• Asian equity markets traded mixed following relatively light newsflow over the weekend, ASX 200 outperformed
• USTR Lighthizer said China agreed to purchase USD 40bln of agriculture in the first year, added the deal will be signed by trade principals in Washington in the first week of January
• US is reportedly weighing 100% tariffs on more EU products including whiskies and cognac amid the fallout of its Airbus dispute
• In FX, the DXY was lacklustre, GBP/USD benefitted from a mild post-election second wind, PBoC fixed USD/CNY reference rate below 7.0000
• Looking ahead, highlights include EZ, UK and US Flash PMIs, ECB’s Lane, de Guindos, BoE’s Carney

ASIA-PAC

Asian equity markets traded mixed following relatively light newsflow over the weekend and last Friday’s flat performance on Wall St. where the major indices consolidated near record levels after the confirmation of a US-China Phase One deal which officials plan to sign in early January, although some noted the deal was only limited and questions arose over the feasibility of China committing to as much as USD 50bln of US agriculture goods. ASX 200 (+1.6%) was lifted by outperformance in defensives and the top-weighted financials sector with sentiment buoyed after the world’s 2 largest economies averted the December 15th tariffs, while Nikkei 225 (-0.1%) was subdued by the recent pullback in USD/JPY and as the latest Japanese Manufacturing PMI data remained in contraction territory. Hang Seng (-0.3%) and Shanghai Comp. (+0.3%) were constrained despite the phase one agreement confirmation and better than expected Chinese data in which Industrial Production and Retail Sales both topped estimates, as the stats bureau stated the economy still faces relatively big downward pressure and amid expectations for a reduced growth target for next year, while the mood in Hong Kong was also soured by a rise money market rates (Overnight HIBOR +57bps) and the resumption of violent protests over the weekend. Finally, 10yr JGBs were flat with prices hampered by last week’s resistance levels and with demand also subdued due to the absence of the BoJ in the market today.

PBoC skipped reverse repos but conducted CNY 300bln 1-year MLF operations at 3.25%. (Newswires) PBoC set USD/CNY reference rate at 6.9915 vs. Exp. 6.9937 (Prev. 7.0156)

USTR Lighthizer said China agreed to purchase USD 40bln of agriculture in the first year with best efforts to increase that to USD 50bln, while he confirmed there will be additional negotiations and that the December 15th tariffs are cancelled. Lighthizer added the deal will be signed by trade principals in Washington first week of January and he does not expect a presidential signing, while he also stated it is China’s expectation that there will be further phases and further reductions in tariffs. (Newswires)

On Sunday, China State Council stated it will continue to suspend additional tariffs on US vehicles and auto parts due to the Phase One deal, whilst also suspending the addition 5-10% tariffs on some US goods planned to take effect on December 15th, according to CNBC’s Yoon (Twitter)

China stats bureau said the economy still faces relatively big downward pressure and that China will keep economic operations within a reasonable range, while it also commented that China is able to reach full-year growth target and its economy remains resilient but faces rising external uncertainties. (Newswires)

US expelled 2 Chinese Embassy officials suspected of espionage following an incident in September in which the officials and their wives improperly drove onto a military facility in Virginia. (WSJ)

Chinese Industrial Output (Nov) Y/Y 6.2% vs. Exp. 5.0% (Prev. 4.7%). (Newswires) Chinese Retail Sales (Nov) Y/Y 8.0% vs. Exp. 7.6% (Prev. 7.2%) Chinese House Prices (Nov) Y/Y 7.1% (Prev. 7.8%)

UK/EU

UK PM Johnson is looking for a parliament vote on Brexit before Christmas to get it done by the exit deadline of January 31st. In related news, senior UK Cabinet Minister Gove reiterated pledge for the UK to have a trade deal with EU by end of next year despite reservations in Brussels whether this is feasible, while other reports noted senior Brussels sources said the EU will not “cut its own throat” with a post-Brexit trade deal next year if PM Johnson refuses to align Britain’s economy to single market rules. (Newswires/Times) UK opposition Labour Party leader Corbyn will stay on as party leader until the end of March. (Politics Home)

