• Asian equity markets were mostly positive as the region followed suit from US with the GOP now seen to have secured enough votes for passage of the tax bill
• EU's Barnier said that the UK cannot have a special deal for the City with Davis warning the EU that they cannot cherry-pick during trade talks
• Looking ahead, highlights include German IFO, US Building Permit and Housing Starts, ECB’s Hansson and Fed’s Kashkari

ASIA

Asia equity markets were mostly positive as the region followed suit from US, where all major indices extended on record highs and the Nasdaq Comp. briefly broke above 7,000 for the 1st time ever. The current Santa rally continued to be spurred by tax reform hopes, with the GOP now seen to have secured enough votes for passage after Republican Senators Lee and Collins jumped on board and declared to vote for the tax bill. ASX 200 (+0.5%) traded positive as mining stocks remained firm on the back of recent gains in copper and iron ore, while upside in Nikkei 225 (Unch) was restricted after the prior day’s JPY strength and as several construction names underperformed after prosecutors conducted raids related to collusion in maglev train bids. Hang Seng (+0.9%) and Shanghai Comp. (+0.6%) conformed to the overall risk appetite which the PBoC also facilitated with its continued liquidity efforts. Finally, 10yr JGBs were flat amid an indecisive risk tone in Japan and weaker demand in the enhanced liquidity auction for super-long JGBs, while participants were also tentative ahead to the BoJ 2-day policy meeting beginning tomorrow after reports the bank could succumb to pressure from dovish dissenter Kataoka and tweak its language.

PBoC injected CNY 50bln via 7-day, CNY 30bln via 14-day and CNY 20bln via 28-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.6098 (Prev. 6.6162).

UK

EU's Barnier said that the UK cannot have a special deal for the City. Barnier also stated the UK could not stop Brexit unilaterally and must follow all rules and regulations of the EU during the transition period, including new laws passed after the UK has left. (Guardian) The same article also reported that UK Brexit Secretary Davis is to warn the EU that it cannot cherry-pick during Brexit trade deal discussions and that services cannot be separated from goods. (Guardian)

FX

NZD/USD was the most active on what was a humdrum trading session, in which the pair briefly reclaimed the 0.7000 handle after a somewhat improvement in ANZ Business Surveys, while AUD/USD was largely unreactive to the RBA Minutes which meticulously stuck to the usual rhetoric. Elsewhere, the greenback remained subdued despite tax reform hopes and other major pairs were also rangebound, with EUR/USD and GBP/USD quiet and in proximity for another test after the recent failure to maintain a footing above the 1.1800 and 1.3400 levels respectively.

RBA Minutes from the December 5th Meeting reiterated that the board judged steady policy was consistent with inflation and growth targets, while it also repeated that any further strength in AUD would slow expected pick up in economy and inflation. Furthermore, the minutes noted recent data increased confidence unemployment would continue to decline and inflation would increase, but that is uncertain of the timing and extent stronger growth would feed into wages and inflation. (Newswires)

New Zealand ANZ Business Confidence (Dec) -37.8% (Prev. -39.3%). (Newswires)

New Zealand ANZ Activity Outlook (Dec) 15.6% (Prev. 6.5%)

COMMODITIES

WTI crude futures continued its recovery from US session lows where prices briefly slipped below USD 57/bbl and data showed Saudi Arabia’s October crude output rose by 83K bpd m/m to 10.056mln bpd, as well as a reduction in demand for oil products by 452K bpd to 2.353mln bpd. Elsewhere, gold was marginally higher as the greenback remained subdued and copper saw mild profit taking after recent advances.

CME lowered Comex 100 gold futures maintenance margins to USD 4000 from USD 4450 per contract. (Newswires)

GEOPOLITICAL

US President Trump said that the US will take `all necessary steps' to contain North Korea. (Newswires)

US

Very thin volume was seen in treasuries on Monday with under half the normal trading volume registered on the CME, however there was some steepening evident in the 2s10s and 5s30s. Finally, US 10-Year T-Note futures settle 6 ticks lower at 124-07+.

US House Rules Committee voted 9-4 to pass tax reform bill for floor vote on Tuesday. (Newswires)

US Republican Senators Lee and Collins said they will vote for Tax Bill, which just leaves Senator Flake as the only undeclared GOP Senator and suggests sufficient votes to pass the tax bill. (Newswires)

US Senator Cornyn raised the possibility of President Trump extending the March deadline for DACA fix if Congress cannot approve replacement bill by that time. (Newswires)

Fed’s Kashkari (Dove) warned that a recession may occur if policymakers press forward with interest-rate increases, while he added he is concerned about what the bond market is telling us and that flattening yield curve is often viewed as a caution signal for the economic outlook. (Newswires)