• Political uncertainty from subpoenas on Trump campaign staff and a breakdown in German coalition talks hampered sentiment overnight
• EUR took the brunt of the political concerns in Germany with EUR/USD retreating further below 1.1800, while EUR/GBP gave up the 0.8900 handle
• Looking ahead, highlights include potential comments from ECB’s Lautenschlaeger, Draghi and Constancio

ASIA

Asia began the week subdued following the losses on Wall St. last Friday and with focus on political uncertainty after Trump campaigners were subpoenaed and German coalition talks broke down. ASX 200 (-0.2%) and Nikkei 225 (-0.5%) were in the red although recent strength across commodities helped stem losses in Australia, while Japanese sentiment was dampened by a firmer JPY and a miss on trade data. Hang Seng (-0.1%) and Shanghai Comp. (-0.7%) were negative with underperformance in the mainland as Shenzhen stocks resumed Friday’s sell off and amid reports that China tightened asset management rules to curb risky lending. Finally, 10yr JGBs were uneventful with prices flat, as demand from the dampened risk appetite in the region was counterbalanced by the absence of a BoJ Rinban announcement.

PBoC injected CNY 70bln via 7-day reverse repos, CNY 20bln via 14-day reverse repos and CNY 10bln via 63-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.6271 (Prev. 6.6277)

Chinese Property Prices (Oct) Y/Y 5.4% (Prev. 6.3%). (Newswires)

Chinese Property Prices rose M/M in 50 out of 70 cities (Prev. 44) and rose Y/Y in 60 out of 70 cities (Prev. 67). (Newswires)

Japanese Trade Balance (JPY)(Oct) M/M 285B vs. Exp. 330B (Prev. 668B). (Newswires)

Japanese Exports (Oct) Y/Y 14.0% vs. Exp. 15.8% (Prev. 14.1%)

Japanese Imports (Oct) Y/Y 18.9% vs. Exp. 20.2% (Prev. 12.0%)

EUROPE

German coalition talks broke down after FDP pulled out of discussions with German Chancellor Merkel's conservatives due to unrealistic differences. (Newswires)

S&P affirmed Switzerland at AAA; Outlook Stable and affirmed Netherlands at AAA; Outlook Stable. (Newswires)

UK

UK Chancellor Hammond stated that UK is on the brink of serious progress in Brexit discussions, while he also stated the UK will finally begin to see a reduction in public debt and that they will seek to curb health service measures in a balanced way. (Newswires) Reports further suggested that Hammond has put PM May under pressure to promise more money for the Brexit “divorce bill” by suggesting an improved offer will be made to Brussels within tspanee weeks; an offer that the Times believe will be unveiled today. (Telegraph/Times)

EU’s Tusk stated that although good progress on citizens has been made, we need to see much more progress on Ireland and on the financial settlement, while he added that he made it very clear to PM May that this progress needs to happen at the beginning of December at the latest. (Newswires)

FX

EUR weakened after coalition talks collapsed in which the FDP walked away from discussions with German Chancellor Merkel’s CDU/CSU and the Green Party due to unrealistic differences. This failure to reach a ‘Jamaican coalition’ raised the prospects of a snap election and pressured EUR across the board with EUR/USD retreating further below 1.1800, while EUR/GBP gave up the 0.8900 handle. Elsewhere, the remaining of FX markets were subdued with GBP/USD testing 1.3200 to the downside and with the dampened tone containing USD/JPY near 112.00.

COMMODITIES

Commodities were relatively quiet overnight in comparison to the rally seen during Friday’s trade where WTI rose over 2.5% and spot gold gained about 1% to trade at an almost 1-month high. As such, oil prices have remained above the USD 56/bbl level with a lack of fresh developments ahead of next week’s looming OPEC meeting, while gold prices are also uneventful with only a mild pull back observed. Conversely, copper was the laggard amid the dampened risk appetite in the region and underperformance in its largest consumer China.

US Baker Hughes Rig Count (Total) 915 (Prev. 907). (Newswires)

Saudi Arabia have reportedly broadened their probe to now include the military, according to WSJ sources. (WSJ)

US

Treasuries took their cue from soft risk sentiment and its European counterparts. With the exception of the 2-year bucket (which printed a fresh nine-year high in Friday trade), yields fell along the curve. Accordingly, the key spreads flattened, once again; 2s10s narrowed by around 4bps, while 2s30s narrowed just over 5bps, and the much watched 5s30s was lower by just over 2bps. The flattening has been led by expectations that the Fed will tighten policy pushing up short-end yields., while the perception of structurally low inflation has kept longer-end yields lower. US 10-Year T-Note futures settle 1+ tick higher at 124-29.

Reports on Friday stated that Senate Republicans were lobbying President Trump to get behind a bipartisan healthcare deal. (Politico) In related news, a senior White House aide said on Sunday that President Trump is open to dropping healthcare provision from the Senate tax bill. (Newswires)

US Republican Senator Collins said the tax plan needs more work and that she is still undecided if she will vote for it. (Newswires)