• European bourses are mixed/flat at present, as newsflow remains light ahead of the impending risk events
• White House Trade Advisor Navarro said China is trying to shape the narrative on trade talks and he believes the Dec 15th tariffs won’t come into effect
• YouGov’s MRP model showed Conservatives are on track for a 28-seat majority vs. Prev. forecast of 68-seat majority
• Looking ahead, highlights include 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 (U/C) 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 (+0.7%) 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)

Chinese trade experts note that if US President Trump does not cancel planned tariffs on Chinese products on Dec 15th, it'll hurt US more than China, "China has digested the possibility and is well prepared to cope". (Newswires)

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) 

GEOPOLITICS

S&P have raised the possibility of a potential sovereign debt downgrade for India if growth does not improve. (Newswires)

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

Turkish Foreign Minister says if US sanctions Turkey over the Russian-made S-400 system, Turkey will retaliate, adds that Turkey is open to F-35 alternatives. (Newswires)

US

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. (Newswires/WSJ)

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)

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.

EQUITIES

A choppy session for European equities thus far [Eurostoxx 50 -0.2%] following on from a lacklustre APAC session heading into key macro risk events. Broad-based losses are seen across the board, albeit the FTSE 100 (-0.2%) is largely moving in tandem with the Pound ahead of tomorrow’s UK general election and after the latest MRP polling from YouGov. Sectors are mixed with Utilities propped up in part by Germany’s E.ON (+1.6%) and RWE (+0.7%) amid source reports that Germany will allow the companies to keep their existing carbon emissions certificates due to coal unit shutdowns. That said, the sector’s defensive nature could also be providing some support. Meanwhile, the IT sector is underperforms, potentially on trade jitters amid conflicting reports and rhetoric from both the US and China sides. In terms of individual movers – JD Sports Fashion (-8.7%) shares tumbled at the open after its top shareholder cut its stake in the company but retained his position as major shareholder. Credit Suisse (-0.5%) remains modestly pressured after it revised down its 2020 ROTE guidance to around 10% vs. Prev. 10-11%. On the flipside, Tullow Oil (+5.6%) continues to nurse its wounds following its recent 70% slump, whilst Inditex (+2.7%) is buoyed post-earnings, which showed an YY gains in net profit, net sales, EBITDA and gross profits.

Saudi Aramco shares open at SAR 35.2 vs. SAR 32 IPO price. (Newswires)

FX

SEK/GBP - Not quite polar opposites, but contrasting fortunes for the Swedish Krona and Sterling in wake of inflation data and the final pre-UK election poll from YouGov, as the former eclipsed market expectations and matched Riksbank forecasts to effectively seal a repo rate hike next week. However, the MRP survey implies a much tighter result this Thursday than the previous findings, with a projected Tory majority of 28 seats vs 68 seats around the end of November and even that prediction subject to the usual margins of error. In response, Eur/Sek has recoiled sharply to test 10.4500 support vs highs close to 10.5400 and 10.5800+ on Tuesday, while Cable has pulled back from just over 1.3200 to circa 1.3140 after probing bids ahead of 1.3100 and Eur/Gbp bounced through 0.8450 at one stage before fading.

AUD/NZD - A similar story down under where the tables have turned somewhat on the back of a reversal in cross flows following the latest NZ Half Year Fiscal update revealing a bigger cash balance shortfall and fresh Nzd12 bn budget allocation for infrastructure. Nzd/Usd has lost momentum after a knee-jerk rally to around 0.6555 and Aud/Nzd rebounded from sub-1.0400 towards 1.0450 to help Aud/Usd maintain 0.6800+ status even though RBC joined the chorus for more RBA easing and QE.

JPY/CAD/CHF/EUR - All narrowly mixed against the Greenback as the DXY continues to straddle the 97.500 level in relatively muted/nervy trade awaiting the FOMC, with the Yen meandering between 108.67-84 parameters, Loonie trapped in a 1.3227-39 range and Franc pivoting 0.9850. Elsewhere, the Euro is still looking heavy or toppy into 1.1100 and perhaps conscious that a hefty 1.6 bn option expiries reside from the big figure to 1.1110, not to mention the fact that tomorrow is ECB (and SNB) day.

EM - Divergence also a theme in terms of Rand outperformance compared to Lira underperformance, as Usd/Zar pares back from almost 14.8200 in wake of in line/softer than previous SA CPI on less Eskom load-shedding before attention turns to retail sales data, but Usd/Try hovers around 5.8000 due to renewed US-Turkey sanctions and diplomatic tension rather than a slightely narrower than anticipated current account surplus.

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)

Swedish CPIF YY (Nov) 1.7% vs. Exp. 1.6% (Prev. 1.5%); CPIF MM (Nov) 0.1% (Prev. 0.0%)

Large FX Option Expiries, NY Cut:

-        EUR/USD: 1.1050-55 (500M), 1.1075 (450M), 1.1100-10 (1.6BLN)  

-        GBP/USD: 1.3150-60 (700M), 1.3185 (310M), 1.3195-1.3205 (600M)

-        USD/JPY: 107.85 (430M), 107.95-108.00 (1.3BLN), 108.75-85 (750M), 109.00 (1.3BLN), 109.50 (811M)

FIXED INCOME

The latest advances have been more measured, but from a chart or technical perspective no less telling as Bunds notch a new wtd and post-NFP peak at 172.67, while Gilts get extremely close on pre-UK vote positioning after YouGov’s MRP at 131.96. However, US Treasuries appear a bit more reticent/lethargic in wake of a so-so/mediocre 10 year auction and awaiting inflation data that forms the appetiser before Wednesday’s main course and headline Fed event.

Saudi Arabia plans to issue USD 32bln in debt in 2020; 45% international and 55% local, according to the head of the Saudi DMO. (Newswires)

COMMODITIES 

Mixed trade in the commodities complex with WTI and Brent futures retreating from 12-week highs following last night’s weekly API figures – with crude headline printing a surprise build of 1.41mln barrels vs. expected draw of 2.8mln. Further, the internals came in mostly bearish with distillates and gasoline showing higher-than-forecast builds whilst Cushing printed a deeper-than-expected draw. Traders will be waiting for confirmation from the EIA later today. Meanwhile OPEC’s monthly report (to be released at 13:00GMT) may garner some attention given the EIA STEO left its global oil demand forecast unchanged and included a downward revision to their 2020 US oil supply growth forecast. ING is not surprised by the downward revision given the slowdown seen in US rig activity. In terms of a more macro picture, crude markets will be vulnerable to any US-China headlines amid the contradicting reports regarding tariffs due to be implemented this Sunday. Aside from that, the FOMC’s latest monetary policy decision later could provide the complex with some sentiment-driven action. Today also marked the first trading session for Saudi Aramco, whose shares opened at SAR 35.2 vs. and IPO price of SAR 32.0, hitting limit up after rising 10% and surpassing its earlier valuation of USD 1.7tln. Looking at metals, spot gold prices remain supported ahead of the aforementioned events, with the yellow metal surpassing its 21DMA (USD 1465.50/oz) with eyes on yesterday’s high at USD 1469.15/oz. Copper prices continue to rise and have topped 2.75/lb with its 100 DMA residing around 2.8060/lb. Finally, nickel prices came under pressure in early APAC trade after inventories spiked 21% YY, the largest increase since 2008, but despite this the metal reversed course with the only pertinent news being Indonesia doubling royalties for the ore to 10% - making it more expensive for buyers, thus some front-loading effects may have been priced in.

US API Inventories: Crude +1.41mln vs. Exp. -2.8mln (Prev. -3.7mln). (Newswires)