• Asian equity markets were lacklustre following an indecisive lead from US where the major indices finished flat due to a lack of drivers
• BoJ kept monetary policy settings unchanged as expected with NIRP held at -0.1% and 10yr JGB yield target at around 0%, maintained forward guidance
• US House voted to impeach President Trump under Article 1 (Abuse of Power) and Article 2 (Obstruction of Congress); as expected
• AUD/USD was boosted by better than expected Employment data, although the gains were predominantly fuelled by part-time jobs
• Looking ahead, highlights include Riksbank, Norges Bank, BoE policy announcements, UK Retail Sales, US Philadelphia Fed, Weekly Jobs, Existing Home Sales, ECB’s Lane

ASIA-PAC

Asian equity markets were lacklustre following an indecisive lead from US where the major indices finished flat due to a lack of drivers amid the pre-holiday lull. ASX 200 (-0.3%) was subdued by weakness in energy and the top-weighted financials sector, with early gains in the index wiped out after better than expected jobs data dampened February rate cut hopes, while Nikkei 225 (-0.3%) continued its marginal pullback from the 24k level amid a choppy currency and after a lack of fireworks at the BoJ policy meeting. Hang Seng (-0.5%) and Shanghai Comp. (-0.2%) traded indecisively and failed to take advantage of another substantial liquidity effort by the PBoC as well as expectations it may fine tune measures and use targeted stimulus next year, with some reports suggesting China’s private enterprises are facing the worst funding squeeze in more than two decades. Finally, 10yr JGBs were lower and prices eyed a test on the 152.00 level to the downside with demand subdued alongside an uneventful BoJ policy announcement where the central bank maintained all policy settings as expected and reiterated its forward guidance that rates will remain at current or lower levels for as long as needed.

PBoC injected CNY 30bln via 7-day reverse repos and CNY 250bln via 14-day reverse repos. (Newswires) PBoC set USD/CNY reference rate at 7.0025 vs. Exp. 6.9987 (Prev. 6.9969)

China announces new tariffs exclusions for some US products, exemptions apply to six new US products - effective from Dec 26th 2019 to Dec 25th 2020, according to Xinhua. (Xinhua)

US President Trump said we made a great deal with China which gives us a lot of currency to do the phase 2 deal. There were also separate comments from NEC Director Kudlow who suggested the US will monitor China compliance over 6 to 9 months, while Kudlow reportedly stated that Chinese President Xi told Henry Kissinger he would rather deal with President Trump who will focus more on trade rather than Democrats who won't talk about trade issues but instead will focus on human rights and other things. (Newswires/CNBC/Twitter)

BoJ kept monetary policy settings unchanged as expected with NIRP held at -0.1% and 10yr JGB yield target at around 0%, while it maintained forward guidance that rates will remain at current or lower levels for as long as needed to guard against risk momentum for hitting price target may be lost. BoJ repeated its assessment that Japan's economy is expanding moderately as a trend but cut the assessment on industrial production in which it states industrial output is falling due to impact of natural disasters. BoJ later announced plans decided in April to lend ETFs to markets under a special facility aimed at improving liquidity in the ETF market, while it will amend the scheme aimed at encouraging banks to increase lending and will allow borrowers to roll over lending under certain conditions. (Newswires)

UK/EU

SGH Macro have stated that from what they understand, the EU Commission will formally restart negotiations with the UK on 1st February and believes the Commission “already has in its desk drawers a draft trade agreement for Whitehall to weigh and potentially adopt with limited changes, and which could be moved fairly quickly”. (SGH Macro)

UK State Opening of Parliament will begin today with a speech at 11:40GMT, read by the Queen but written by the Government which will outline the Conservative’s agenda for the year. (BBC)

SNP Leader Sturgeon will publish a ‘detailed case’ for a second independence referendum, and will ask for a power transfer to ensure any vote is legal. UK Government are opposed to second referendum. (BBC)

UK PM Johnson is said to be planning to reduce rates for small businesses. (Daily Mail) 

