• The result of the UK election exit poll overwhelmingly pointed towards a Conservative majority with a total of 368 seats vs. Labour 191 - Conservatives managed to cross the 326-seat threshold just before 0500GMT
• GBP immediately saw strength following the election exit poll with GBP/USD eclipsing 1.3500 to the upside from mid-1.3100 area
• China and the US have struck an agreement on some tariff reductions and a delay to the tariffs that were due to come into effect on December 15th according to sources, announcement expected today
• Further sources noted that there will be a small reduction in tariffs on some Chinese goods as a gesture of good will, while Phase Two of the negotiations will begin after 2020 elections
• European bourses are higher across the board with FTSE 100 outperfoming as GBP drifts off highs
• In FX, DXY gave up the 97.000 level on GBP strength, EUR/GBP fell to its weakest since mid-2016
• Looking ahead, highlights include US Import/Export Prices & Retail Sales, Fed’s Williams

UK ELECTION

The result of the UK election exit poll overwhelmingly pointed towards a Conservative majority with a total of 368 seats vs. Labour 191, presenting the Conservatives with an expected majority of 86. Even with a margin of error of around 15 seats, this stood the Conservatives well clear of the 326 required to govern. In an immediate reaction GBP saw strength across the board with GBP/USD jumping from around the mid 1.31 level to 1.3514; the highest since June 2018. Support for GBP stemmed from the implications for the Brexit process given that Johnson stated that all Conservative candidates had agreed to approve the withdrawal agreement in the HoC, the passage of the bill is all but certain (date tbc).

As the results of individual seats were announced, the findings of the exit poll appeared to be vindicated with Labour broadly either seeing their majority in key seats dwindle or change hands with the Conservatives. As such, the market reaction during the announcement was relatively limited with the Conservatives managing to cross the 326-seat threshold just before 0500GMT; the final result and extent of the majority is yet to be confirmed.

US President Trump congratulates UK PM Johnson on winning the UK election, adds that UK and US are now free for a "massive new trade deal" post-Brexit, "This has the potential to be far bigger and more lucrative than any deal that could be made with EU". (Twitter)

Senior German Lawmaker notes that the PM Johnson's victory Brexit is now inevitable, goal now is to keep UK-EU relations as close as is possible. (Newswires)

What lies ahead? As we mentioned in our commentary, with the passage of the Withdrawal Agreement almost a given, focus will at some stage turn towards the transition period with the EU which is due to expire in December 2020. A decision on whether to extend this (end of December 2022 is the limit of any extension) is due at the end of June. However, Johnson has backed himself into a corner by stating he would not extend the transition period and therefore in theory, the possibility of a cliff-edge exit is still live. When this becomes the source of focus for the market is yet to be seen, however, the decision over whether to extend or not will likely be set for a much rougher ride than the passage of the WA. From a European perspective, BBC’s Adler has already reported that “Brussels does not believe an ambitious trade deal is possible to be negotiated and ratified by December next year as PM Johnson claims, with the only possibility in the short time said to be a quick and dirty free trade deal on EU terms”

TRADE

China and the US have struck an agreement on some tariff reductions and a delay to the tariffs that were due to come into effect on December 15th according to sources which added that China has agreed to purchases of USD 50bln in agricultural goods in 2020, while other source reports also stated the US will announce the trade deal today. (Newswires)

Fox Business' Lawrence tweeted that a source stated the December 15th tariffs will not go forward and there will be a small reduction in tariffs on some Chinese goods as a gesture of good will, while Phase Two of the negotiations will begin after 2020 elections.  Furthermore, the source said a signing ceremony will not happen with President Xi and there will be a rollout of the agreement by the White House Friday, while the Chinese have requested that the language of the never be made public. (Twitter)

China leaders are yet to accept the deal (referring to the 'big deal' US President Trump tweeted about) a number of issues: USD 50bln purchases is a hard target, other trade partners complaining at a reallocation who could challenge the WTO., CNBC's Yoon citing sources. (Twitter)

Though Beijing sees the benefit of an imminent deal, it still wants to ensure that China does't appear to have been pressured into making concessions, according to WSJ. (WSJ)

China's Foreign Ministry, regarding US trade talks, reiterates that China is committed to resolving issues but the deal needs to be mutually beneficial. (Newswires)

Certain US lawmakers urged US Secretary of State Pompeo and US Commerce Secretary Ross to sanction China related to its actions in Xinjiang, while there had also been separate comments from Chinese Foreign Minister Wang Yi that US actions have caused serious damage to the hard-won mutual trust between China and US. (Newswires)

