• US stocks sold off in the NY afternoon with desks pointing to technical factors, hefty 0DTE put options volume, and positioning in "holiday-thinned trade".
• APAC stocks traded mostly lower as the downbeat sentiment from Wall Street reverberated despite a lack of major catalysts, although Mainland Chinese markets eventually eked out gains.
• The Biden administration is reportedly mulling raising tariffs on some Chinese goods, including EVs, WSJ sources said, in an attempt to bolster US clean energy against cheaper Chinese exports.
• European equity futures are indicative of a softer open with Euro Stoxx 50 future -0.6% after cash markets closed flat on Wednesday.
• Looking ahead, highlights include UK PSNB, US GDP Final, PCE, Philly Fed Business Index, IJC, Canadian Retail Sales, Japanese CPI, CBRT Policy Announcement, ECB 5-yearly Capital Key Adjustment, ECB’s Lane, Supply from the US

US TRADE

EQUITIES

• US stocks ultimately sold off on Wednesday amid a large volatility spike in the NY afternoon. The downside came in the absence of a fresh catalyst, with desks instead pointing to technical factors, hefty 0DTE put options volume, and positioning in "holiday-thinned trade".
• SPX -1.35% at 4,376, NDX -2.19% at 14,816, DJIA -1.08% at 34,099, RUT -1.27% at 1,846.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Harker (2023 voter) said the Fed will not cut rates right away, the job of controlling inflation is not done and things are looking better for the inflation outlook. He's hearing things are starting to soften faster than data suggests. He said the Fed does not need to raise rates any more, and the soft landing process will likely be bumpy. He expects unemployment to tick up, but not by a lot, while he stated a lot of things could thwart a soft landing. Harker said the US economy is incredibly resilient, whilst high price levels for many parts of the economy weigh on many.
• BoC Minutes: Members felt more optimistic that interest rates were high enough to curb inflation. The council spent considerable time discussing the chances that shelter prices could remain elevated and make it harder to return to the bank's overall 2% inflation target. Members agreed that the likelihood that monetary policy was sufficiently restrictive to achieve the inflation target had increased. But they also agreed that risks to the inflation outlook remained, and it may still be necessary to increase the policy rate. The minutes did not repeat the language around the last decision in October which referred to some members seeing the likely need for another hike.
• Micron Technology Inc (MU) Q1 2024 (USD): Adj. EPS -0.95 (exp. -0.97), Revenue 4.726bln (exp. 4.64bln). Q2 revenue view 5.1-5.5bln (exp. 5.03bln), EPS view -0.35 to -0.21 (exp. -0.62). Adj. FCF USD 1.4bln (exp. 1.25bln). Adj. op. expenses USD 992mln (exp. 952mln). Micron expects business fundamentals to improve throughout 2024 with record industry TAM projected for calendar year 2025. Shares rose 4.8% after market. Click here for commentary.

APAC TRADE

EQUITIES

• APAC stocks traded mostly lower as the downbeat sentiment from Wall Street reverberated despite a lack of major catalysts to spark the global equity selloff, although Mainland Chinese markets eventually eked out gains.
• ASX 200 saw the deepest losses in its Tech and Gold sectors, and the index briefly fell under 7,500.
• Nikkei 225 slipped at the open and underperformed throughout the session, and consumer-geared sectors were among the worst performers, whilst JPY dynamics did not help the index.
• Hang Seng and Shanghai Comp started in the green with the former initially conforming to the broader risk tone before ebbing lower with Tech and Energy among its biggest losers. Mainland China was supported following a hefty PBoC liquidity operation via 7 and 14-day reverse repos.
• US equity futures (ES +0.4%) consolidated with mild gains overnight following the steep selloff experienced in the NY afternoon.
• European equity futures are indicative of a softer open with Euro Stoxx 50 future -0.5% after cash markets closed flat on Wednesday.

FX

• DXY trades in a tight 102.25-42 range following the prior day's risk-fuelled gains, which took the index to a high of 102.54. Upside levels in the Monday and Tuesday highs (102.63) and 15th Dec high (102.64). Downside levels include Wednesday's low (102.14), and Tuesday's low (102.06).
• EUR/USD was largely uneventful and moving in tandem with the Dollar amid a lack of pertinent newsflow.
• GBP/USD remained subdued following the UK inflation data yesterday. The pair found support at its 21 DMA (1.2630) and resistance at 1.2650.
• USD/JPY lagged throughout the session amid mild JPY strength despite a lack of headlines but amidst the broader negative risk tone.
• Antipodeans were mixed in which AUD benefitted from the softer Dollar and resilient base metals, whilst NZD was capped as AUD/NZD topped 1.0800.
• PBoC set USD/CNY mid-point at 7.1012 vs exp. 7.1401 (prev. 7.0966)