FX 

DXY was only minimally pressured overnight after the House officially impeached US President Trump under both articles regarding Abuse of Power and Obstruction of Congress as expected, and which sets up a showdown at the Senate where it is seen as unlikely to pass and would require a two-thirds majority to convict the President and remove him from office vs. the simple majority that was needed in the Democrat-controlled House. This provided some mild reprieve to the greenback’s transatlantic counterparts to build upon a rebound in EUR/USD from its recent floor at 1.1110 and GBP/USD also partially benefitted but remained at a sub-1.3100 level with price action contained by the recent Brexit-cliff fears and ahead of the upcoming BoE meeting. Elsewhere, antipodeans were data driven in which NZD/USD briefly surged after Q3 GDP Q/Q topped estimates but with the gains short-lived as GDP Y/Y missed, while AUD/USD was boosted by better than expected Employment data and a surprise decline in the Unemployment Rate to 5.2% from 5.3% and although the gains were predominantly fuelled by Part-Time jobs, it still led to a drop in the market pricing for an RBA rate cut in February to 38% from over 50%. The Aussie jobs data also lifted AUD/JPY which USD/JPY was quick to piggyback on, although moves in the latter were eventually faded as attention turned to the BoJ decision which proved to be a non-event. 

Australian Employment Change (Nov) 39.9k vs. Exp. 14.0k (Prev. -19.0k, Rev. -24.8k). (Newswires) Australian Unemployment Rate (Nov) 5.2% vs. Exp. 5.3% (Prev. 5.3%) Australian Full Time Employment Change (Nov) 4.2k (Prev. -10.3k, Rev. -10.5k) Australian Part Time Employment Change (Nov) 35.7k (Prev. -8.7k, Rev. -14.3k)

New Zealand GDP (Q3) Q/Q 0.7% vs. Exp. 0.6% (Prev. 0.5%, Rev. 0.1%). (Newswires) New Zealand GDP (Q3) Y/Y 2.3% vs. Exp. 2.4% (Prev. 2.1%)

COMMODITIES

Commodities traded lacklustre in which WTI crude future pulled back from USD 61.00/bbl and gave up some of the prior session’s gains which had been spurred after this week’s EIA inventory report showed a narrower than expected draw but was still at a sharp contrast to surprise build in API stockpiles, while the subdued picture across the complex was mostly a function of the pre-holiday lull seen across global markets. Elsewhere, gold was rangebound but remained afloat on the miniscule pressure for the greenback after President Trump became the 3rd President in history to be impeached by the House, and copper prices continued to meander around the USD 2.80/lb amid the dampened risk tone.  

US 

T-Notes moved lower alongside the Bund on Wednesday as participants sold duration, with risk appetite remaining elevated in the final few weeks of the year. Some have noted that while activity is winding down for the year, one desk noted a couple of themes still in play: there is still interest in curve steepeners, as seen over the last week or so, particularly with accounts adding to 2s10s; another theme that is clear is the selling of volatility, both in Europe and the US, with the desk noting that the selling came despite the recent fall in implied volatility in both Treasuries and Bunds. "One area where flows have remained fairly strong is the option market," the strategist said, "perhaps some think the drop off in vol has gone too far," and notes that "the moves over last Christmas perhaps prompted some to position for a repeat, when vol spiked in both fixed income and equities". T-note (H0) futures settled 9 ticks lower at 128-05+.

US House voted (230 vs. 197) to impeach President Trump under Article 1 Abuse of Power and voted (229 vs. 198) to impeach President Trump under Article 2 Obstruction of Congress as expected. The White House released a statement shortly after in which it noted that President Trump is prepared for the next steps and is confident he will be fully exonerated at the Senate trial. (Newswires)

Fed's Evans (2020 Non-Voter, Dove) said the US labour market is vibrant and the economy is doing "remarkably well", while he suggested that monetary policy is at a good setting currently and it’s a good time to watch the data. Furthermore, Evans added it would take a lot of new data to change his opinion and inflation would need to go meaningfully above 2% for him to support monetary tightening. (Newswires)

Fed's Barkin (Non-Voter, Hawkish) believes we are in a reasonable place on the balance sheet and that policy is still accommodative, while he added that he is very focused on data and that it is hard to find evidence of deteriorating credit quality at the moment, but the Fed is watching the data. (Newswires)