• European bourses are firmer this morning, though the FTSE 100 significantly outperforms on a second-wave of UK election optimism
• China State Council stated it will continue to suspend additional tariffs on US vehicles and auto parts due to the Phase One deal
• China sources cited by CNBC's Yoon note that the USD 40-50bln target on agricultural purchases is a "best case target"
• Boeing (BA) is mulling cutting or stopping its 737 MAX production, via WSJ – Co. shares are down 2% pre-market
• USD remains subdued vs. most G10 peers, although Sterling and Euro were dented on the Flash PMIs
• Looking ahead, highlights include US Flash PMIs, ECB’s Lane, de Guindos, BoE’s Carney (Financial Stability Report)

TRADE

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's Foreign Ministry states that more trade information will be released in due course and working-level officials from both sides remain in contact. (Newswires)

China sources cited by CNBC's Yoon note that the USD 40-50bln target on agricultural purchases is a "best case target", and that the US would likely allow 'best endeavor' purchases; adds that general feeling on tariff rollback is an issue of linguistics. (CNBC) Additionally CNBC’s Yoon adds, no Chinese confirmation regarding the hard targets for US agricultural purchases; although, China is likely to agree but cannot acknowledge this publicly due to a possible backlash. (Twitter)

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 (-0.3%) was subdued by the recent pullback in USD/JPY and as the latest Japanese Manufacturing PMI data remained in contraction territory. Hang Seng (-0.7%) and Shanghai Comp. (+0.6%) 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)

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) Subsequently, on these reports, China’s Foreign Ministry states that the relevant allegations are false. (Newswires)

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%)

US

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)

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)

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)

Fitch affirmed France at AA; Outlook Stable and affirmed Spain at A-; Outlook Stable. DBRS maintained UK rating at AAA with Stable Trend. (Newswires)

EU Markit Manufacturing Flash PMI (Dec) 45.9 vs. Exp. 47.3 (Prev. 46.9)

-        Services Flash PMI (Dec) 52.4 vs. Exp. 52 (Prev. 51.9)

-        Comp Flash PMI (Dec) 50.6 vs. Exp. 50.7 (Prev. 50.6)

-        IHS Markit state ‘PMI indicative of GDP growing at a quarterly rate of just 0.1%’

UK Flash Services PMI (Dec) 49.0 vs. Exp. 49.5 (Prev. 49.3)

-        Manufacturing PMI Flash (Dec) 47.4 vs. Exp. 49.3 (Prev. 48.9)

-        Composite PMI (Dec) 48.5 vs. Exp. 49.6 (Prev. 49.3)

-        HIS Markit state, the latest decline in the data "increases the likelihood that the economy contracted slightly in the fourth quarter"

German Markit Manufacturing Flash PMI (Dec) 43.4 vs. Exp. 44.5 (Prev. 44.1)

-        Services Flash PMI (Dec) 52.0 vs. Exp. 52 (Prev. 51.7)

-        Comp Flash PMI (Dec) 49.4 vs. Exp. 49.9 (Prev. 49.4)

French Markit Manufacturing Flash PMI (Dec) 50.3 vs. Exp. 51.5 (Prev. 51.7)

-        Markit Services Flash PMI (Dec) 52.4 vs. Exp. 52.1 (Prev. 52.2)

-        Comp Flash PMI (Dec) 52 vs. Exp. 52 (Prev. 52.1)

EQUITIES

European equities kick-start the week on the front foot [Eurostoxx 50 +0.7%] following on from a relatively mixed APAC session, with traders citing an overall improvement in the trade environment as a reason for the advances.  Cash Stoxx 600 (+1.1%) managed to notch intraday record highs, albeit the FTSE 100 (+2.1%) stands as the marked outperformer amid further post-election tailwinds on large-cap stocks, miners benefitting from rising copper prices and exporters taking advantage of a declining Sterling – Standard Chartered (+3.3%), RBS (+3.2%), Barclays (+3.5%), Glencore (+4.0%), BHP (+3.2%), Rio Tinto (+2.9%) and Antofagasta (+2.7%). DAX and other core European indices stalled gains amid disappointing December Flash PMIs. Sectors opened modestly in positive territory but have since gained traction, with cyclical Materials and Financials outperforming on the back of FTSE 100 gainers. In terms of other individual movers, Novartis (unch) opened lower after the Co. stated it will be dropping development of its asthma drug amid a string of disappointing trials. Meanwhile, Kerry Group (-3.5%) shares fell to the foot of the pan-European index after losing a USD 26bln deal to International Flavours and Fragrances for US-listed DuPont’s nutrition division (+1.9% pre-market). Last but not least, Sports Direct (+20%) soared on the back of a profit jump with group revenue increasing 14% YY which comes amid performance woes after the Co. acquired the troubled House of Fraser.

