• Asian stocks traded higher across the board with sentiment underpinned as news flow spurred optimism regarding US-China trade relations
• Multiple sources in the UK believe that the 48 letter threshold has been reached to trigger a confidence vote in UK PM May; yet to be confirmed
• Most major FX pairs attempted to nurse losses against the greenback with EUR and GBP regaining some ground vs. the USD
• Looking ahead, highlights include US CPI & Real Weekly Earnings, Brazilian Interest Rate Decision, OPEC Monthly Report, UK I/L 2048 Gilt Auction, US 10yr Auction

ASIA

Asian stocks traded higher across the board with sentiment underpinned as news flow spurred optimism regarding US-China trade relations, including reports that China submitted a proposal for review that would cut tariffs on imports of US autos to 15% from 40%. ASX 200 (+1.4%) and Nikkei 225 (+2.3%) gained from the open with energy and tech the front-runners in Australia, while the Japanese benchmark outperformed as it benefitted from USD/JPY’s slipstream and with the BoJ said to have purchased a record JPY 6tln of ETFs so far this year. Elsewhere, Hang Seng (+1.6%) and Shanghai Comp. (+0.2%) were positive on hopes of a potential tariff cut on US autos and encouraging comments from US President Trump, while news that Huawei’s CFO was released on bail and the recent better than expected lending data from China also added to the optimism. Finally, 10yr JGBs are subdued with demand dampened by the gains in stocks and amid spill-over weakness from T-notes.

PBoC skipped open market operations. (Newswires)
PBoC set CNY mid-point at 6.9064 (Prev. 6.8996)

US President Trump said China is purchasing a tremendous amount of soybeans and that trade negotiations are already taking place via telephone. Furthermore, Trump said he would intervene in Huawei CFO case if it would serve national interests and trade talks with China, while he added release of Huawei CFO could be part of a broader trade deal with China. (Newswires)

Canadian judge granted bail to Huawei CFO subject to CAD 10mln guarantee including CAD 7.0mln in cash. The judge also said the CFO must surrender passports and must be subject to electronic monitoring, while the CFO is ordered to reappear in court on February 6th. (Newswires)

US President Trump administration is to condemn China over hacking and economic espionage, while there were separate reports the US State Department is mulling travel advisory for China to caution US citizens following the Huawei CFO arrest. (Washington Post/Newswires)

US House Representatives have introduced a bill that would ban the sale of US goods to Chinese telecom firms who are in violation of US export and sanctions laws, while there were separate reports that US President Trump administration is said to be mulling executive order to make it more difficult for Chinese companies to obtain critical telecom hardware. (Newswires/NYT)

UK/EU

A UK senior government source was said to be expecting a confidence vote in UK PM May imminently and there were also reports that the 1922 Committee is set to meet on Wednesday evening. Furthermore, there were initial reports that 1922 Committee Chairman Brady has asked to see the PM May after PMQs tomorrow and that multiple sources believe the threshold of 48 letters has been reached, although there were separate reports that friends of Brady said he has no plans to make a statement about a confidence vote on UK PM May's leadership and that Brady is said to not have sought a crisis meeting with UK PM May. (Newswires/Twitter) UK PM May has not been told that leadership threshold was met according to a source, although a Telegraph political correspondent later tweeted that a senior Brexiteer said 48 letters have "almost definitely" gone in and expect an announcement today. (Newswires/Twitter)

ITV's Peston tweeted that MP George Freeman appears to be saying that PM May is over but that Tories have to find a way to replace her temporarily without a leadership election. Elsewhere, UK Shadow Brexit Minister Starmer said the opposition Labour party will call a no-confidence vote “before Christmas”. (Twitter)

European Council President Tusk noted he held a "long and frank discussion" with UK PM May ahead of EU summit and that it is clear EU27 wants to help but the question is how, while Austrian Chancellor Kurz told PM May on the phone that the Brexit deal can't be renegotiated. (Twitter/Newswires)

UK officials are reportedly warning EU members that a "no deal" Brexit raises the risk of financial disruption to banks. (Sky News)

US Treasury and USTR reportedly finalized a bilateral agreement with UK. (Newswires)

Italy's Deputy PM Salvini may pursue elections in March 2019, according to La Repubblica. (La Repubblica)

FX

In FX markets, most major pairs attempted to nurse losses against the greenback in which EUR/USD recuperated after the prior day’s drop from resistance at 1.1400 and with GBP/USD just about clawing back the 1.2500 handle after the recent pounding it took from PM May’s Brexit vote retreat. Elsewhere, the increased risk appetite dampened demand for safe-haven JPY and antipodeans strengthened amid gains in crude as well as outperformance in CNH, while high-beta CAD also benefitted from the risk sentiment and following the Huawei CFO bail release.
 

COMMODITIES

Commodities traded with mild gains with WTI crude futures higher by 1% and back above the 52.00/bbl level following a much larger than expected drawdown in the latest headline API crude inventory report, while the EIA also conducted upward revisions to global oil demand forecasts for this year and next. Elsewhere, gold heads into the European session relatively flat albeit off worse levels after having recovered from some of the prior day’s USD-induced losses, and copper traded sideways near this week’s highs with price kept afloat by the improved risk sentiment.

US API Weekly Crude Stocks (7 Dec) -10.18mln vs. Exp. -3.0mln (Prev. +5.36mln). (Newswires)

US EIA raised its 2018 world oil demand growth forecast by 20,000 BPD to 1.54mln BPD YY and raised 2019 forecast by 80,000 BPD to 1.52mln BPD YY. EIA also forecasts 2019 US crude oil output to rise by 1.18mln BPD (prev. 1.16mln) to 12.06mln BPD and forecasts 2019 US oil demand to rise by 330,000 BPD (prev. 220,000). (Newswires)

Iraqi PM Abdul Mahdi said will send delegation to the US to discuss exemption from sanctions on Iran in order to keep importing Iranian gas. (Newswires)

US

Treasuries traded lower in Asia amid low volume and continued to sell into the European open. As US traders sat at their desks, the complex edged gradually higher and extended gains on reports suggesting Trump administration is condemning China over hacking and economic espionage Trump administration to condemn China over hacking and economic espionage as well as Trump threatening a government shutdown. Nonetheless the complex finished Tuesday’s session in negative territory as equities pared back some of their losses and turned positive heading into the close.  Most of the action was concentrated in the front end of the curve where yields were higher by c.5bps at settlement. US T-note futures (Z8) settled 7+ ticks lower at 120-14+.

US President Trump said it would be foolish for the Fed to hike rates next week and that he is fighting some trade battles which needs accommodation. US President Trump also said he is not concerned about getting impeached as it is hard to impeach someone who hasn't done anything wrong, while he added that payments to women were not campaign contributions and that he relied on his former lawyer Cohen who was supposed to know what to do. (Newswires)