• Asian equity markets traded mostly higher as the region took mild impetus from the gains on Wall St where all major indices notched fresh record highs
• UK PM Johnson is to bolster his Brexit legislation by outlawing a delay to the transition period with the EU beyond December 2020
• In FX, DXY edged marginal gains above 97.00, helped by strong NAHB data, a recent increase in yields and weakness across major counterparts
• RBA meeting minutes saw the central bank reiterating it has the ability to add further stimulus if needed and is ready to ease again if required
• Looking ahead, highlights include UK Jobs, US Building Permits and Housing Starts, Industrial Production, JOLTS, APIs, ECB’s Kazmir, Lane, Fed’s Kaplan, Rosengren, Williams, BoE’s Carney, supply from the UK

ASIA-PAC

Asian equity markets traded mostly higher as the region took mild impetus from the gains on Wall St where all major indices notched fresh record highs once again due to the recent trade developments and in which desks noted a large equity buy programme helping spur the pre-Christmas rally. ASX 200 (Unch.) and Nikkei 225 (+0.5%) both opened higher but with the advances in Australia later retraced amid weakness in financials and Westpac shares after APRA announced it is launching an investigation related to AUSTRAC breeches and doubled its capital requirement add-ons for the big 4 lender to AUD 1bln, while upside in Tokyo was also restricted by a pullback in JPY-crosses. Hang Seng (+1.4%) and Shanghai Comp. (+1.5%) rallied due to trade optimism and after local press reports suggested the potential for 2 targeted RRR cuts by the PBoC next year, although both were initially kept tepid by continued PBoC liquidity inaction and as China remained tight-lipped regarding agriculture purchase commitments. Finally, 10yr JGBs were subdued after spillover selling from USTs, with demand dampened by gains in stocks and after the 20yr JGB auction which pointed to showed results across all metrics.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set USD/CNY reference rate at 6.9971 vs. Exp. 6.9970 (Prev. 6.9915)

China’s NDRC said consumer prices are expected to remain stable in the future and that China has the confidence, as well as the conditions to reach this year's economic targets, while it added that China will not resort to massive stimulus for building infrastructure. (Newswires)

UK/EU

ITV's Peston tweeted that PM Johnson is to change the Withdrawal Agreement Bill to put into law that transition arrangements with EU, during which UK is in effect non-voting member of EU, must end 31 Dec 2020, which he noted will be seen as increasing the risk of delayed no-deal Brexit. (Twitter)

BoE Governor Carney said the probability of a disorderly Brexit has fallen since the election and noted we need to continue to ensure financial system can be a buffer whatever happens. (Newswires)

Italian government won the Senate confidence vote on its 2020 budget which now moves to the Lower House. (Newswires)

FX In FX markets, the DXY edged marginal gains above 97.00 helped by strong NAHB data, a recent increase in yields and weakness across most its counterparts, in particular GBP/USD which broke down Monday’s support at 1.3320 and then tripped stops through the 1.3300 level amid reports PM Johnson will legislate to rule out an extension of the EU transition period. This was said to place the prospects of a no-deal more firmly on the table, with the pressure in the currency also exacerbated by cross-related flows in which EUR/GBP briefly surged above 0.8400 and GBP/JPY gave up 146.00. EUR/USD was contained within the prior day’s tight ranges owing to resistance at 1.1150 and following the bloc’s recent soft PMI releases, USD/JPY and JPY-crosses have pulled back from the prior day’s best levels, while antipodeans were also lacklustre with AUD/USD pressured following the RBA meeting minutes in which the central bank reiterated it has the ability to add further stimulus if needed and is ready to ease again if required. The RBA also noted persistently low growth in household income is a source of concern and that current wage growth was not fast enough to reach inflation and consumption goals, which AMP cited as a dovish release and therefore see the RBA cutting rates at the next meeting in February.

RBA Minutes from the December meeting stated the board agreed it is important to reassess the economic outlook at the February meeting and that it has the ability to add further stimulus if needed and is ready to ease again if required. Furthermore, RBA reiterated the economy appears to have reached a gentle turning point but noted that persistently low growth in household income is a source of concern and that current wage growth is not fast enough to reach inflation and consumption goals, while it also stated consumers are increasingly gloomy on the economy and media coverage is also more negative. (Newswires)

New Zealand ANZ Business Confidence (Dec) -13.2% (Prev. -26.4%). (Newswires) New Zealand ANZ Activity Outlook (Dec) 17.2% (Prev. 12.9%)

COMMODITIES

Commodities were uneventful overnight in which WTI crude futures consolidated above the USD 60.00/bbl level following recent mild gains on the back of the US-China trade agreement, with some also attributing the quiet trade to potential book squaring as WTI (F0) options expired on Monday and as focus shifts to the upcoming inventory numbers beginning with today’s API release where crude is expected at a drawdown of 1.9mln bbls. Elsewhere, gold was range bound with demand sapped by the positive risk tone and marginal headway for the greenback, while copper only slightly benefitted despite Wall St.’s fresh record highs and outperformance in its largest purchaser China.

US total Shale regions oil production for January seen up 29k BPD at 9.135mln BPD vs. 51k BPD rise for December, according to EIA. (Newswires)

JPMorgan raised Brent crude 2020 price forecast to USD 64.50/bbl from USD 59.00/bbl but sees prices in 2021 at USD 61.50/bbl, while it expects WTI prices averaging USD 60.00/bbl in 2020 and USD 57.50/bbl in 2021. (Newswires)

GEOPOLITICS

US Defense Secretary Esper said North Korea tests are likely if they don't feel satisfied and that he is hopeful about diplomatic efforts but noted that Pyongyang rhetoric is concerning. (Newswires)

China and Russia proposed a draft UN Security Council resolution which would terminate some sanctions on North Korea with the intent of enhancing the livelihood of the civilian population, although the US is reported to have rejected the proposal. (Newswires)

US 

The TPLEX exhibited pronounced bear steepening led by the belly as investors got long on risk assets as the dust settled from the US-China Phase One announcements. Desks noted the move was exacerbated by a multi-month, record size, equity buy programme, leading to speculative selling in the belly to long end; a chunky block steepener was recorded, with 26.7k TUH contracts bid and 5.3k USH contracts offered. By settlement the 10-year yield was just shy of 1.9%, up over 6bps on the session, whilst the 2-year yield rose just 4% to 1.64%, seeing the 2s10s widen over 2.5bps; the 2s30s widened a less pronounced ~1.7bps. US T-note (H0) futures settled 19+ ticks lower at 128-13+.

Mexican Deputy Foreign Minister Seade said there is nothing else questionable in the bill implementing the USMCA pact. This followed comments by USTR Lighthizer that five US labour attaches would work with Mexico to implement the labour reforms which would not be inspectors and will abide by laws in Mexico, while labour verifications would be conducted by independent panelists and not labour attaches. (Newswires)

China's US Treasury holdings for October stood at USD 1.01trln (Prev. 1.1trln) and Japan's US Treasury holdings stood at USD 1.17trln (Prev. 1.15trln). (Newswires)