FIXED INCOME

• 10-year UST futures traded in a tight range following the prior day's bull-steepening, whilst the 20-year auction was poorly received.
• Bund futures coat tailed on the late Wall Street gains and oscillated on either side of 138.00 overnight.
• 10-year JGB futures were modestly softer with the contract giving back some of the BoJ-induced gains, whilst the 10yr yield rose back above 56bps vs yesterday's low of 55.3bps.
• US sells USD 13bln of 20yr bonds (reopening) at 4.213%; tails by 1.5bps. High Yield: 4.213% (prev. 4.780%). Tail: 1.5bp (prev. -1bps, six-auction avg. -0.6bps). Bid-to-Cover: 2.55x (prev. 2.58x, six-auction avg. 2.71x). Dealers: 12.9% (prev. 9.5%, six-auction avg. 10.1%). Directs: 20.7% (prev. 16.5%, six-auction avg. 19.8%). Indirects: 66.4% (prev. 74.0%, six-auction avg. 70.1%)

COMMODITIES

• Crude futures were both subdued for most of the session amid the broader risk tone in APAC hours and amidst a lack of clear drivers behind the risk aversion, although the contracts later trimmed losses.
• Spot gold moved in tandem with the Dollar and remains uneventful within recent ranges.
• Copper futures traded without a clear direction despite the soured sentiment across APAC.

CRYPTO

• Bitcoin was flat above USD 43,500 throughout the night whilst Ethereum traded on either side of USD 2,200.

NOTABLE ASIA-PAC HEADLINES

• Japanese government raises FY23/24 GDP growth forecast to +1.6% (prev. +1.3%); raises FY24/25 forecast to 1.3% (prev. 1.2%), according to Reuters citing the Cabinet Office.
• Japanese PM Kishida's Cabinet set to approve draft budget for fiscal year starting April that will reduce spending for the first time in 12 years, according to Nikkei. Japan's fiscal 2024 proposal calls for JPY 1tln in reserves for programs to ease the burden of inflation and promote wage hikes.
• Japanese unions reportedly target over JPY 1,600/hr minimum wage by 2035, according to NHK.
• Analysts cited by Chinese Securities Journal see room for moderate "downward movement in the follow-up LPR".
• PBoC injected CNY 195bln through 7-day reverse repos at 1.80% and CNY 226bln via 14-day reverse repos at 1.95%; both rates maintained.
• South Korea to relax capital gains tax threshold for large shareholders, says capital gains tax for listed shares will hit those holding more than KRW 5bln starting 2024, according to the Finance Ministry.

DATA RECAP

• South Korean PPI Growth YY* (Nov) 0.6% (Prev. 0.8%)
• South Korean PPI Growth MM* (Nov) -0.4% (Prev. -0.1%)
• South Korean Dec 1-20 exports +13.0% Y/Y; imports -9.2% Y/Y, according to the Customs Agency

GEOPOLITICS

• The Biden administration is reportedly mulling raising tariffs on some Chinese goods, including EVs, WSJ sources said, in an attempt to bolster US clean energy against cheaper Chinese exports. Other targets for potential tariff-rate increases are Chinese solar products and EV battery packs, sources added.
• US Senator Rubio calls on the Biden administration to sanction Chinese chip designer Brite Semiconductor following the Reuters report that Brite offers chip design services to at least six Chinese military suppliers and is part-owned by SMIC.
• US Central Command says rocket fired at Al Assad Air Base in Iraq on Dec. 20, with no injuries or damage caused, according to Reuters.
• North Korea's Kim said the recent ICBM launch showed North Korea's strategy not to hesitate even a nuclear attack when the enemy provokes it with nukes, according to KCNA.
• Russian and Chinese militaries held strategic consultations in Beijing on Dec 20th, according to the Chinese Defence Ministry. The two sides had an in-depth exchange of views on the international and regional security situation and relations between the two militaries.
• Chinese Finance Ministry said China will suspend some tariff cuts on imports from Taiwan from Jan 1st 2024, according to Reuters.

EU/UK

NOTABLE HEADLINES

• ECB's Kazaks said rates are to remain at 4% for some time before a likely cut; not as optimistic as markets on first cut timing, first cut could come around mid-2024, according to Latvian TV.
• EU Finance Ministers reach agreement on new fiscal rules, according to Bloomberg. Revamp will grant more leeway for national defence spending. Germany succeeded in introducing guardrails for debt reduction.

DATA RECAP

• UK Lloyds Business Barometer (Dec) 35 (Prev. 42); Own Price Expectations: 59 (Prev. 61)