• European bourses are little changed, as newsflow slows with NFP ahead
• US President Trump said he thinks the US-China Phase One deal will be signed on January 15th or shortly after
• China Global Times tweeted that a Phase Two trade deal after November is too far away
• USD is firmer this morning, with GBP briefly dented by comments from BoE’s Tenreyro
• Looking ahead, highlights include US & Canadian Jobs Reports

GEOPOLITICS

Israeli Air Force jets reportedly carried out air strikes in Al-Bukamal, situated in eastern Syria near the border with Iraq, via IntelSky - further reports note that the airstrikes targeted weapons shipments, via ELINT News. There were reports of casualties following the Israeli air strike, according to INTELSky citing Al-Maydeen news anchor. There were further reports of unidentified planes bombing the city of Al-Bukamal on the Syrian-Iraqi border, according to Al-Jazeera citing local sources – although it is unclear from the reports if this is a separate attack. (Twitter)

US House has approved the non-binding war power resolution which limits US President Trump's military capability in Iran. The measure would require Trump to cease military actions against Iran unless authorized by Congress or in response to an imminent threat. The passage in the House sends the measure to the Republican-controlled Senate. (Newswires) US Senator Graham notes that the US House passage of the anti-war resolution will not stop US President Trump from doing what he said he would do if Iran continues to engage in hostilities against the U.S. or our allies. (Twitter)

Iran govt spokesperson said reports that missile hit the Ukrainian plane is psychological warfare against Tehran. (Newswires) US National Transportation Safety Board has accepted Iran's invitation to take part in the investigation of the Boeing 737-800 crash, according to an Iranian official. (Newswires)

US President Trump said the US was ready to retaliate to the Iranian strike on Iraqi bases but decided not to upon hearing that no personnel were injured - Ohio rally. (YouTube) US President Trump's new National Security team was less cohesive and less inclined that its predecessors to push back against the President's wishes and are also less likely to consult with other administrations, according to sources cited by WSJ. (WSJ)

US Army is to increase their efforts to counter China by deploying a specialised task force to the Pacific, which will be capable of conducting information, electronic, cyber and missile operations against Beijing., SCMP; adding, US Army Secretary McCarthy is expected to announce this on Friday in Washington. (SCMP) Note, article does caveat that it is unclear how quickly the unit would be able to be deployed.

ASIA-PAC

Asia-Pac equities traded cautiously as the region failed to fully follow suit from the positive lead from Wall Street - which saw the tech-giant Apple soar in excess of 2% to a record high, after Chinese government data showed an 18% rise in iPhones sales in December. ASX 200 (+0.8%) was propped up by healthy gains in its financial sector with the “Big Four” Aussie banks all firmly in positive territory. Nikkei 225 (+0.5%) was buoyed by its auto sector alongside other large-cap stocks post-earnings, albeit Fast Retailing shares slumped to the foot of the index after the Co. cut its FY outlook following dismal quarterly results. Elsewhere, Hang Seng (+0.3%) and Shanghai Comp (U/C) were mixed with the former swinging between gains and losses whilst the latter lost momentum and gave up its mild opening gains before trading with little conviction. 

US President Trump said he thinks the US-China Phase One deal will be signed on January 15th or shortly after. (Newswires) China Global Times tweeted that a Phase Two trade deal after November is too far away and added that China's willingness to start Phase Two negotiations depends on the implementation of the Phase One deal; citing an expert close to the Chinese Government. Furthermore, China is not in a rush to begin Phase Two talks if US President Trump criticises the country during his election campaign, according to Global Times citing the expert close to the Chinese government. (Twitter)

PBoC set USD/CNY mid-point at 6.9351 vs. Exp. 6.9344 (Prev. 69467) - firmest CNY fix since August 2019. (Newswires) PBOC skipped open market operations for a daily net neutral position but a weekly drain of CNY 50bln.

UK/EU

BoE's Tenreyro says her inclination is to a cut in rates, in the event that downside risks were to emerge; adds that risks are tilted to the downside. More stimulus may be needed in the event that growth fails to recover. By all measures, the UK labour market is very tight; although, are signs that it is not tightening further, hard to believe this is the peak of the labour, expects further below target inflation. (Newswires)

UK House of Commons voted 330 to 231 in favour of the Brexit bill, as expected. The bill will now go to the House of Lords next week. (Newswires)

UK employers in December increased their number of new permanent staff for the first time in a year, reflecting a rise in optimism after UK’s general election; according to a survey by Recruitment & Employment Confederation. (Newswires) UK business optimism improved by the largest margin in at least 11 years following the UK general election in December, according to a survey by Deloitte. (Newswires)

EQUITIES

European bourses are essentially flat, in what has been a fairly choppy session for the bourses; currently, there is no substantial under/outperformer amongst the European indexes. As newsflow this morning has slowed considerably, particularly on the geopolitical front, ahead of the US jobs report later in the session. In terms of sectors, the complex is mixed; notably, the banking sector is underperforming slightly (-0.4%) weighed on in particular by UK and Italian banks due to lower yields as Gilts and BTPs currently outperform their peers. Elsewhere, this morning other notable movers include Ryanair (+7.8%) after an update which saw them increase FY20 profit guidance; note, this update has bolstered the European travel and leisure sector to the top of the pile, as Ryanair accounts for 6.15% of the index. Just below Ryanair resides RWE (+5.0%) after, since confirmed, pre-market reports that the Co. may receive as much as EUR 2bln in compensation from their mandated exit of the coal-power business. At the other end of the spectrum price action is quieter with the likes of Uniper (-2.0%) and Travis Perkins (-1.7%) afflicted by broker action.

