• European bourses are firmer this morning, continuing the positive tone from APAC hours
• Sterling lags and Gilts lead core debt peers after dismal UK retail sales
• White House officials confirmed they are planning election year stimulus which will focus on tax reductions
• Chinese GDP printed in-line with exp. with IP and retail sales topping estimates
• Looking ahead, highlights include US Building Permits, Housing Starts, Industrial Production, JOLTS, Uni. Of Michigan, Baker Hughes, Fed’s Harker, Quarles

ASIA-PAC

Asian equity markets traded positive after taking impetus from another record-setting session on Wall St. following the recent Phase 1 deal signing and where sentiment was underpinned by encouraging earnings and data, while participants also digested a flurry of key Chinese data including GDP which grew inline with expectations. ASX 200 (+0.3%) extended on all-time highs led by broad strength in mining names including Rio Tinto despite the Co. printing weaker Q4 iron ore shipments, although Nufarm was at the other end of the spectrum with double-digit losses after it flagged weaker earnings across several segments. Nikkei 225 (+0.4%) was kept afloat by favourable currency flows, while Hang Seng (+0.6%) and Shanghai Comp. (U/C) initially gained after the continued PBoC liquidity efforts and slew of tier-1 Chinese data in which GDP printed inline with expectations and both Industrial Production and Retail Sales topped estimates. However, the data showed China’s 2019 growth slowed to 6.1% from 6.6% Y/Y which was the weakest since 1990 albeit still within the official 6.0%-6.5% target range. Finally, 10yr JGBs were marginally higher in a reclaim of the 152.00 level with the rebound unfazed despite the positive risk tone and all metrics pointing to weaker results at today’s 20yr JGB auction.

PBoC injected CNY 200bln in 14-day reverse repos for a net weekly injection CNY 600bln vs. CNY 50bln drain W/W. (Newswires) PBoC set USD/CNY mid-point at 6.8878 vs. Exp. 6.8843 (Prev. 6.8807)

Chinese GDP (Q4) Q/Q 1.5% vs. Exp. 1.5% (Prev. 1.5%). Chinese GDP (Q4) Y/Y 6.0% vs. Exp. 6.0% (Prev. 6.0%) Chinese GDP YTD (Q4) Y/Y 6.1% (Prev. 6.2%); slowest pace of growth since 1990. Chinese Industrial Production (Dec) Y/Y 6.9% vs. Exp. 5.9% (Prev. 6.2%) Chinese Retail Sales (Dec) Y/Y 8.0% vs. Exp. 7.8% (Prev. 8.0%)

BoK kept the 7-Day Repo Rate at 1.25% as expected, while it stated that the South Korea economy is forecast to grow at lower 2% level this year and inflation will gradually reach 1%, while it added growth is inline with previous projections and downturn in exports is likely to ease. Furthermore, BoK Governor Lee said it would be appropriate to keep policy rate above rates in advanced economies and that the rate decision was not unanimous with board members Cho and Shin the dissenters.

US

US Treasury decided it will issue 20-year bonds in H1 this year after having considering proposals including a 50-year or 100-year bond to bridge the financing budget deficit, while it reportedly expects strong demand for the new issuance. (Newswires)

White House officials confirmed they are planning election year stimulus which will focus on tax reductions. (Fox Business News)

US President Trump has announced Judy Shelton and Christopher Waller as nominees for the Fed Board of Governors, according to the White House. Trump in July noted that he would nominate the two. (Newswires/FT)

GEOPOLITICS

US Central Command said at least 11 US troops were injured in last week’s Iranian missile attack on the Al-Asad air base in Iraq. (Newswires)

China Foreign Ministry said China closely followed and monitored US warship in the Taiwan Strait, urging US to abide by China principle. (Newswires)

UK/EU

German Defence Minister Kramp-Karrenbauer suggested the EU should offer Britain “privileged third-party status” in defence and foreign policy cooperation post-Brexit following a meeting with her UK counterpart Ben Foster. (Guardian)

