• Asian equities were lower across the board following the slump seen on Wall St. as investors readied for an expected Fed hike against the backdrop of slowing global growth
• UK Labour Leader Corbyn is now implementing a forward motion of no-confidence in UK PM May following her decision to not hold a Brexit vote immediately
• UK PM May has challenged Corbyn instead to call for a no-confidence vote in the government rather than herself, after the PM secured support from Brexiteers and the DUP
• Looking ahead, highlights include German IFO, US building permits and housing starts, ECB’s de Guindos, Rehn, Stournaras and Makuch

ASIA

Asian equities were lower across the board following the slump seen on Wall St. as investors readied for an expected Fed hike against the backdrop of slowing global growth. The S&P fell to the lowest in 14 months, while the Dow declined in excess of 500 points as shares in Amazon and Goldman Sachs led the declines. ASX 200 (-1.2%) was pressured by energy names amid the price action in the complex, while Nikkei 225 (-1.6%) underperformed due to a firmer currency on safe-haven demand as equities continued selling off. Elsewhere, Hang Seng (-1.2%) and Shanghai Comp. (-1.1%) extended on opening losses as Chinese President Xi Jinping gave his landmark speech at the Beijing Conference in which he provided little by way of details regarding trade developments with the US.

Chinese President Xi said China is to stick to supply side reforms, to promote trade convenience and a multilateral trading system. President Xi added that no-one is in a position to dictate what China should or shouldn't do and opposes nations forcing their ideas on others and that China may face unimaginable difficulties ahead, but will control major risks in the economy. (Newswires)

PBoC set CNY mid-point at 6.8854 (Prev. 6.8908)
PBoC injected CNY 140bln via 7-day reverse repos and CNY 40bln via 14-day reverse repos, net CNY 180bln in Open Market Operations

Japanese Finance Minister Aso said Japan are to reduce purchasing auto tax and extend housing loan tax exemptions. (Newswires)

UK/EU

UK Labour Leader Corbyn is now implementing a forward motion of no-confidence in UK PM May following her decision to not hold a Brexit vote immediately. However, UK PM May office said it will not allow time for a no-confidence vote. (Newswires) UK PM May has challenged Corbyn instead to call for a no-confidence vote in the government rather than herself, after the PM secured support from Brexiteers and the DUP. (Times)

The emergency debate on PM May's discussions with the EU Commission will take place on Tuesday as the first item of public business for up to 3 hours; according to the House of Commons. (Newswires)

UK government is said to have taken secret legal advice on extending Article 50 which it argues effectively rules out a second referendum. (The Telegraph)

UK cabinet will discuss whether the government should ramp up preparations for a no-deal Brexit when it meets later this morning (BBC)

UK Development Secretary Mordaunt issued her demand ahead of a Cabinet meeting to urge for the need of a Plan B if PM May's deal is voted down by MPs. She will argue a “managed glidepath” of up to two years will mean any future trading relationship will be feasible for businesses – including WTO terms. (The Sun)

UK Cabinet will, on Tuesday, order UK's six million businesses to start immediate preparations for a No Deal Brexit. (The Sun)

Italy and EU are said to be EUR 3bln apart on the 2019 budget. (Corriere della sera). It was earlier reported that no agreement on the budget has been reached yet between Italy and EU; according to Radiocor. (Newswires)

Italy is to cut its GDP growth forecast to 1.0% from 1.5% as part of its new 2019 budget plan. (Newswires)

FX

In FX markets, the Dollar index eased further to print fresh session lows just above the 97.000 level (97.030-150 range) ahead of tomorrow’s long-awaited FOMC rate decision as markets gear up for a dovish hike. As such EUR/USD held above 1.1350 for most of the session, while and GBP/USD remained above 1.2600. NZD/USD was the marked outperformer amid an improvement in ANZ own activity and business confidence which gave the pair impetus to reach highs of around 0.6850 (vs. low of 0.6800). Meanwhile, AUD/USD hit resistance at the psychological 0.7200 level while moving higher with its antipodean counterpart after initially shrugging off the release of the RBA minutes in which the Board reiterated that that next move in rates is likely to be a hike but saw no strong case for a near-term change in policy. Elsewhere, USD/CAD fell to session lows of sub-1.3400 (vs. high of 1.3420) following comments from BoC Governor Poloz who said policy rates need to be more neutral as the Canadian economy is near capacity and added that he is not expecting a Canadian recession in 2019 as the economic fundamental remain solid. Finally, USD/JPY breached 112.50 to the downside as the Japanese currency added further safe-haven spurred gains with the next level to the downside in USD/JPY at 112.40 (100DMA) ahead of the December low around 112.20.

RBA Minutes from December 4th meeting reiterated that the Board agreed the next move in rates is likely to be up than down but saw no strong case for a near-term change in policy. The Board noted sluggish household income, high debt and falling home prices "posed downside risk" but Members expected GDP growth to run above potential in 2018 and 2019.

Mexican Foreign Ministry to give details on investment plan with the US later today. (Newswires)

New Zealand NBNZ Own Activity 13.6% (Prev. 7.6%) (Newswires)
New Zealand ANZ Business Outlook Dec -24.1% (Prev. -37.1%)

COMMODITIES

WTI (-1.3%) and Brent (-1.4%) continued to decline with the risk sentiment across the region, while concerns remained on future oil demand amid slowing global economic growth and doubts on the impact of the OPEC+ production curb as rises in US inventories and forecasts of record share output renew fears of an oversupplied market. Elsewhere, gold (+0.2%) benefitted from the pullback in the USD and copper (-0.6%) failed to benefit from the easing buck as the red metal mimicked the risk-averse tone.

Russian Energy Minster Novak said December output is at around October levels and slightly higher than November. (Newswires)

EIA forecasts US total shale regions oil production for January up at 134,000 BPD at 8.166mln BPD (vs. 123,000 BPD rise in December)

Libya's NOC has declared force majeure on the El-Sharara 315k BPD oil field, production will only restart after alternative security arrangements; according to a NOC statement. (Newswires) This comes after Libya's NOC declared a force majeure last Monday on El-Sharara oil field while adding that production at Zawiya refinery is also at risk due to the dependence on Sharara supply.

Japan crude steel output in FY19/20 is expected to be slightly higher than FY18/19; according to an industry body

US

General risk-off sentiment pushed treasuries into negative territory on Monday as equities extended their slide. The equity sell-off weighed on yields which were lower across the curve by c.3bps at settlement. Focus now falls on the last 2018 Fed meeting scheduled for Wednesday; a 25bps rate hike is widely expected and investors will be looking out for the Fed’s latest outlook as well as next year’s hiking trajectory. This comes despite Trump renewing his Fed’s criticism on Monday. Spreads were wider across the curve with 2s30s and 5s30s wider by c.1bps. 

US Congress is said to be cancelling stopgap spending bill that goes further into 2019. (Fox) Senate Democratic sources then stated that the stopgap bill has been sent to the White House with no response and added that there has been no change in government funding negotiations. (Newswires)

Trade aid program is estimated at USD 7.3bln to soybean farmers and total commodity payments at USD 9.6bln; according to USDA. (Newswires)

White House Economic Advisor Hassett said Q4 GDP growth should be approximately 3%, probability of US recession over the next 12 months is about zero. (Fox)

Source: RANsquawk