Boeing (BA) is mulling cutting or stopping its 737 MAX production. (WSJ) – Co. shares are down 2% pre-market

FX

GBP/EUR - Sterling’s post-UK election 2nd coming was already fading after a fleeting foray above 1.3400 vs the Dollar and test of resistance around the psychological 0.8300 level against the single currency when the preliminary PMIs for December confounded expectations for some improvement and missed consensus by quite a distance, especially in the manufacturing sector. Cable duly retreated towards 1.3325 and the cross rebounded to circa 0.8350 even though the earlier Eurozone flash surveys were also disappointing, and Germany’s manufacturing headline in particular. However, Eur/Usd remains depressed within a 1.1123-50 range and may struggle to pull away from decent option expiries between 1.1120-25 and 1.1100-10 (1.2 bn clips) rather than challenging slightly larger interest at 1.1150 (1.3 bn).

NZD/CAD/AUD - All firmer vs their US counterpart that continues to flounder (DXY anchored around 97.000), with the Kiwi keeping tabs on the 0.6600 handle, Aussie hovering just under 0.6900 and Loonie pivoting 1.3150 in wake of some upbeat Chinese data overnight (ip and retail sales) and further reserved reflection on US-China trade deal Phase 1. Nzd/Usd and Aud/Usd have both regrouped after losing some ground on independent impulses via growth forecast downgrades from the NZIER and government respectively, while the former also took note of Westpac rolling its RBNZ rate cut prediction to August next year from February.

NOK/SEK - The Scandi Crowns are both holding firm lines ahead of this week’s Norges Bank and Riksbank policy meetings, but Eur/Nok’s retreat is more technical after breaching the 100 DMA (10.0385) compared to Eur/Sek’s reversal through 10.4300 in anticipation of a 25 bp repo rate hike on Thursday.

CHF/JPY - The safe-haven Franc and Yen are narrowly mixed against the Buck, with Usd/Chf nearer the bottom of a 0.9825-45 band in contrast to Usd/Jpy hovering just below 109.50 compared to 109.25 at one stage and flanked by expiries between 109.00-05 and 109.50 in 1bn.

EM - Against the grain of broad rallies vs the Dollar, Usd/Try is nudging 5.8500 and an upside chart objective at 5.8671 amidst heightened Turkish-US angst after President Erdogan’s threat to shut NATO bases if Washington decides to impose more sanctions.

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)

Notable FX Expiries, Ny Cut:

-        EUR/USD: 1.1065-75 (800M), 1.1085 (600M), 1.1100-10 (1.2BLN), 1.1120-25 (1.2BLN), 1.1150 (1.3BLN), 1.1180 (516M), 1.1200 (1.5BLN)

-        USD/JPY: 109.00-05 (1BLN), 109.50 (1BLN)

FIXED INCOME

Based on the scale of price movement more than action or precise timing, Gilts appear to have been at the forefront of the recent downturn in debt futures along with Italian BTPs following extended gains in wake of the preliminary PMIs to 132.12 (+59 ticks on the day) and 172.43 for Bunds (+33 ticks). In truth, Treasuries have resisted any temptation to rebound or piggy-back their EU peers and remain underwater with the curve steeper, so could be exerting more influence as attention switches to the US open, while short term/intraday techs may also be a factor as the nearest bullish chart targets were not breached or really threatened.

COMMODITIES

Little to report on the commodities front - with WTI and Brent futures largely unchanged on the day, albeit in positive territory after a relatively flat APAC session. WTI futures trade on either side of USD 60/bbl whilst its Brent counterpart topped USD 65/bbl in recent trade with little by way of fresh fundamental catalysts, and with participants somewhat cautious of the US-China Phase One deal amid a lack of details and a paucity on China’s commitments. Elsewhere, gold prices remain choppy within a tight USD 5/oz range thus far, as traders and investors await further Phase One details. Copper meanwhile has resumed its upwards trajectory with risk-sentiment a cited factor, although upside may be more due a receding USD and above-forecast China industrial production and retail sales. Finally, Dalian iron ore futures fell in excess of 1.5% after data showed weekly utilisation rates at 163 mills across China slumped almost 66 – thus casting fresh doubts on demand for the base metal.