• European Equities have been choppy for much of the session, but haven’t drifted too far from the unchanged mark
• US Treasury Secretary Mnuchin said President Trump just wants a level playing field with China and the enforcement mechanism is very strong in the China deal
• US House had enough votes to impeach President Trump with the majority in favour and is expected to conduct a vote today
• FX space is little changed vs. USD, with EUR and GBP failing to derive much support from the sessions data
• Looking ahead, highlights include Canadian CPI, DoEs, NZ GDP, Trade Balance, Fed’s Evans

ASIA-PAC

Asian equity markets traded mixed as the region lacked conviction in the absence of any fresh catalysts and following a relatively quiet session on Wall Street heading into the holiday season, where stocks consolidated around record highs due to the improved trade climate and after several encouraging tier-2 data releases. ASX 200 (+0.1%) and Nikkei 225 (-0.5%) were mixed as defensives just about offset the losses in miners, tech and financials to keep Australia afloat, while sentiment in Tokyo was weighed by adverse currency flows and mixed trade data in which Exports contracted for a 12th consecutive month albeit at a slightly narrower than expected decline. Hang Sang (+0.1%) and Shanghai Comp. (-0.2%) were indecisive amid diminishing effects from the US-China phase one agreement, while the PBoC’s first liquidity injection in 21 sessions also failed to spur prices despite announcing a total of CNY 200bln via 7-day and 14-day reverse repos at a reduced rate (2.65% vs Prev. 2.70%) on the 14-day operation. Finally, 10yr JGBs were higher following the bull-steepening in the US and with the BoJ also in the market for over JPY 1.1tln of JGBs in 1yr-10yr maturities, but with advances restricted as the BoJ kick starts its 2-day policy meeting.  

PBoC injected CNY 50bln via 7-day reverse repos and CNY 150bln via 14-day reverse repos with the 7-day reverse repo rate kept at 2.50% and 14-day reverse repo rate lowered to 2.65% from 2.70%. (Newswires) PBoC set USD/CNY reference rate at 6.9969 vs. Exp. 6.9975 (Prev. 6.9971)

CNBC's Yoon suggested the PBoC 14-day reverse repo rate cut is a sign it remains in easing mode and may be just enough to convince banks to make another 5bps cut this Friday to the Loan Prime Rate citing Capital Economics. (Twitter)

US Treasury Secretary Mnuchin said President Trump just wants a level playing field with China and the enforcement mechanism is very strong in the China deal. (Newswires)

Japanese Trade Balance (JPY)(Nov) -82.1B vs. Exp. -369.0B (Prev. 17.3B, Rev. 15.7B). (Newswires) Japanese Exports (Nov) Y/Y -7.9% vs. Exp. -8.6% (Prev. -9.2%) Japanese Imports (Nov) Y/Y -15.7% vs. Exp. -12.7% (Prev. -14.8%)

US

US House had enough votes to impeach President Trump with the majority in favour and is expected to conduct a vote today and the House Rules Committee set a rule for 6-hour debate ahead of the Trump impeachment vote. (Newswires)

UK/EU

The Times Shadow MPC saw a 7-2 vote in favour of standing pat on rates at 0.75% with the two dissenters voting for a rate increase (vs. two dovish dissenters on the actual MPC). The Panel said the BoE should abandon its bias towards lower rates next year. (Times)

UK Government’s plan is to get the Brexit Withdrawal Agreement Bill through House of Commons stages on the 7th, 8th and 9th of January., scheduling understanding via Spectators Forsyth. (Twitter)

French President Macron will not be abandoning pension reform plans, but is prepared for improvements during discussions with unions. (Newswires)

Poland’s Supreme Court warned the country may be forced to leave the EU if controversial reforms advocated by the ruling party is pushed through which would permit the dismissal of judges if they questioned the government's judicial reforms. (BBC)

Outgoing ECB Board Member Coeure says lowering the inflation target would be wrong, as an alternative, ECB could communicate the range of inflation outcomes that can be considered acceptable in normal times. (Newswires)

UK CPI YY (Nov) 1.5% vs. Exp. 1.4% (Prev. 1.5%)

-        Core CPI YY (Nov) 1.7% vs. Exp. 1.7% (Prev. 1.7%)

-        CPI MM (Nov) 0.2% vs. Exp. 0.2% (Prev. -0.2%)

-        Core CPI MM (Nov) 0.2% vs. Exp. 0.2% (Prev. 0.1%)

German Ifo Business Climate New (Dec) 96.3 vs. Exp. 95.5 (Prev. 95.0, Rev. 95.1)

-        Expectations New (Dec) 93.8 vs. Exp. 93 (Prev. 92.1, Rev. 92.3)

-        Current Conditions New (Dec) 98.8 vs. Exp. 98.1 (Prev. 97.9, Rev. 98.0)

-        German economy is heading into the new year with confidence, Ifo says; adding that the industrial sector is still in recession and it will take a while to get out of it. And German GDP is likely to increase by 0.2% in Q4.

