• European bourses are relatively unchanged in choppy trade on quiet newsflow in European hours
• US Treasury removed China from the currency manipulator list, said China made enforceable commitments to refrain from competitive devaluation in the Phase 1 deal
• US-China Phase 1 deal will include pledge by China to buy USD 200bln of US goods over a 2-year period
• Chinese trade date showed a sizable increase in the trade balance, albeit this did miss (USD-denominated) expectations
• USD is firmer but the DXY is still below 97.50, while the debt complex is tentative ahead of Phase 1 signing
• Looking ahead, highlights include US NFIB Business Optimism, CPI, EIA STEO, APIs, US Democratic Debate, Fed’s Williams & George
• Earnings: JP Morgan, Wells Fargo, Citi and Delta Airlines

ASIA-PAC: US-China Analysis Piece available on the headline feed

Asian equity markets were somewhat mixed as the region took its cue from the fresh record levels on Wall St amid the backdrop of the trade optimism heading into this week’s Phase 1 deal signing and after the US removed its designation of China as a currency manipulator. ASX 200 (+0.9%) followed suit to its US peers and posted a fresh all-time high led by tech and defensives, as well as the broad sectoral gains aside from gold miners which lagged due to losses in the precious metal, while Nikkei 225 (+0.7%) tested the 24k milestone on return from an extended weekend and with early advances spurred by a predominantly favourable currency. Hang Seng (-0.2%) and Shanghai Comp. (-0.3%) also initially benefitted from the trade developments in which the US backtracked just 5 months after it had labelled China a currency manipulator and with the initial details of the Phase 1 deal said to confirm China’s pledge to buy USD 200bln of US goods over a 2-year period, while the latest Chinese trade data added to the encouragement as Trade Balance, Exports and Imports mostly surpassed estimates for December although Chinese markets eventually gave back their gains and the data had also showed trade with the US contracted by 10.7% Y/Y throughout 2019. Finally, 10yr JGBs were lower and slipped below the 152.00 with demand dampened by the gains across stocks and with a relatively tepid BoJ Rinban announcement for just JPY 130bln of JGBs doing little to underpin prices.

PBoC skipped open market operations for a daily net neutral position. (Newswires)

PBoC set USD/CNY mid-point at 6.8954 vs. Exp. 6.8957 (Prev. 6.9263)

US Treasury removed China from the currency manipulator list in its semi-annual report and said China made enforceable commitments to refrain from competitive devaluation in the Phase 1 deal but also noted that China needs to take necessary steps to avoid a persistently weak currency. Furthermore, the report added that no major US trading partner met the criteria to be designated a currency manipulator and that it is continuing to monitor China, Germany, Ireland, Italy, Japan, South Korea, Malaysia, Singapore, Vietnam and Switzerland currency practices, while Taiwan and Thailand are nearing the threshold to be added into the monitoring list. (Newswires)

Subsequently, China's Foreign Ministry states that China will keep their currency basically stable. (Newswires)

US-China Phase 1 deal will include pledge by China to buy USD 200bln of US goods over a 2-year period including USD 50bln in energy, USD 40bln in agriculture, USD 35bln-40bln in services and USD 75bln in manufactured goods. (Politico)

USTR Lighthizer said they have about finished translation of the Phase 1 deal which includes commitment regarding currency manipulation, while White House Trade Adviser Navarro commented that the Phase 1 deal will allow the US to swiftly reimpose tariffs if it unilaterally determines that China has broken any of its commitments. In related news, Chinese officials will meet with American companies to send the message that China is open for business, according to FBN's Lawrence citing sources. (Newswires/Twitter)

Chinese Trade Balance (CNY)(Nov) 330B vs. Exp. 315.0B (Prev. 274.2B). (Newswires) Chinese Exports (CNY)(Nov) Y/Y 9.0% vs. Exp. 2.8% (Prev. 1.3%) Chinese Imports (CNY)(Nov) Y/Y 17.7% vs. Exp. 8.8% (Prev. 2.5%)

Chinese Trade Balance (USD)(Dec) 46.79B vs. Exp. 48.0B (Prev. 37.93B) Chinese Exports (USD)(Dec) Y/Y 7.6% vs. Exp. 3.2% (Prev. -1.3%) Chinese Imports (USD)(Dec) Y/Y 16.3% vs. Exp. 9.6% (Prev. 0.5%)

China Customs noted that 2019 trade with US fell 10.7% Y/Y. There were also comments by Customs Vice Minister Zhou that the Phase 1 deal will boost Chinese imports from US but won't affect China's imports from other countries, while Zhou added that trade growth still faces complex external environment this year. (Newswires)

US

US President Trump’s administration plans to reallocate USD 7.2bln of defence funds for the border wall. (Newswires)

US Senator Cornyn commented that the Senate could conduct a vote on USMCA this week. (Newswires)

The Trump Administration has taken steps to spare investors from Australia, Canada and the UK from some of its restrictions on foreign investments, due to take effect on February 13th. (FT) Yesterday, the Trump Administrations issues a set of rules that will look to intensify scrutiny of foreign investments in US companies.

