• US-Chinese trade relations in focus again after conflicting reports suggesting the next round of Chinese tariffs are being placed on hold, which USTR Lighthizer later denied
• UK PM May said she will see this through and fight leadership challenge. UK PM May is yet to appoint a new Brexit Minister
• Looking ahead, highlights include EZ CPI, US Industrial Production, ECB’s Draghi, Weidmann and Lane, Fed’s Evans

TRADE

US and China are to step up efforts to strike G20 truce on trade and reports added that US Trade Representative Lightizer told some industry executives the next tranche of China tariffs are already on hold. However, Lighthizer later denied the reports that China tariffs have been put on hold. (FT/Newswires)

US Commerce Secretary Ross said US is still planning to raise tariffs on China to 25% in January and that he does not expect a full China deal by January. Ross also commented that the meeting between Xi and Trump at the G20 summit is to focus on "the big picture", although he still expects an eventual China deal. (Newswires)

US Administration official said it is unlikely for breakthroughs on trade with China at the G20 summit, while the official added it is too early to tell if China’s response to US demands will lead the US to suspend tariff increases in January and that China's offers to the US should be viewed cautiously. (Newswires)

China's Ambassador to the US said the US is one of China's most important partners and that China will not stop reform and opening up. China’s Ambassador also commented that China is prepared to work with US and that accusations against China are based on alternative facts. (Newswires)
 

ASIA

Asia-Pac stocks traded indecisively as the region lacked fresh catalysts and as uncertainty regarding Brexit and US-China trade played on investor’s minds. ASX 200 (-0.1%) and Nikkei 225 (-0.5%) were choppy with outperformance of tech and mining names in Australia overshadowed by a lacklustre broader market, while the Japanese benchmark was subdued by mild flows into the JPY and after China Mofcom began an investigation into alleged dumping of machine tools by Japanese firms. Elsewhere, Hang Seng (+0.1%) and Shanghai Comp. (+0.7%) swung between gains and losses after continued liquidity inaction by the PBoC which skipped OMOs for a 16th consecutive occasion, while participants were also tentative amid ongoing trade uncertainty after conflicting reports regarding the next round of China tariffs being placed on hold which USTR Lighthizer later denied. Finally, 10yr JGBs were mildly higher with prices underpinned amid an indecisive tone seen in stocks and with the BoJ also present in the market for JPY 680bln of JGBs in the belly to super-long end.

PBoC skipped open market operations and were net neutral for a 2nd consecutive week. (Newswires)
PBoC set CNY mid-point at 6.9377 (Prev. 6.9392)

PBoC said overall lending has kept to stable growth and that financing conditions of private and small firms improved. PBoC also commented that financial institutions should take steps to reasonably manage pace and intensity of credit supply, while they should also make full use of incentive measures for lending to private and small firms. (Newswires)

UK/EU

UK PM May said she will see this through and fight leadership challenge, while she added she is going to do her job of getting the best deal for Britain and will bring the deal back for a vote in the House of Commons. Furthermore, UK PM May said she has not appointed a new Brexit Minister yet. (Newswires)

It was reported that Environmental Minister Michael Gove was expected to resign yesterday but this did not materialise. (Times)

DUP Deputy Leader said have to wait and see how things in the conservative party play out especially its leadership, while there were later reports in the Telegraph that suggested the UK Conservative Party power sharing alliance with DUP is said to be over unless PM May is replaced. (Newswires/Telegraph)

ERG source reported that there were not yet enough letters to trigger a no confidence vote in PM May, although stated numbers have certainly gone up but are seen to still be in the 30s. (Twitter)

Italian government draft amendment allows unlisted banks and non-financial companies to opt out of international accounting standards and includes lending operation, according to sources. (Newswires)

FX

FX markets were range-bound amid a light calendar with no tier-1 releases or speakers scheduled. This kept the DXY flat near the 97.00 level and provided GBP/USD with some much-needed respite from the prior day’s cliff dive which was triggered by an exodus of ministers, while reports in the Telegraph also suggested the Conservative Party deal with DUP is over unless PM May is replaced. Elsewhere, USD/JPY and JPY-crosses were subdued by the indecisive risk tone and commodity-linked currencies held firm amid continued gains in the energy and metal prices.

COMMODITIES

Commodities were higher overnight in which WTI continued its rebound to approach the USD 57.00/bbl level to the upside, while nat gas futures outperformed the energy space as snowy conditions in eastern US help prices nurse some of the prior day’s heavy losses. Elsewhere, gold prices were flat due to an uneventful greenback and copper kept afloat amid early strength in Chinese commodities, as well as outperformance in the mainland China bourses.
 

GEOPOLITICS

US Republican and Democrat Senators file bipartisan bill seeking to suspend arms sales to Saudi Arabia in response to war in Yemen and killing of journalist. (Newswires)

North Korean Leader Kim inspected test of new high-tech tactical weapons, according to Yonhap citing North Korean state media. (Yonhap)

US

Treasuries traded with a positive bias in choppy trade with Brexit news flow increasing appeal of safe-haven fixed income. However, in later trade after the US and China announced intensifying trade talks and after US Trade Representative Lightizer said China tariffs have been placed on hold (later denied), risk-tone became more constructive with Treasuries moving to session lows as stocks moved higher. There where was little reaction after a decent retail sales report. There were some chatter that CTAs were covering shorts, helping to support the complex. The Treasury announced that it will sell USD 11bln in 10-year TIPS in next Wednesday's reopening, and it will sell USD 42bln 3-month bills and USD 35bln 6-month bills Monday. The curve was steeper at settlement with the exception of 2s5s. US T-note futures (Z8) settled 2 ticks higher at 118-26.

Fed's Bostic (Voter, Dove) said need to keep keen eye on data to avoid raising rates too fast or not far enough and suggested they should proceed cautiously, while he added that conditions warrant "final steps" for implementing a neutral rate which is where we want to be and sees the neutral rate between 2.5% and 3.5%. Furthermore, Bostic commented that the Fed has been removing forward guidance statements because it is not certain about policy direction and that businesses have told him they are delaying investment decisions amid tariffs. (Newswires)

Fed's Kashkari (Non-voter, Dove) said rates are pretty close to neutral today and that he is sympathetic with the need to find a way to open markets for free trade. (Newswires)