US is reportedly weighing 100% tariffs on more EU products including whiskies and Cognac amid the fallout of its Airbus (AIR FP) dispute according to CNBC citing documents, while the new items being considered for tariffs up to 100% range from Spanish olive oil and French Swiss cheese to Irish and Scotch whiskies. (Newswires)

DBRS maintained UK rating at AAA with Stable Trend. (Newswires)

Fitch affirmed France at AA; Outlook Stable and affirmed Spain at A-; Outlook Stable. (Newswires)

UK Rightmove House Prices (Dec) M/M -0.9% (Prev. -1.3%). (Newswires) UK Rightmove House Prices (Dec) Y/Y 0.8% (Prev. 0.3%) 

FX In FX markets, the DXY was lacklustre and trickled back towards the 97.00 level after EUR/USD mildly rebounded from support at 1.1110 and GBP/USD benefitted from a mild post-election second wind with UK PM Johnson reportedly looking for a parliament vote on Brexit before Christmas to get it done by January 31st deadline but failed to break through resistance at 1.3400. USD/JPY and JPY-crosses languished after their recent pullback, and antipodeans were also subdued after failing to profusely capitalize on the firmer CNY reference rate as well as encouraging China data. In addition, the latest Mid-Year Economic and Fiscal Outlook for Australia showed the government cut the current fiscal year growth forecast to 2.25% from 2.75% and reduced its wage growth estimate by 25bps to 2.50%, while NZIER lowered New Zealand 2019/20 GDP growth forecast to 2.2% from 2.3%.

Australia cut 2019/20 economic growth forecast to 2.25% from 2.75% and lowered wage growth forecast to 2.50% from 2.75%, while it sees 2021 budget surplus at AUD 6.1bln vs. Prev. forecast AUD 11.0bln, according to the Mid-Year Economic and Fiscal Outlook. (Newswires)

Westpac pushed back its RBNZ rate cut forecasts in which it now sees a 25bps cut in August 2020 from Prev. forecast of a cut in February 2020. (Newswires)

COMMODITIES

Commodities were mixed in which WTI crude futures traded sideways slightly below the USD 60.00/bbl amid the indecisive overnight risk sentiment and lack of fresh catalysts to spur further advances after having extended in its quarterly high last week. Gold was also little changed and failed to benefit from the mild USD weakness, while copper mirrored the humdrum tone across the complex with only mild short covering observed as demand as some doubts remained despite the phase 1 agreement and better than expected Chinese data.

Baker Hughes Rig Count Oil +4 at 667, natural gas -4 at 129 and total unchanged at 799 rigs. (Newswires)

GEOPOLITICS

Turkey President Erdogan threatened to shut down 2 bases in the country including the Incirlik Airbase where the US military stores nuclear weapons, if sanctions are placed on Turkey. (Newswires)

North Korea is said to have conducted another test at its long-range rocket site which it said would strengthen its nuclear deterrent, although it is unclear if this was a missile test, while it added that hostile forces including US should refrain from provocation if they want to end the year peacefully. In related news, US Special Rep. for North Korea Biegun said it is regrettable that the tone of North Korea statements has been hostile, and that the US doesn’t have a deadline on negotiations with North Korea but instead has a goal. (Newswires)

US 

Fed's Williams (Voter, Neutral) said the housing market is picking up from a year ago and consumer spending is strong, while he expects the US economy to grow by about 2% over the next couple of years and suggested low and stable inflation isn't a concern but wants to avoid falling inflation. (Newswires)

Senate Democrats proposed a week-long Senate impeachment trial seeking testimonies from 4 new witnesses including John Bolton and Mick Mulvaney over President Trump's conduct towards Ukraine, according to reports citing a newly released document. (AP)