• China reportedly looking to move forward with US Auto Tariff reduction lifts equity futures further as risk-on tone returns
• Cable climbing as UK PM May returns to Brussels for compromise
• Looking ahead, highlights include US PPI, US 3yr Note Auction, PM May meeting EU’s Juncker & Tusk

ASIA

Asian equity markets were mixed as sentiment in the region only found mild solace from the tech-led recovery on Wall St. ASX 200 (+0.4%) was firmer at the open in which outperformance in the tech sector helped the index pick itself up from around 2-year lows although this later stalled amid weakness in energy and financials, while Nikkei 225 (-0.3%) swung between gains and losses due to a lack of fresh drivers and an indecisive currency. Shanghai Comp. (+0.4) and Hang Seng (unch.) were also choppy on trade uncertainty amid lingering concerns the Huawei situation could spill-over to US-China trade talks, although there were reports that Vice Premier Liu spoke with US Treasury Secretary Mnuchin and US Trade Representative Lighthizer in which they exchanged views on pushing forward the timetable and road map for the next stages of trade discussions. Meanwhile, India markets were initially pressured following the shock resignation by RBI Governor Patel which many viewed to be in protest for government meddling, while the state assembly elections added to the woes for the government with the ruling BJP party on track to lose some states to the main opposition ahead of next year’s general election. Finally, 10yr JGBs were uneventful amid the indecisive risk tone and with participants following mixed results at the 30yr JGB auction.

PBoC skipped repos although are expected to resume operations soon to fill year-end short-term liquidity gaps. (Newswires/CSJ)
PBoC set CNY mid-point at 6.8996 (Prev. 6.8693)

China Mofcom said Vice Premier Liu He spoke by phone with US Treasury Secretary Mnuchin and Trade Representative Lighthizer in which both sides exchanged views on implementing consensus reached by their leaders, while they also exchanged views on pushing forward timetable and road map for next stage of trade discussions. (Newswires)

China is to announce details of fist purchase of US soybeans, in which most will be added to state reserves. (Newswires)

Huawei CFO bail hearing ended without a decision and will resume today. Reports also noted that Canada Crown commented on the defence’s proposal of CAD 15mln for bail of Huawei CFO in which it stated that bail should be half cash and half home equity, while the judge was said to want a house arrest for Huawei CFO. (Newswires)

TRADE

China is said to be moving on the US auto tariffs reduction that US President Trump has previously tweeted on. The proposal has been submitted for review, however, the decision has not been finalised and still could change (Newswires)

UK/EU/US

Politics Home journalist tweets "Steve Baker calls on Tory MPs to now submit enough letters of confidence in Theresa May to ‘bring her down’; Steve Baker says Esther McVey, Dominic Raab, David Davis and Boris Johnson ‘need to work out between which one of them is to be our candidate’ to be new Tory leader"
 

Irish Foreign Minister Coveney says backstop itself is not going to change, adding that the Irish government has no issue providing reassurance around the backstop. Is bringing a detailed paper to the cabinet on Tuesday on various Brexit scenarios; including a no deal. (Newswires)

House of Commons leader Leadsom says PM May might get an addendum to the withdrawal agreement, adding that there are plenty of options for PM may to speak with EU leaders on. (Newswires)

EU's Juncker says reopening the withdrawal agreement is not going to happen; but further clarifications are possible. (Newswires)
 

German European Affairs Minister Roth says he does not see scope to change the Brexit deal. When asked if German Chancellor Merkel can help PM May on Wednesday, he stated that it is always good to talk with each other. (Newswires)

FT Brussels Correspondent tweets, EU sources insisting this morning that May won't get a clarification on the backstop that will carry any legal weight. (Twitter)

Times Journalist Sam Coates reports that SNP, Lib Dems and others have written to Labour's Jeremy Corbyn to push for a no confidence motion in UK PM May. (Newswires)

UK PM May Spokesperson says that the Govt. will bring back the deal to parliament for a vote before January 21st. (Newswires)

UK Average Week Earnings 3M YY Oct 3.3% vs. Exp. 3.0% (Prev. 3.0%, Rev. 3.1%)

UK Average Earnings (Ex-Bonus) Oct 3.3% vs. Exp. 3.2% (Prev. 3.2%)

UK Employment Change (Oct) 79k vs. Exp. 25k (Prev. 23k)

Following French President Macron’s announcements reports suggest the 2019 deficit/GDP ratio is likely to be around 3.5%. (Les Echos)

Reported that Italian PM Conte is targeting a 2.1% deficit, however, separate reports suggest, Deputy PMs Salvini and Di Maio refuse a deficit of below 2.2%, whilst the EU are reportedly demanding a deficit target of 1.95%. (La Repubblica/Messaggero)

Italian Government source says there are "excellent" chances that the EU will not discipline Italy if they provide a deficit/GDP target for 2019 of 2.0%. Neither party wants to lower deficit/GDP target to below 2.2%; PM Conte is unlikely to suggest any new target at Wednesday meeting with Juncker. (Newswires)

US President Trump is said to be concerned regarding an impeachment and sees it as a real possibility according to sources. (CNN)