Amazon (AMZN) is said to be in talks to sell streaming TV ads outside of Fire TV and potentially to Apple TV (AAPL) and Xbox (MSFT), according to sources cited by WSJ. (WSJ)

FX

AUD/NZD - More respite for the Aussie amidst the raging fires, as retail sales topped consensus overnight to overshadow a sub-50 AIG services PMI and maintain positive trade surplus momentum from Thursday. Hence, Aud/Usd is establishing a firmer base above 0.6850 and the 50 DMA (0.6860), while Aud/Nzd has rebounded a bit closer towards 1.0400, as the Kiwi struggles to keep hold of the 0.6600 handle vs its US peer.

USD - Aussie outperformance aside, the Greenback is still outpacing the rest of the G10, with the DXY back over 96.500 and yesterday’s 97.562 high at 97.586 heading in to NFP. Note, headline payrolls are forecast to rise 164k compared to the bumper 266k tally last time, but could well surprise to the upside given mostly upbeat jobs proxies and a particularly strong ADP survey, so the Dollar and index may be able to extend their advances if the BLS report is bullish.

GBP - The Pound is holding up relatively well circa 1.3055 and 0.8490 in Cable and Eur/Gbp cross terms in the face of another dovish blast from the BoE, as Tenreyro shows tendencies towards backing a rate cut if the UK economy falters in line with Governor Carney on Thursday, and given downside risks amidst no further tightening in the labour market.

JPY/EUR/CAD/CHF - All on the defensive against the Buck pre-US jobs data, with the Yen slipping closer to December lows through 109.50 and bereft of any real option expiry interest to offer support until 110.20, while the Euro is back below 1.1100 to test the resolve of bids around 1.1090 that saved the single currency from deeper declines yesterday. Like Usd/Jpy, no decent downside expiries into the NY cut, but 1.1 bn in Eur/Gbp at the 0.8500 strike could buffer the Euro. Elsewhere, the Loonie has recovered some poise after sliding under 1.3100 following latest BoC commentary via Governor Poloz who contends that strike action and adverse weather are partly to blame for the recent run of poor data, but the impending labour update will be key in wake of the huge headline drop in November. Meanwhile, the Franc has retreated towards 0.9760, but faring better vs the Euro close to 1.0800.

Australian Retail Sales MM (Nov) 0.9% vs. Exp. 0.4% (Prev. 0.0%, Rev. 0.1%) (Newswires)

FX Expiries:

-        EUR/USD: 1.1100 (850M), 1.1140-50 (1BLN), 1.1175-85 (900M)

-        EUR/GBP: 0.8500 (1.1BLN)

-        USD/JPY: 109.00-10 (650M), 109.40-50 (800M), 110.20 (1.1BLN)

FIXED INCOME

Almost déjà vu at the core, as UK bonds inch over their post-Carney peaks (and Short Sterling futures better best levels as well) on the back of more BoE rate cut chat (from Tenreyro this time), but Bunds lag amidst an extension of recent outperformance in Italian debt and US Treasuries sit tight for Friday’s main event in the form of NFP. Looking at prices in detail, Gilts just printed 131.65 vs their German peer at 171.27 compared to 171.42 at one stage and T-note equivalent 2 ticks shy of the 128-305 overnight high.

COMMODITIES

A markedly quieter session in terms of geopolitical developments to end the week, with much of the focus now residing on whether the Boeing 737-800 crashed due to a Iranian missile; a possibility which Iran has firmly pushed back on but a number of nations, including US and Canada, regard this as a potential explanation as the investigation continues. Oil prices this morning are somewhat subdued, as the geo-political premium in the crude complex continues to unwind; overall, the moves are relatively small in magnitude as market focus switches to the US jobs report (full preview available on the Newsquawk research suite). Looking back on the week, WTI has printed a range of around USD 7.0/bbl thus far, with a similar range seen in Brent. PVM posit that yesterday’s price action, where the lack of attempt in oil markets to move higher implies that a ‘new status quo’ has taken over; which does tilts risks for price action to the downside. Turning to metals, where spot gold is down by around USD 4/oz and remains below the USD 1500/oz mark which was briefly reclaimed last night. Middle-East tensions aside, UBS highlight that physical demand for the precious metal is ‘tepid’, particularly from the world’s second largest importer India; although, overall they note the metals outlook is positive with the potential for a test of recent highs shortly.