ASIA-PAC

A broad heightened appetite for risk was seen overnight with the Asia-Pac majors bolstered and US equity futures extending on Wall St’s fresh record levels as markets reacted to reports that US and China have struck an agreement on some tariff reductions and a delay to the December 15th tariffs, while China is said to have agreed to purchases of USD 50bln in agricultural goods in 2020. In addition, focus was dominated by the UK election results in which PM Johnson’s Conservatives are on course for an overwhelming 86-seat majority according to exit polls. ASX 200 (+0.5%) and Nikkei 225 (+2.6%) were lifted with financials after banking regulator APRA advised ADIs it will delay finalizing consultation on implementation of product responsibility requirements until H1 next year but with hefty losses in gold miners restricting gains for the index, while the Japanese benchmark broke through the 24k milestone to print its highest since October 2018 with a somewhat disappointing Tankan survey doing little to contain the rally. Hang Seng (+2.6%) and Shanghai Comp. (+1.8%) were also buoyed on the flurry of positive trade rhetoric as aside from the source reports of an agreement being reached in principle, there had also been optimistic comments from US President Trump regarding a trade deal and WSJ initially noted US negotiators offered to cut existing tariff rates by up to 50% although no official announcement has been made yet from either side. Finally, 10yr JGBs retraced some of the prior day’s losses which had been the by-product of the dramatically improved trade climate, with the rebound also helped by the BoJ’s presence in the market for over JPY 1.1tln of JGBs concentrated in 1yr-10yr maturities.

PBoC skipped open market operations for a net neutral weekly position. (Newswires) PBoC set USD/CNY mid-point at 7.0156 vs. Exp. 7.0139 (Prev. 7.0253)

Japanese Tankan Large Manufacturing Index (Q4) 0 vs. Exp. 2 (Prev. 5); lowest since March 2013. (Newswires) Japanese Tankan Large Manufacturing Outlook (Q4) 0 vs. Exp. 3 (Prev. 2) Japanese Tankan Large Non-Manufacturing Index (Q4) 20 vs. Exp. 16 (Prev. 21) Japanese Tankan Large All Industry Capex (Q4) 6.8% vs. Exp. 6.0% (Prev. 6.6%)

PBoC will conduct medium-term lending facility loan operation on Monday., according to reports. (Newswires)

Bundesbank: 2020 German GDP growth at 0.6% vs. Prev. 1.2%, 2021 at 1.4% vs. Prev. 1.3%: Cut 2020 inflation forecast. Downgrades due to a fall in household real disposable income stemming from the slowdown in employment growth. Bundesbank notes supportive fiscal policy alongside highly accomodative monetary policy will provide further support. (Newswires)

GEOPOLITICS

Turkey is "very close" to signing a deal for the second batch of Russian-made S-400 missile system, deal could be signed before April, according to the Defence Industry Chief

US Special Envoy for Afghanistan said they will be taking a brief pause from talks with the Taliban following the attack on an American base earlier this week. (Newswires)

EU leaders agreed to extend economic sanction on Russia regarding Ukraine, according to diplomatic sources. (Newswires)

UK/EU

BBC’s Katya Adler tweeted that EU leaders will formally welcome the result assuming it is a Tory majority and will call for speedy ratification of the Brexit deal in Parliament, while they will underline the ambition for a broad comprehensive EU/UK trade deal. However, she added that Brussels does not believe an ambitious trade deal is possible to be negotiated and ratified by December next year as PM Johnson claims, with the only possibility in the short time said to be a quick and dirty free trade deal on EU terms. (Twitter/BBC)

ECB's de Guindos says the slowdown in the Euro Area has bottomed out as a disorderly Brexit and trade wars between China and the US are yet to materialise, calls for structural reforms and fiscal policy in Europe to take over from monetary policy. (Newswires)

ECB's Holzmann (hawk) when asked about the ECB's inflation target should be lowered, says there are many counter arguments, no discussions within the ECB GC on inflation yet. (Newswires) 

