA-PAC

A non-committal tone persisted across Asia-Pac equity markets following conflicting US-China tariff reports and as this week’s risk events drew closer beginning with the FOMC meeting due later today. The latest trade headlines have been varied as initial reports suggested that US and Chinese officials are planning for a delay of December 15th tariffs as they negotiate on agricultural purchases, although President Trump was said to remain undecided and both NEC Director Kudlow and White House Trade Advisor Navarro have leaned back from the notion of a tariff postponement. This has resulted to mixed trade for ASX 200 (+0.7%) and Nikkei 225 (-0.2%) with Australia lifted by outperformance in the defensive sectors and price action in Tokyo kept to within a tight range as sentiment among large firms deteriorated to a 3-year low, while Hang Seng (+0.5%) and Shanghai Comp. (+0.2%) were predominantly indecisive on the differing trade signals, with stronger than expected Chinese financing and lending data doing little to spur upside as participants also contemplated over continued PBoC liquidity inaction and regional growth downgrades from ADB which forecasts growth for the world’s 2nd largest economy to slip below 6% next year. Finally, 10yr JGBs saw a resumption of the recent declines following similar pressure in T-notes, while demand was also subdued by a lack of BoJ buying with the central bank only in the market today for treasury discount bills.

PBoC skipped open market operations for a net neutral daily position PBoC set USD/CNY reference rate at 7.0385 vs. Exp. 7.0378 (Prev. 7.0400)

White House Trade Adviser Navarro said China is trying to shape the narrative on the trade talks and that he has no indication the December tariffs won't be put on, while he added it is President Trump's decision whether to delay the December 15th tariffs and the decision will come soon. (Newswires)

China Global Times Editor Hu Xijin suggested that the principle of the Chinese government is that as long as the US takes real action that harms China's interests, Beijing will definitely take countermeasures and make US side pay the due price. (Twitter)

Asian Development Bank lowered China growth forecast for 2019 to 6.1% from 6.2% and cut 2020 growth forecast to 5.8% from 6.0%, while it forecasts Developing Asia growth at 5.2% for both 2019 and 2020. (Newswires) 

UK/EU

YouGov MRP model showed Conservatives are on track for a 28-seat majority vs. Prev. forecast of 68-seat majority; Conservatives projected to win 339 seats vs. Prev. forecast 359 seats and Labour is on track to win 231 seats vs. Prev. forecast 211 seats. Furthermore, the model showed SNP at 41 (-2) Lib Dems 15 (+2), Brexit Party 0 (-) (Newswires) Note, the margin of error for the model could put the final seat tally for the Conservatives between 311 and 367, therefore suggesting that a hung Parliament is a possibility.

Focaldata MRP model showed Conservatives at 337 seats, Labour 235, SNP 41, Lib Dems 14, Brexit Party 0, which puts the Conservative majority at 24. (Newswires)

FX

In FX markets, GBP/USD underperformed with the pullback from the 1.3200 handle exacerbated after the highly anticipated YouGov MRP model projected a narrower majority win for PM Johnson’s Conservatives who are on track to win 339 seats (-20) vs. Labour at 231 seats (+20) for a 28-seat majority vs. Prev. 68-seat majority at the November 27th projection, while reports also noted that 36 seats are to be determined by a slim margin of just 3% or lower. This pressured GBP/USD to take out several key moving average levels and briefly below its 100 hourly moving average but has since found mild solace with the losses eventually stemmed by support a tad north of the 1.3100 level. Elsewhere, the DXY eked mild gains but with price action stalled around 97.50 as participants await today’s FOMC and EUR/USD was also contained just shy of 1.1100, although EUR/GBP was buoyed momentarily through 0.8450 upon the UK election projection announcement. USD/JPY and JPY-crosses were uneventful due to the mixed risk sentiment which kept antipodeans indecisive, with NZD also choppy after the Half-Year and Economic Fiscal Update showed a larger budget deficit projection due to higher spending and which initially lifted the currency as it essentially reduces the need for further RBNZ cuts, although these gains were eventually faded.

New Zealand Budget Cash Balance (Jul) -5.154B (Prev. -2.785B). (Newswires) New Zealand Net Debt Forecast (Jul) 19.6% (Prev. 20.1%) New Zealand OBEGAL Forecast (Jul) -0.943B (Prev. 3.465B)

New Zealand announced NZD 12bln of new infrastructure spending and sees 2019/20 GDP at 2.3% vs. Prev. 3.2%, while it added that although domestic economy is slowing it is still outperforming global peers. (Newswires)

COMMODITIES

Commodities were subdued with WTI crude futures languishing below the USD 59.00/bbl after US officials downplayed the suggestions of a potential delay in the looming US-China tariffs, with prices also weighed following a bearish API report which showed a surprise build in headline crude inventories and almost double than anticipated build for gasoline stockpiles. Elsewhere, price action in gold was restricted by the mild gains in the greenback and with participants sidelined ahead of today’s FOMC, while copper plateaued amid the broad overnight indecision.  

US API Inventories: Crude +1.41mln vs. Exp. -2.8mln (Prev. -3.7mln). (Newswires) EIA Short-Term Energy Outlook sees 2019 world oil demand growth unchanged at 0.75mln BPD and 2020 forecast was raised by 50k BPD to 1.42mln BPD Y/Y increase. EIA added it expects US crude oil production to average 13.2mln BPD in 2020 (+0.9mln BPD vs 2019 levels which is slower than 2018 growth of 1.6mln BPD and 2019 growth of 1.3mln BPD, while it forecasts OPEC crude oil production will average 29.3mln BPD in 2020 which is down 0.5mln BPD vs 2019. (Newswires)

GEOPOLITICS

South Korea will increase surveillance on North Korea preparations for the possible launch of an intercontinental ballistic missile. (Newswires)

US Secretary of State Pompeo believes there will be a significant announcement on US-Russia economic ties in the not-so-distant future, while he also commented that China needs to be included in arms control treaty and the scope of talks should be broadened. (Newswires) 

US 

T-notes were in the ascendency, at the start of the day, with a bull-flattening bias, before a positive WSJ report on US/China trade saw sellers emerge; however, Treasuries pared losses, as other asset classes did as the report was digested. The US auction of 10-year notes was decent, stopping through the screens by 0.1bps, while cover was a touch firmer than recent averages. Indirect participation was a little softer than recent averages, and like the 3s auction on Monday, direct bidders' participation was firmer. The US will sell 30-year bonds ahead of the FOMC announcement. At settlement, yields were slightly higher on the day across the curve, though major curve spreads had still narrowed by 1-2bps. US T-note (H0) futures settled 1+ ticks lower at 128-29+.

USTR Lighthizer confirmed a USMCA agreement has been reached and stated that the USMCA will be the model for US trade deals going forward. There were also comments from Canadian Deputy PM Freeland that all USMCA changes as well as the ratification of the deal ASAP are in Canada's interest, while Mexican Deputy Foreign Minister Seade stated that Mexico’s Senate may need until January to approve the USMCA changes and US Senate Majority Leader McConnell also suggested the USMCA deal will not be taken up by the Senate next week but likely after the Trump impeachment trial as he hopes to deal with the defense and spending bills next week ahead of the recess. (Newswires/WSJ)

US House Speaker Pelosi said the US is not going to have a shutdown and will be funded through till next year. (Newswires)

US federal judge blocked President Trump’s attempt to transfer USD 3.6bln of military construction funds to build the wall at border with Mexico. (Newswires)