• Asian equity markets were negative across the board as sentiment in the region soured following the lacklustre lead from Wall St and as region digested disappointing data from China
• In FX markets, the DXY consolidated just above the 97.00 level with price action kept range-bound by mixed trade in the greenback’s major counterparts
• EU reportedly strengthened the wording on Brexit backstop in summit document and reiterated it doesn't seek to use Brexit backstop, however EU leaders said the WA is not open for renegotiation
• EU and Italy aim to conclude budget talks by Sunday; according to reports in La Repubblica
• Looking ahead, highlights include EZ flash PMIs, US retail sales and industrial productions, Russian interest rate decision, Baker Hughes rig count, ECB’s de Guindos, Nowotny and Lautenchlaeger

ASIA

Asian equity markets were negative across the board as sentiment in the region soured following the lacklustre lead from Wall St and as region digested disappointing data from China. ASX 200 (-1.1%) and Nikkei 225 (-2.1%) both declined from the open with Australia led lower by tech, telecoms and the largest weighted financials sector, while the Japanese benchmark was subdued amid a firmer JPY and mixed Tankan data despite the headline Large Manufacturers Index and Large All Industry Capex topping estimates. Elsewhere, Hang Seng (-1.7%) and Shanghai Comp. (-0.9%) were also pressured after Chinese Industrial Production and Retail Sales data both fell short of estimates, with underperformance seen in Hong Kong as this year’s run of lacklustre stock market debuts continued in the domestic exchange. Finally, 10yr JGBs were higher as they tracked gains in T-notes and with prices underpinned by safe-haven demand which saw 10yr JGBs print the highest since November 2016.

PBoC skipped repo operations but announced a CNY 286bln 1yr Medium-term Lending Facility. (Newswires)
PBoC set CNY mid-point at 6.8750 (Prev. 6.8769)

Chinese Industrial Output (Nov) Y/Y 5.4% vs. Exp. 5.9% (Prev. 5.9%). (Newswires)
Chinese Retail Sales (Nov) Y/Y 8.1% vs. Exp. 8.8% (Prev. 8.6%)

China National Bureau of Statistics said main economic targets are expected to be reached, but added global economy faces more uncertainties, while it also noted that China's weaker industrial production and retail sales shows downward pressure on the economy is increasing. (Newswires)

Japanese Tankan Large Manufacturing Index (Q4) 19.0 vs. Exp. 17.0 (Prev. 19.0). (Newswires)
Japanese Tankan Large Manufacturing Outlook (Q4) 15 vs. Exp. 16.0 (Prev. 19.0)
Japanese Tankan Large All Industry Capex (Q4) 14.3% vs. Exp. 12.7% (Prev. 13.4%)

UK/EU

EU reportedly strengthened the wording on Brexit backstop in summit document and reiterated it doesn't seek to use Brexit backstop, while it noted a firm determination to reach a subsequent agreement. EU Leaders said the trade deal to avoid using backstop should be in place by December 2020 or soon after and that they wish to have as close as possible partnership with the UK in the future, while they underlined that the backstop is intended as an insurance policy. Furthermore, there were comments from EU Council President Tusk that leaders stand by the withdrawal agreement and that it is not to be renegotiated. (Newswires)

There were earlier reports that the EU is said to consider a backstop declaration with legal force and is said to consider aspirational end-date for the backstop, while the EU is said to expect another Brexit summit in January. (Newswires)

Certain Conservative MPs are said to attempt persuading PM May to step down next Spring. (The Sun)

ECB policy-makers debated changing the balance of the risk assessment to highlight downside risk, according to sources. (Newswires) This follows President Draghi’s comments at the press conference that risks to growth still broadly balanced, but balance of risks is moving to the downside.

EU and Italy aim to conclude budget talks by Sunday and are said to be EUR 4.5bln apart on the budget. (La Repubblica) Meanwhile, La Stampa reported that Italy and EU could be EUR 4bln apart. (La Stampa)

EU's Moscovici said Italy has made a "significant effort" on its budget and that the meeting with Italy's Economy Minister Tria was "very constructive". Furthermore, he said that work is continuing to quickly reach a compromise on the budget, while it was separately reported that Italy Finance Minister Tria is to stay in Brussels till the budget deal is reached. (Newswires/ANSA)

Reports suggested French no-confidence vote was rejected. (Newswires)

FX

In FX markets, the DXY consolidated just above the 97.00 level with price action kept range-bound by mixed trade in the greenback’s major counterparts. As such, EUR/USD was little changed, and GBP/USD edged slightly lower following the EU leaders’ summit in which the bloc’s officials attempted to provide assurances regarding the backstop but stressed they will not renegotiate the withdrawal agreement. Elsewhere, the risk-averse tone spurred demand for safe-haven JPY and weighed on antipodeans, with pressure in AUD exacerbated by cross-related flows and disappointing Chinese data.

COMMODITIES

Commodities were uneventful overnight in which WTI crude futures consolidated after the prior day’s over 3% rally to briefly above USD 53.00/bbl which was attributed to a long overdue rebound. Elsewhere, gold traded sideways amid a lack of drivers for the precious metal and similar subdued price action across the metals complex, while copper was weighed due to the broad risk averse tone and disappointing Chinese data.

Saudi Arabia was said to target US with a large oil export cut in which the cut is aimed at reducing their visible stockpiles, while reports suggested that Saudi crude shipments to the US next month could test the 30-year low set in 2017 of 582,000 BPD which would be down 40% from the most recent 3-month average. (Newswires)

GEOPOLITICAL

US Senate has passed second resolution saying Saudi Crown Prince MBS is responsible for murder of journalist Khashoggi, while the US Senate also voted to withdraw military support for Saudi-led coalition in Yemen. (Newswires/FT)

US

Treasuries traded choppy on Thursday and ended the session mixed with the only major catalyst being the ECB decision leaving interest rates unchanged; yields fell by 1-2bps after ECB’s Draghi press conference initially moving in tandem with bunds; longer dated yields then edged higher following upticks equities. Most of the action was concentrated at the extremes of the curve with shorter dated yields lower by c.1bps and longer dated yields higher by c.1bps a settlement. The US Treasury sold USD 16bln in 30yr bonds stopping through by 0.2bps at a high yield of 3.165%, the lowest since September. The bid-to-cover came in at 2.31 and indicated an overall strong demand for the auction. In terms of the breakdown, directs secured a portion above recent averages and indirects were awarded the largest share since January with dealers left with the smallest portion since January. US T-note futures (Z8) settled unchanged at 129-09.

Federal prosecutors are investigating whether US President Trump's inaugural committee misspent some of the record amount of funds it raised, while there were later comments from White House Press Secretary Sanders that President Trump had limited engagement with the inauguration committee. (WSJ/Newswires)

US President Trump is said to be considering Kushner for Chief of Staff, while there were separate reports that US President Trump is said to have met with Chris Christie to discuss Chief of Staff position. (Huffington Post/Axios)