EQUITIES

European bourses are boosted in early trade [Eurostoxx 50 +1.40%] with upside seen across the board on the back of positive US-China trade developments, coupled with tailwinds from the landslide victory by the market-friendly Conservatives in the UK General Election. UK’s FTSE 100 (1.8%) initially lagged its peers amid FX dynamics as Sterling soared in light of last night’s election exit polls. The index then recovered and now outperforms the European equity sphere as Sterling gives up some gains and large-cap election/Brexit sensitive domestic stocks receive impetus. Banking names such as RBS (+11.1%), Barclays (+9.0%), Lloyds (+8.0%) and homebuilders including Taylor Whimpey (+13.3%), Persimmon (+11.6%) and Barratt Developments (+10.5%) all jumped to the top of the index amid more certainty surrounding Brexit under a Tory government. Meanwhile, UK utility companies (SSE +9.5%, Centrica +8.5%) join the top ranks amid dwindled prospects of privatisation under the Conservatives, whilst BT (+8.0%) similarly benefits as Labour previously noted it wanted to nationalise the Co.  Sectors are all in the green with some underperformance seen across defensives, whilst substantial outperformance is experienced in financials, utilities and consumer discretionary amid the aforementioned movers. Outside of the UK, other notable movers include Delivery Hero (+15.5%) whose shares spiked higher amid source reports that the Co. are reportedly approaching an agreement to purchase Woowa in a potential USD 4bln deal. Airbus (AIR FP) trades higher after Qantas airways selected the Co. as its preferred supplier over Boeing. PSA (+3.1%) shares are supported amid speculation that it may sign its merger with Fiat Chrysler (+2.0%).  Elsewhere, SAP (+1.8%) shares are buoyed by the overall risk sentiment and sub-par guidance from rival Oracle (-1.9% pre-market). On the flip side, Henkel (-3.3%) receives a double whammy from a guidance cut and a broker downgrade.

FX

GBP - Sterling has come off the boil, but still bubbling on the back of Thursday’s UK GE that culminated in a clear win for the Conservative Party and hands PM Johnson a convincing majority to get Brexit done, in his very own words. The Pound rebounded after exit polls confounded pre-vote surveys suggesting a much closer contest between the Tories and main protagonist Labour, with Cable peaking just above 1.3500 and Eur/Gbp breaching 0.8300 at one stage. However, some of the euphoria and relief has subsequently waned and the former probed sub-1.3400 territory before returning to the big figure where the heftier of 2 large option expiries reside (1.4 bn compared to 1 bn at 1.3450).

EUR/NZD/CHF/CAD/AUD - All firmer against the Greenback that has lost more ground almost across the board, initially on dovish FOMC vibes then US-China Phase 1 and tariff impulses before Sterling’s election exertions pushed the DXY over the edge (through 97.000 and now meandering between 96.922-712). The single currency has recouped all and more of its post-ECB presser losses and hurdled key chart resistance in the form of the 200 DMA (1.1154), but stopped just short of 1.1200 in contrast to the Kiwi that has now cleared 0.6600 and recouped some declines relative to the Aussie. Indeed, Aud/Nzd has pulled back towards 1.0450 as Aud/Usd pivots 0.6925 and could be hampered by large option expiries rolling off between 0.6885-0.6900 (1.6 bn). Elsewhere, the Franc has bounced within 0.9808-62 parameters and Loonie likewise in a 1.3151-86 band, with the latter also benefiting from positive USMCA developments.

JPY - The lone G10 loser on further safe-haven unwinding rather than a bleak Japanese Tankan it seems, as Usd/Jpy leaps from just below 109.00 and above 109.50.

EM - The Yuan has given up some gains vs the Dollar, but crucially or interestingly the Cnh is holding between 6.9850-9275 even though the PBoC fixed the Usd/Cny midpoint at 7.0000+. Similarly, the Lira remains firm and over 5.8000 despite Turkey’s Defence Ministry declaring that the order for a 2nd Russian S-400 missile system consignment could be struck soon. Elsewhere, the Rouble has largely taken the expected 25 bp CBR rate cut in stride and is still on track to extend its winning run beyond 62.5000. FIXED INCOME

It remains far too early to tell or premature given the fact that US Treasuries are holding close to their overnight session recovery highs, but the core EU benchmarks may have petered out after extending rebounds to 171.54 (Bunds) and 131.05 (Gilts) and nearly closed technical holes in the process. Nevertheless, the respective 10 year futures are well off intraday/fresh contract lows (170.75 and 130.45) awaiting the return of US peers and some decent data to end a hectic week plus a speech from Fed’s Williams.

COMMODITIES

Little to report thus far in the commodity space, with WTI and Brent futures advances amid the broad risk appetite in the market which emanated from the positive US-China trade headlines and the fallout from the UK General Election. The benchmarks have surpassed 60/bbl and 65/bbl respectively, with the former dipping back below. Eyes will remain on the official announcement of the trade deal from the US side and any comments from the China side confirming whether the two sides struck a deal – sources however noted that China thinks a USD 50bln purchase of ag good is a “hard target”, according to CNBC’s Yoon. Elsewhere, gold prices remain relatively flat downside from safe-haven outflow is countered by a weaker Buck. The yellow metal hovers in a narrow