• Asian equity markets were mostly lower amid a dampened global risk tone. In FX, AUD outperformed its major peers after better than expected Retail Sales data
• China SAFE said that report on China mulling reduction in US Treasury purchases may cite a wrong source or be fake news.
• Looking ahead, highlights include ECB minutes, US PPI, Fed’s Dudley and supply from the UK and US

ASIA

Asian equity markets were mostly lower amid a dampened global risk tone, which was triggered by China concerns after officials were said to see US Treasuries as less attractive and recommended either cutting back or halting purchases altogether. This was viewed by some as an implicit tspaneat by the world’s largest foreign holder of USTs against trade measures by the US, although China’s SAFE later suggested that the report may have cited a wrong source or could be fake news. Nonetheless, ASX 200 (-0.5%) andNikkei 225 (-0.5%) were both subdued with broad-based weakness across nearly all sectors in Australia, while Japanese stocks remained at the whim of the recent JPY strength. Chinese markets also conformed to the sombre picture with both Shanghai Comp. (-0.1%) and Hang Seng (Unch.) cautious as the PBoC’s liquidity efforts continued to be on the light-side. Finally, 10yr JGBs found some reprieve from this week’s selling on mild short-covering and after the BoJ’s Rinban announcement in which purchases in 1yr-10yr maturities were maintained at a respectable amount of nearly JPY 1tln.

China SAFE said that report on China mulling reduction in US Treasury purchases may cite a wrong source or be fake news.(Newswires)

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

PBoC set CNY mid-point at 6.5147 (Prev. 6.5207)

UK/EU

UK Chancellor Hammond said the UK goal for Brexit will be affected by EU approach and that the EU 27 need to spell out what they want after Brexit and states ‘It takes two to Tango’ regarding Brexit talks. Hammond also refused to rule out making substantial payments to the EU after Brexit in order to secure market access for British-based financial service firms. (Telegraph)

British financial firms will be allowed privileged access to European Union markets in return for payments to Brussels under plans being considered by countries including Germany. (Times) Furthermore, The UK PM May is set to meet with business leaders from the UK's financial services industry as the government attempts to secure a Brexit deal that will include the sector. (BBC)

ECB’s Villeroy said interest rates are currently very low and he raised Q4 growth estimate to 0.6% Q/Q from 0.5% previously. Furthermore, he also raised FY17 French growth estimate to 1.9%. (Prev. 1.8%). (Newswires)

FX

AUD outperformed its major peers after better than expected Retail Sales data pushed AUD/NZD back above the 1.0900 handle and saw EUR/AUD slip below 1.5200. Elsewhere, USD/JPY nursed some of the recent losses from this week’s flows into JPY and China’s speculated US Treasury sabre-rattling, as the greenback found late support after China’s government effectively denied it was considering lowering Treasuries purchases. NAFTA-related currencies were also in focus with CAD initially pressured on fears the US would pull out of NAFTA which the White House denied, while MXN weakened in sympathy and after reports Mexico will leave negotiations if President Trump triggers a 6-month process to withdraw from the deal.

Australian Retail Sales MM (Nov) 1.2% vs. Exp. 0.4% (Prev. 0.5%). (Newswires)

Canada was said to be increasingly convinced the US will pull out of NAFTA, according to reports citing government sources. However, a White House official later stated that there was no change in US President Trump's position on NAFTA, while there were also reports that Mexico will leave NAFTA negotiations if President Trump triggers the 6-month process to withdraw from the deal. (Newswires)

COMMODITIES

Commodity trade was uneventful in which WTI crude futures stuck to the sideways performance seen despite yesterday’s slightly larger than expected DoE crude draw, as this was significantly less than the surprise seen in APIs and counterbalanced by a 3% drop in US output. Elsewhere, gold was flat and failed to benefit from mild gains in the greenback, while copper saw mild gains as prices tested USD 2.50/lb to the upside.

UAE Energy Minister said there is a commitment to continue OPEC deal for a full year and that the oil market is still rebalancing. (Newswires)

GEOPOLITICAL

South Korean President Moon is reportedly willing to hold a summit with North Korean Leader Kim. (Newswires)

US

Treasuries were hit in pre-market trade after news that officials in China – the largest foreign owner of US Treasuries – have recommended that the country slow or even stop purchases of US government bonds on the notion that they are becoming less attractive relative to other bonds. The immediate reaction was a sell-off in US debt, with 10-year yields within spitting distance of 2.60%, and 2s once again setting their crosshairs on 2.00%, while the USD also eased. However, losses were pared back, helped by a solid 10-year auction which stopped-tspanough by 0.5bps on strong cover, while indirect bidders (one proxy for foreign demand) taking 71.5% of the issue. Furthermore, Treasuries had pared back the losses post-settlement and was underpinned in overnight trade after China cast doubt on the validity of the initial Treasury-related reports.

US VP Pence said in an interview that they will get spending bill passed before the funding deadline. However, there were also later reports that Leading Republicans are said to consider not passing a 'GOP' budget this year, amid concerns it may not pass Senate. (Politico)