EU Trade Commissioner Hogan said EU wants to strengthen economic ties with US and that he had very good talks with USTR Lighthizer. Hogan also reiterated EU's plan for retaliatory tariffs over Boeing aid but also told US officials again that the EU is keen to work towards a negotiated solution on the aircraft subsidy issue. Furthermore, Hogan said the sides are still talking about digital services tax and noted agriculture is still a sticking point in tariffs cut goal although the EU is willing to explore options to break impasse and get past the sticking point. (Newswires)

French Finance Minister Le Maire says EU is making progress with the US on the digital tax issue, reiterated that the EU will retaliate if US imposes sanctions against France; has made proposals to resolve the digital tax dispute to US Treasury Secretary Mnuchin and more proposals will be made this evening. (Newswires)

UK Retail Sales MM (Dec) -0.6% vs. Exp. 0.5% (Prev. -0.6%, Rev. -0.8%); YY (Dec) 0.9% vs. Exp. 2.6% (Prev. 1.0%, Rev. 0.8%)

-        Ex-Fuel MM (Dec) -0.8% vs. Exp. 0.7% (Prev. -0.6%, Rev. -0.8%); Ex-Fuel YY (Dec) 0.7% vs. Exp. 2.9% (Prev. 0.8%, Rev. 0.6%)

-        ONS says the retail sales data in Q4 indicating a 0.05ppt drag on GDP in the period and December was the fifth consecutive month with no MM growth in retail sales, food store sales fell the most in three years

EZ HICP Final YY (Dec) 1.3% vs. Exp. 1.3% (Prev. 1.3%)

-        HICP-X F&E Final YY (Dec) 1.4% vs. Exp. 1.4% (Prev. 1.4%)

-        HICP-X F,E,A&T Final YY (Dec) 1.3% vs. Exp. 1.3% (Prev. 1.3%)

EQUITIES

An upbeat session for European equities thus far [Euro Stoxx 50 +0.8%] with firm gains seen across the board, following on from an overall positive APAC session as sentiment remains underpinned following reassuring earnings coupled and decent data. The CAC (+1.0%) DAX (+0.8%) lead the gains in the region, with FTSE 100 joining the party following early underperformance on currency dynamics. Sectors are mostly in the green with the exception of the energy names as oil stalled not far off YTD lows and natural gas prices slump. Meanwhile, sectors leading the advances include industrials, utilities, healthcare and IT, with the latter potentially feeling some tailwind from Alphabet joining the USD 1tln market cap club. In terms of move. In terms of individual movers – heavyweight Bayer (+1.0%) remains a top gainer in the DAX after reports stated the Co. could be weeks away from settling over 75k cancer claims in relation to its Roundup weed-killer. Elsewhere, Richemont (+5.0%) shares have been bolstered by a Q3 revenue beat against the background of Hong Kong protests – thus Swatch (+1.9%) are higher in tandem. On the flip side, Casino (-7.7%) shares slumped as much as 9% at the open amid dismal prelim results and a profit warning amid the French pension reform protests, with peer Carrefour (+0.8%) initially falling in sympathy but nursing losses in recent trade.

FX

GBP - Sterling was in the ascendency ahead of ONS retail sales data for the festive month of December, with forecasts for a firm rebound in consumption bolstered by the fact that Black Friday fell within the reporting period. However, longs and anyone front-running the release on the prospect or rumour of an upside surprise were left high and dry by another bleak set of numbers. Cable duly collapsed from 1.3100+ to sub-1.3050 and Eur/Gbp spiked from around 0.8487 to circa 0.8533 and back above a big 1.2 bn option expiry at 0.8500 in the process.

USD - In stark contrast to the whipsaw moves witnessed vs the Pound, trading ranges have been relatively sedate and exemplified by the DXY sticking between narrow 97.259-396 lines in the run up to another raft of US economic releases, including housing starts, building permits, ip, manufacturing output, JOLTS and Michigan Sentiment. However, the Dollar retains an underlying bid in wake of yesterday’s upbeat data and Philly Fed survey on balance, with a significantly steeper Treasury curve on longer end supply factors also lending support.