GEOPOLITICS

Twitter reports stated that Libya’s GNA signed the ceasefire but LNA’s General Haftar left Moscow without signing the ceasefire according to sources, while reports also noted heavy gunfire in Salah al-Din and Ain Zara areas of Libya's capital Tripoli. (Twitter)

Turkish President Erdogan says Turkey will not refrain from teaching Haftar a lesson if attacks continue against Libya. (Newswires)

France, Britain and German are to instigate the Iranian Nuclear Deal dispute mechanism on Tuesday., according to diplomats. (Newswires)

UK/EU

Economists warned that next BoE Governor Bailey and UK Chancellor Javid have to take early measures to ensure the BoE has tools to deploy for the next recession. (FT) Note, this was the findings of a survey conducted in December.

Senior US Officials told Ministers in the UK that utilising Huawei’s technology in the UK’s 5G network would place trans-Atlantic intelligence sharing at risk. (Guardian)

ECB's Mersch (Hawkish) states that the economy appears to be stabilising, as does inflation. (Newswires)

EQUITIES – JPM, WFC & C preview available on the Headline feed, surmised below

Brief Earnings Preview:

-        JPM: Q4 EPS is expected to print at USD 2.30 (Prev. USD 1.98 YY), whilst Revenues are seen coming in at USD 27.96bln (Prev. USD 26.8bln YY).

o    Some desks note that the all the above forecasts seem light based on trading guidance announced at the Goldman Sachs conference.

o    In terms of recent history, JPM have topped estimates for three straight quarters.

-        WFC: Q4 EPS expected at USD 1.10 (Prev. USD 1.09 YY), with Revenues at USD 20.1bln (Prev. USD 20.98bln YY). NII is forecast at USD 11.22bln and NIM at 2.54%.

o    In terms of recent history, WFC posted mixed earnings with two out of the last three quarters missing street estimates.

-        C: Q4 EPS expected at USD 1.87 and Revenues at USD 17.89bln. NII is seen printing at USD 11.76bln with NIM at 2.58%

o    Analysts forecast total trading revenues in the high teens and IB revenues unchanged.

A choppy session thus far for European equities [Euro Stoxx 50 +0.3%], in what started off on more of a downbeat note for the region, following on from a mixed APAC trade. Equity markets remain on standby ahead of US earnings season, which is set to kick off today, and with traders also eyeing tomorrow’s US-China Phase One deal signing. Sectors are largely in the green with no clear reflection of the overall risk sentiment. Individual movers have garnered more attention – with reports of credit card gambling to be banned in April this year weighing down on the likes of William Hill (-1.2%) and GVC (-0.8%), albeit the shares are off lows seen at the open. Meanwhile, Dialog Semiconductor (-1.4%) fell post-earnings after reporting a deterioration in EPS. Renault (-0.2%) failed to gain much traction after yesterday’s reports of a supposed end to the Nissan-Renault alliance were dismissed. Evonik (-4.2%) fell and remains at the foot of the Stoxx 600 after noting that revenue will be slightly below the prior YY and after RAG-Stiftung proposed the sale of around 24mln shares in the Co. On the flip side, miners are benefitting from yesterday’s surge in copper prices with Antofagasta (+1.7%), Glencore (+0.6%) also experiencing tailwinds from broker upgrades. Head-up, US earnings season will unofficially commence with earnings from JP Morgan, who accounts for around 3.2% of the DJIA, Wells Fargo and Citi.

FX

USD - The Dollar is holding a modestly firm line, with the DXY just shy of the 97.500 level ahead of US inflation data that is forecast to accelerate in headline terms and remain steady at the core. However, the Greenback’s stability between 97.455-339 owes much to weakness elsewhere as only the Swiss Franc is stronger amongst major currency peers, with Usd/Chf back below 0.9700 and Eur/Chf sub-1.0800.