EQUITIES

FedEx Corp (FDX) reported Q4 19 Adj EPS USD 2.51 vs. Exp. 2.84, Revenue USD 17.3bln vs. Exp. USD 17.69bln. Co. cut its FY 20 EPS to USD 9.10-10.35 vs. Prev. USD 10.00-12.00. Co. said quarterly results declined due to weak global economic conditions, higher ground costs, loss of business from a large customer. (Newswires) Co. shares declined almost 7% in after-market trade.

A choppy day thus far for European stocks [Eurstoxx 50 +0.2%] following on from a mixed APAC session as markets quietened ahead of the Christmas holidays. Sectors are broadly mixed with some underperformance seen in consumer discretionary whilst staples outperform. The session has been mostly driven by individual stock movers – Fiat Chrysler (-0.1%) and Peugeot (+1.2%) have officially announced an agreement for a 50/50 merger in a EUR 50bln deal – with annual run-rate synergies expected at around USD 3.7bln.  Before the deal is closed, Fiat Chrysler stated it will distribute a special dividend of EUR 5.5bln while PSA will distribute to its shareholders its 46% stake in Faurecia (-1.5%). Further, Fiat Chrysler notes that its robot-making unit Comau is to be spun off after the merger. Elsewhere, FTSE-listed NMC Health (-0.5%) opened higher to the tune of 10% (following yesterday’s 20% drop) after the Co. reaffirmed its guidance and announced a GBP 200mln share buyback programme in response to Muddy Water’s negative note. Meanwhile, postal names including Deutsche Post (-0.7%), Royal Mail (-2.8%) and Austrian Post (-0.7%) all experience headwinds from FedEx’s (-7.4% pre-market) earnings last night which saw the company downgrade its EPS forecast alongside dismal earnings, citing weak global economic conditions. Elsewhere, Volvo (+4.1%) shares are supported after the Co. and Isuzu Motors (7202 JT) are mulling a strategic alliance. Volvo sees a positive impact on operating profit of SEK 2bln from the alliance. Finally, further angst for Scandi banks after the Swedish FSA opened as opened a sanctions case against the Co. and a probe into SEB’s (-1.6%) governance and control of measures to combat money laundering. FSA plans to communicate the outcome of the case in April 2020.

FX

DXY, CNH - The broad Dollar and Index remains in positive territory thus far in a continuation of the upside seen overnight, with the DXY meandering just under current weekly highs and its 50 WMA, both near 97.360 – somewhat of a barrier in recent trade. News-flow on the US-Sino front has been quiet overnight, with US Treasury Secretary Mnuchin singing from the same hymn sheet as recent WH officials. Nonetheless, the lack of details regarding the Phase One deal has prompted caution among traders and investors. This tone is reflected in CNY and CNH, with the offshore choppy on either side of 7.000 vs. the USD and with a lack of conviction and awaiting further headlines. Meanwhile, today’s docket sees little by way of State-side data, although speakers include Fed’s Board of Governor member Brainard and 2020 non-voter Evans.

EUR, GBP - Both trading modestly softer vs. the Buck and flat against each other. Sterling has held onto a bulk of yesterday’s losses and dipped below 1.3100 overnight before finding a base at around 1.3070 – with little reaction seen in light of mixed UK inflation metrics, in which headline CPI modestly topped forecasts alongside RPI, albeit PPI printed sub-par ahead of the BoE’s monetary policy update tomorrow. Elsewhere, EUR/USD saw very mild solace upon the German Ifo’s rosy release with all three metrics beating forecasts and priors seeing revisions higher. The institute added that the German Q4 German GDP is likely to increase by 0.2%. Aside from that, the Single Currency was little swayed by mostly unrevised EZ CPI figures with EUR/USD choppy within a tight 1.1127-54 intraday band (having retreated further below its 200 DMA at 1.1152). That said, decent option expiries may prompt some action amid holiday-thinned trade – with EUR 1.3bln expiring between strikes 1.1125-35 and a further EUR 1.6bln between 1.1140-50.