AUD/NZD/CAD/JPY/EUR/CHF - The Aussie and Kiwi have derived a degree of positive momentum from mostly encouraging Chinese macro news overnight to pare some declines against their US counterpart and hold around or above big figures, at 0.6900 and 0.6600 respectively. Consequently, the Aud/Nzd cross is pivoting 1.0400 and could yet rebound a bit further if hefty Aud/Usd expiry interest at 0.6925 (1.3 bn) exerts some upside influence. Elsewhere, the Loonie is still meandering either side of 1.3050 and near 1.1 bn expiries from 1.3030-40, while the Yen is consolidating in a lower band below 110.00 where 1 bn expiry interest resides and the Euro remains restrained under 1.1150 amidst even bigger expiries stacked from 1.1090 to 1.1200 (totalling almost 12 bn and fairly evenly spread). Conversely, the decent Usd/Chf expiries are not that close to current levels (0.9660 or so) and the Franc failed to glean any real impetus/direction from Swiss import/export prices even though firmer or less deflationary than previously.

EM - Pretty mixed/inconclusive performances vs the Buck thus far, but the Rand has clawed back some post-SARB weakness and Lira vice-versa as oil prices rebound to the benefit of the Rouble, while the Renminbi continues to grind higher in wake of the aforementioned upbeat (overall) Chinese data.

Notable Option Expiries, NY Cut:

-        EUR/USD: 1.1090-1.1105 (2.6BLN), 1.1120-25 (2BLN), 1.1135-45 (1.1BLN), 1.1150 (2.1BLN), 1.1165-75 (1BLN), 1.1200 (3BLN)

-        EUR/GBP: 0.8500 (1.2BLN)

-        AUD/USD: 0.6855 (650M), 0.6900 (310M), 0.6925 (1.3BLN), 0.6970 (690M)

-        USD/CAD: 1.3000 (433M), 1.3030-40 (1.1BLN), 1.3150-55 (800M)

-        USD/JPY: 110.00 (1BLN), 110.15 (500M), 110.40-50 (600M), 111.00 (815M)

FIXED INCOME

Bunds and Gilts are poised just shy of best levels forged on the back of the latest in an even longer line of BoE ease inducing UK data (far from the usual seasonal spending even with Black Friday included), with the former now flat on the day vs +6 ticks at 171.78 and latter 32 ticks ahead compared to +34 ticks at best (133.76 new contract peak). However, Italian bonds are now approaching 143.00 after their recent meltdown and circa ¾ point above parity in contrast to idling US Treasuries bar the sharply underperforming long end that is making room for supply to come rather than refuelling after absorbing a new syndicated offering.

COMMODITIES

WTI and Brent front-month futures have been lifted in recent trade in what seems to be more of a sentiment-driven move as opposed to oil-specific fundamental news. The former eyes USD 59/bbl to the upside having stalled just ahead of the psychological level, whilst the latter eclipsed USD 65/bbl. PVM notes that from this month’s oil market reports, the key takeaways are that global inventories will grow this year, with oversupply concerns continuing to persist in H1 2020, driven my rising Shale output and in-fitting with the latest US production figures with reached a record high of 13mln BPD. “In view of this, any lingering bulls ought to retreat into hibernation, remerging only in the summer when oil fundamentals shake off their bearish malaise.” – PVM states. The analysts also note that prices are underpinned after the Senate passed the USMCA trade deal yesterday but upside remains capped by concerns on whether China will live up to its promises to bolster US imports, which could bring an end to the ceasefire between the world’s two largest nations. Elsewhere, spot gold continues to consolidate from the parabolic price action seen since early December with prices currently steady just above the 1550/oz mark ahead of potential mild resistance around 1558/oz – with eyes remaining on the geopolitical landscape after US Central Command stated that 11 US troops were injured in last week’s Iranian attacks on the Al-Asad airbase, despite US President Trump claiming that there were no injuries. Copper prices meanwhile remain supported amid the overall market sentiment with price north of USD 2.85/lb, and potentially feeling some tailwinds from China’s GDP remaining within its target band.