CENTRAL BANKS

India's Finance Minister states that he is not in favour of selecting an interim RBI governor but wants one appointed by the next meeting; announcement likely today. (Newswires)

EQUITIES

Major European Indices are in the green [Euro Stoxx 50 +1.6%], with some outperformance seen in the SMI (+1.6%) bolstered by strong performance in index heavyweight Novartis (+1.6%) after the FDA approved Pear Therapeutics mobile application, which their Sandoz unit will be rolling out in the US. The SMI is also bolstered by LafargeHolcim (+3.6%), which is benefitting from outperformance in the materials sector seen today on the back of US and Chinese representatives planning the next steps in trade discussions. FTSE 100 (+1.3%) is lagging its peers, amidst currency effects from ongoing Brexit developments. Other notable equity movers are WPP (+6.5%) after an update to guidance, and Ashtead Group (+4.2%) after they announced full year expected results to be ahead of expectations.

FX

GBP - Far from zero to hero, but Sterling is ahead of the pack in terms of broad G10 currency advances vs the Greenback as the DXY ducks back under the 97.000 level. Cable has bounced further from yesterday’s new 2018 low circa 1.2507, through the pre-official cancellation of the Brexit vote base around a big figure higher and just shy of 1.2640, mainly on short covering and consolidation, but also with the aid of strong UK average earnings. Meanwhile, Eur/Gbp has retreated towards 0.9000 having cleared 0.9050 and topped out not too far from 0.9100.

EUR/CHF/SEK/NOK - The next best majors, with the single currency maintaining its recovery momentum off 1.1350 lows vs the Usd, but capped ahead of 1.1400 and perhaps conscious of hefty option interest between 1.1390 and the bog figure (2 bn). The Franc remains relatively firm within a 0.9905-0.9865 range and above 1.1250 vs the Eur, while the Scandi crowns have clawed back recent losses amidst an improvement in risk sentiment, and with the Sek awaiting Swedish inflation data on Wednesday after significantly stronger than forecast Norwegian CPI metrics yesterday. Eur/Nok is around 9.7000 and Eur/Sek back below 10.3000.

JPY - Also trying to pare losses vs the Dollar after extending its downturn from 112.25 to 113.35 and extremely close to a Fib level, but unable to rebound through 113.00 where heavy supply is touted and a 1.5 bn option expiry resides.

AUD/CAD/NZD - Mixed fortunes once again as the Aud reclaims 0.7200+ status vs its US counterpart, albeit just, on more promising vibes regarding US-China trade, which have also nudged the Aud/Nzd cross back up towards 1.0500, as the Kiwi losses sight of 0.6900 vs the Usd. Meanwhile, the Loonie is back on the 1.3400 handle and regaining some composure alongside crude prices.

EM - The Try continues to underperform on bearish technical rather than fresh fundamental impulses, but did glean support from another upbeat snapshot of Turkey’s current account to trade back near 5.3500 vs the Dollar from 5.4000+ at one stage.

FIXED INCOME

Core EU debt has slipped further into the red, with Gilts still lagging peers (down over 50 ticks) as the UK benchmark saw a little more bearish reaction to UK wage data, despite focus remaining on Brexit updates, with no-confidence speculation mounting. Traders are now eyeing a fib at 123.48 on the downside as support vs. Liffe lows of 123.59. Bunds saw little reaction to a decent Schatz auction (b/c and average yield falling in line with prev.) or ZEW with 10-year yields now firmer above 0.25% as the risk-on tone has replaced yesterday’s safe haven flight (for now at least). Back to futures on a technical basis 162.82 is up next as support as the benchmark  hangs around the 162.90 handle vs. 162.83 at worst. BTPs remain cautious ahead of tomorrow’s Italian-EU budget showdown as sources suggest Rome is not stepping back from its 2.2% target. OATs are also deeply in the red, with the French 10-year yield rising above 0.75% at one point and hitting a three week high, as protestors seem unappeased by President Macron’s concessions amid calls for a 5th week of action.

Elsewhere, US Treasury futures are seeing most of the action in the belly ahead of the USD 38bln 3yr auction amidst a concessionary tone as 10-year futures broke the 120-16/17 level to the downside with 120-06 eyed next up and yields above 2.85%.

COMMODITIES 

Brent (+0.9%) and WTI (+1.0%) prices have strengthened, despite drifting lower at the start of the session following comments from Russian Energy Minister Novak that Russia plans to cut oil output by 50k-60k BPD in January; which is significantly below the 228,000 BPD figure targeted as part of the latest OPEC deal. Novak adds that they will gradually reduce oil output. Separately, high level internal reports are to cut output by 139k BPD following the OPEC deal. Looking ahead today sees the API weekly data release, which saw a crude stocks build of 5.6mln last week.

Gold has strengthened on a softer dollar, although the yellow metal is still off of the 5-month high of USD 1250.55/oz reached in the previous session. Separately, exploration by Rio Tinto in Australia has yet to find any economically viable copper ore veins; the site had been touted as being potentially rich in copper.

Iranian oil exports have improved since early November according to the Iranian President. (Newswires)