GBP/CAD/AUD/NZD/JPY/EUR - The Pound is still succumbing to downside pressure on downbeat UK data and dovish BoE policy implications, as Cable extends declines through 1.3000 to circa 1.2955 and Eur/Gbp breaches December peaks before running into resistance ahead of 0.8600 and highs from November just pips above the round number. Elsewhere, the Loonie has lost mild traction gleaned from Monday’s relatively encouraging Q4 BoC business survey findings, with Usd/Cad back above 1.3050, while the Aussie and Kiwi have also handed back some gains made on the back of strong Chinese trade data overnight and confirmation that China has made enough FX pledges within the Phase 1 trade accord for the US to retract it from the currency manipulation list. Aud/Usd is under 0.6900 again, but may derive underlying support given hefty option expiry interest at 0.6900-05 (1.3 bn) and Nzd/Usd is losing altitude between 0.6634-17 parameters ahead of December’s NZ food price index. Conversely, the Yen is trying to pare losses within a 109.90-110.20 range amidst a degree of consolidation in broad risk sentiment, and the Euro is firm on the 1.1100 handle, albeit failing to sustain gains beyond 1.1145 after eclipsing the 200 DMA and flanked by more big expiries (2.2 bn between 1.1160-70 and 2.5 bn at the 1.1100 strike).

SCANDI - The Crowns are narrowly mixed with Eur/Sek elevated in a circa 10.5590-10.5285 band vs Eur/Nok straddling 9.9000 after weaker than forecast Swedish household consumption metrics and with the latter keeping tabs with oil prices.

EM - A decent pick-up in Turkish IP has not really helped the Lira to escape more geopolitical jitters as efforts to broker peace in Libya have been scuppered by the Hafta group leaving talks in Russia without signing on the dotted line. Usd/Try is hovering just below 5.9000 and extending its rebound in contrast to Usd/Cnh that continues to probe lower after breaching 6.9000 on the aforementioned US-China trade and FX positivity. Note also, Nomura notes that CTAs have flipped positions to net Yuan long vs the Buck for the first time since the start of Q2 last year, while covering shorts in the non-US Dollar commodity bloc

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.1100 (2.5BLN), 1.1140-50 (750M), 1.1160-70 (2.2BLN), 1.1190-1.1200 (1.2BLN)

-        AUD/USD: 0.6870 (278M), 0.6890 (250M), 0.6900-05 (1.3BLN), 0.6930-35 (760M)

FIXED INCOME

Core bonds remain bid, but off best levels as stocks and risk sentiment in general settle down after several wobbles since the start of EU trade. Bunds are back below 171.00 after poking their head above the parapet, albeit still comfortably above the 170.65 Eurex base and more on an even keel with Gilts at 132.23 within 132.47-10 Liffe extremes that may be seeing some post-DMO auction hedge unwinding following decent, though not especially strong results. However, Spanish Bonds are hugging intraday highs amidst stonking demand for the new 2030 syndication and US Treasuries are closer to overnight session peaks than troughs ahead of CPI data and a couple of Fed speakers.

COMMODITIES

WTI and Brent front-month futures are ultimately on a firmer footing after erasing overnight losses - with the former rebounding off its 200 DMA (USD 57.74/bbl) whilst the latter found a base around the psychological USD 64/bbl mark. News flow has been light for the session thus far, although eyes remain on macro developments such as Middle Eastern tensions and US-China trade. Desks note that expectations for a well-supplied market are not currently reflected in the time spreads, with ICE Brent spreads still in deep backwardation, suggesting the physical market remains tight. On a more micro-level, traders will be looking for the EIA Short-Term Energy Outlook and API releases later today, with ING noting that participants would be eyeing the former for its forecast of US production growth; “with the falling rig count, the positive supply growth estimates for the US are increasingly coming under question”, the Dutch bank says. Wednesday will see the release of the OPEC monthly report, followed by the IEA’s report on Thursday to round up this month’s oil market releases. Elsewhere, spot gold remains tentative just below USD 1550/oz amid a lack of fresh fundamental catalysts, albeit the yellow metal printed a fresh YTD low ~USD 1536/oz overnight. Copper meanwhile holds onto a lion’s share of yesterday’s gains after prices briefly topped USD 2.85/lb – with traders citing an overall more positive macro sentiment, with the Phase One deal signing inching closer. Finally, industry sources note that Chinese demand for high-grade iron is poised to drop as steel mills attempt to cut costs and raise profit margins.