AUD, NZD, CAD, JPY - All flat and within tight ranges vs. the USD in early EU trade, albeit more on the back of a firmer Buck as opposed to individual weakness – with the high beta on standby for their respective tier one data/events (aside from trade news-flow). AUD/USD hovers around 0.6850 at time of writing ahead of the much-anticipated Aussie jobs data due overnight as an indication of the RBA’s next policy move. Similarly, its Kiwi counterpart remains relatively sideways and just north of 0.6550 and ahead of its 50 WMA (0.6585) with NZ Q3 GDP on the radar. USD/CAD remains just above the 1.3150 mark and with little inspiration from softer energy prices as the Loonie looks ahead to its November CPI readings – with headline YY seen ticking higher in the month. Analysts at JPM believe that the USD/CAD risk-reward remains skewered towards to the topside as the bank sees the BoC reducing rates at least once next year – “CPI sticking around target shouldn’t challenge that, but if it were to come off, then it would be another excuse to cut”, JPM says. Finally, USD/JPY trades lacklustre just under the 109.50 mark ahead of the BoJ Monetary Policy Decision due to be released sometime during the Tokyo lunch break (Full preview available on the Newsquawk headline feed).

EM - The Turkish Lira has seen renewed weakness after US senate passed a defence bill calling for Turkey sanctions over its purchase of the S-400 defence system – a bill which now falls into the hands of US President Trump for signing. The Turkish Defence Ministry responded that the bill contained hostile elements towards Turkey, in a sign that the relationship between the two countries are further deteriorating. USD/TRY has gained 5.900+ status to a high of 5.9200 (vs. low of 5.8829). Meanwhile, the ZAR experienced some weakness in early EU trade following source reports that the US is to review South Africa’s trade status at the end of January next year. USD/ZAR has pared back earlier upside, potentially on stabilisation on the Eskom front – which expects no loadshedding today despite constrained systems.

US is to review South Africa's preferential trade status on January 30th., according to sources. (Newswires)

Eskom states no load-shedding is expected today, due to a drop in demand and the return of some generating units. (Newswires)

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.1045-50 (1.2BLN), 1.1075-85 (1.6BLN), 1.1100-10 (900M), 1.1125-35 (1.3BLN), 1.1140-50 (1.6BLN), 1.1185 (600M), 1.1200 (1.7BLN)

-        USD/CAD: 1.3210 (1.5BLN), 1.3340-50 (1.7BLN)

FIXED INCOME

Debt hasn’t drifted too far from the unchanged mark for the session thus far which has been relatively quiet ahead of the year’s final Super Thursday. Ahead of tomorrow’s BoE meeting, CPI came in at 1.5% YY, in-line with the prev. and slight above market expectations; although the BoE themselves do see inflation coming under renewed pressure on the effect of energy price caps (which were a hinderance last month). On the release, Gilts came under some mild pressure dropping by around 10 ticks to a session low of 131.94, albeit the dip below 132.0 was short-lived. German’s 10yr bond was similarly dented on the Ifo release where all metrics beat expectations and Ifo noted the German economy is moving into 2020 with confidence. However, CapEco believe the survey indicates the economy, while no-longer on a significant downward path, is still weak and will stagnate in Q4 at best. In terms of reaction, Bunds dipped to a session low of 171.96 (yesterday’s low) just after the release; for reference, further support lies just below at 171.81. Within the periphery, Greek debt is supported on reports that the ECB may allow Greek banks to increase their holdings of domestic debt. Stateside, it’s a relatively quiet session aside from some Fed speak from Evans at a Q&A which will not include a text release. In terms of price action, the curve is bull flattening at present, but not by a significant margin.

COMMODITIES

WTI and Brent are around USD 0.50/bbl lower at present but remain above the USD 60/bbl and USD 65/bbl levels respectively. News-flow for the crude complex, and generally, has been light this morning with price action continuing to be dictated by the surprise API build of 4.7mln barrels (Exp. draw 1.2mln barrels); ahead of today’s EIA release where expectations are for a headline draw of 1.288mln barrels. Looking ahead, UBS note that a extended period of inventory builds often begins in Q1 due to the gap between winter demand and US driving season; which, while expected they believe may prompt some profit taking. Elsewhere, spot gold is firmer by just shy of USD 3/oz and resides near the top of the sessions range, but remains below yesterday’s high of USD 1480.35/bbl. Finally, copper prices remain within a narrow range for the session given a quiet APAC session and no further updates, as of yet, on the US-China front.

API Energy Inventories Crude +4.7mln vs. Exp. -1.3mln (Prev. +1.4mln). (Newswires)