• Congress have passed tax reforms, focus now turns to avoiding a government shutdown by Saturday
• BoJ maintained QQE with yield curve control and kept negative rates at -0.10% as expected
• Highlights include US GDP, PCE, Philly Fed and Canadian CPI

ASIA

Asia stocks traded mixed after another lacklustre day on Wall St where all majors finished with mild losses despite Congress passing tax reforms, as focus now turns to avoiding a government shutdown by Saturday. In addition, the latest headlines from Washington DC suggested GOP leaders were unsure if they had enough votes to pass the stop-gap measure and that there was no exact schedule yet for a vote. ASX 200 (-0.3%) and Nikkei 225 (-0.2%) were negative as the Australian benchmark continued to pull back from near-10yr highs, while participants in Japan awaited the final BoJ policy meeting of the year which proved to be anticlimactic. Hang Seng (+0.5%) and Shanghai. Comp (+0.5%) were initially in the red on continued expectations of a more restrained economy as the Central Economic Work Conference statement declared that prudent monetary policy should be kept neutral and that the floodgates of monetary supply should be controlled, although Chinese stocks later showed resilience to outperform the region amid renewed speculation China’s annual GDP growth figure could surpass the 6.7% seen last year. Finally, 10yr JGBs saw some mild short covering which helped prices recover from some of this week’s bond market sell-off, although price action was very mild with an uneventful BoJ policy announcement also largely ignored.

from some of its recent losses amid a continuation of the pressure across global bond markets and with the 10yr yield rising to its highest since beginning of last month. Furthermore, participants are also tentative ahead of the BoJ policy announcement later.

PBoC injected CNY 30bln via 7-day, CNY 30bln via 14-day and CNY 10bln via 28-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.5795 (Prev. 6.6066); strongest fix since September 20^th.

BoJ maintained QQE with yield curve control and kept negative rates at -0.10% as expected. (Newswires)

BoJ kept its assessment on economy unchanged, but raised assessment on capex and consumption.

Decision on QQE with Yield Curve Control made by 8-1 vote with Kataoka the dissenter again, who called for buying JGBs so yields for duration of 10yrs and longer decline and stated the BoJ should make it clear it will ease if achieving the price target is delayed by domestic factors.

UK/EU

UK GfK Consumer Confidence (Dec) -13 vs. Exp. -12 (Prev. -12). (Newswires)

UK Deputy Prime Minister Damian Green resigned due to personal wrongdoings. (Newswires)

UK PM May is to permit a delay from UK's departure from the EU in exceptional circumstances, which is said to be a compromise with pro-EU lawmakers that are against the idea of a fixed exit day. (Newswires)

Reports suggest that UK PM May is to undertake a long-delayed first trade mission to China at the end of January. (Sky)

FX

USD was relatively flat as attention in US politics shifted from tax cuts to funding the government past December 22nd, with the greenback also not helped by the PBoC setting the strongest reference rate in 3 months. Elsewhere, NZD/USD was underpinned and briefly reclaimed the 0.7000 handle on the back of strong Q3 GDP numbers where most components of the release surpassed expectations and saw upward revisions in all prior readings, while GBP/USD was dampened amid disarray for PM May after her Deputy Damian Green lost his job for personal wrongdoings.

New Zealand GDP (Q3) Q/Q 0.6% vs. Exp. 0.6% (Prev. 0.8%, Rev. 1.0%). (Newswires)

New Zealand GDP (Q3) Y/Y 2.7% vs. Exp. 2.4% (Prev. 2.5%, Rev. 2.8%)

New Zealand GDP Annual Average (Q3) 3.0% vs. Exp. 2.5% (Prev. 2.7%, Rev. 3.3%)

New Zealand GDP Expenditure QQ (Q3) 0.9% vs. Exp. 0.6% (Prev. 1.1%, Rev. 1.4%)

COMMODITIES

Commodities were flat overnight with WTI crude future maintaining around USD 58/bbl after prices were underpinned by the larger-than-expected weekly draw in crude stocks reported by the DOE, which was broadly in line with API’s data released on Tuesday. Elsewhere, the metals complex was mostly uneventful, although gold saw some pressure heading into the European open and gave up its mild early gains, while copper traded sideways amid an indecisive risk tone.

Saudi Energy Minister Al Falih said that he is optimistic about the impact of oil production cuts and reiterated that it is premature to discuss any changes to OPEC/Non-OPEC production agreement, while the earliest opportunity to assess the situation will be June 2018. Al Falih added once oil market balance is reached a gradual exit plan will be required and that he hasn't seen any major or unexpected declines in oil inventories despite the decline in Venezuelan crude output and Forties pipeline shut down. (Newswires)

GEOPOLITICAL

Source reports suggested that the US is making plans for 'bloody nose’ military attack on North Korea. (Telegraph)

North Korea denied US accusations its was behind the global ransomware cyber attack and said the accusation is serious political provocation. (Newswires)

South Korea military fired around 20 warning shots at North Korean guards that were pursuing a defector. (Newswires)

US

While equities were hardly impressed by the passing of US tax reform, fixed income traders were clearly more encouraged. The Treasury curve has bucked the flattening trend, and this week has steepened, with the 2s30s spread widening by over 5bps on Wednesday, while the 5s30s curve widened by over 4bps. 10-year yields, meanwhile, are now knocking on the 2.50% door, having started the week around 2.35. US 10-Year T-Note futures settled 7+ ticks lower at 123-14+.

The US House passed the amended tax bill by vote of 224 vs 201, which clears the way for President Trump to sign the bill into law, while reports stated that Trump is planning to sign the tax bill on January 3^rd. In addition, there were comments from President Trump said that he does not think markets have fully priced in tax reform. (Newswires)

US House Republican leaders are said to be unsure if there are enough votes to pass the stop-gap measure and avert a shut-down by Saturday, while there is no schedule yet for a vote, according to lawmakers. Furthermore. House Republicans were also said to be arguing with each other over the defense spending level in the stop-gap funding bill. (Newswires)

US Senators said the bipartisan Obamacare stabilisation bill will not be part of the end of year spending deal. (Newswires)