• Asia markets traded with a cautious tone as the region reacted to the US government shutdown
• USD subsequently opened softer with EUR/USD gapping higher by around 50 pips; also supported by German politics
• Today’s calendar sees a lack of tier 1 highlights

ASIA

Asia markets traded with a cautious tone as the region reacted to the US government shutdown, which heads into a 3rd day after the Senate failed to pass the spending bill tspanough procedural vote on Friday, but are currently working on a shorter 3-week continuing resolution. ASX 200 (-0.2%) and Nikkei 225 (flat) were subdued as the US shutdown sapped investor sentiment, although downside was limited amid some hopes on resolving the impasse. Chinese markets were choppy in which the Shanghai Comp (Unch.) was flat and Hang Seng (-0.1%) initially stalled after it recently hit record levels, but was later underpinned amid outperformance in Shenzhen stocks. Finally, 10yr JGBs were flat despite a cautious tone in stocks, as participants were sidelined amid an enhanced liquidity auction for longer dated JGBs and as the BoJ kick-starts its 2-day policy meeting.

PBoC injected CNY 60bln via 7-day, CNY 40bln via 14-day and CNY 10bln via 63-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.4112 (Prev. 6.4169)

UK

Reports stated that US President Trump's anger towards UK PM May puts a post-Brexit trade deal between the 2 nations at risk, and that the relationship is said to have soured. (Newswires)

French President Macron said UK could get a special trade deal with EU post-Brexit, but will not have full access to the single market without accepting its rules, while he added the UK cannot cherry-pick the elements it liked. (Newswires)

EU

Germany’s SPD voted in favour (out of 642: 362 vs. 279) of formal coalition discussions with German Chancellor Merkel’s conservatives. There were also comments from SPD leader Schulz who said that coalition talks are going to be just as hard as the exploratory talks and that he hopes negotiations will start soon. (Newswires)

As a reminder, the Euro Area will today begin their search for Vitor Constancio’s successor as ECB Vice President; Spain’s economy minister de Guindos has been touted as a likely successor. (FT)

Fitch upgraded Spain to A-, outlook stable and affirmed Turkey at BB+, outlook stable. (Newswires) S&P raised Greece sovereign rating one notch from B- to B, outlook positive and affirmed Czech Republic at 'AA-/A-1+' foreign currency and 'AA/A-1+' local rating, outlook stable. (Newswires)

FX

USD opened weaker after the spending bill failed to pass the procedural vote on Friday at the Senate and resulted to a government shutdown. This briefly pushed GBP/USD to just shy of the 1.3900 handle and saw EUR/USD gap higher by about 50 pips as the German SPD party also voted to formally begin coalition talks with German Chancellor Merkel’s conservatives. However, USD then pared some of the losses on hopes for a deal to end the shutdown, before the procedural vote was postponed to 1200EST from previously anticipated 0100EST.

The ANC in South Africa has moved to eject President Zuma as Ramaphosa steps up his fraud purge. (FT)

COMMODITIES

Commodities were quiet in which WTI crude futures saw marginal overnight gains after the OPEC/Non-OPEC JMMC meeting on Sunday in which producer reaffirmed they will proceed with oil cuts as planned and signalled willingness for cooperation beyond 2018. Elsewhere, gold was choppy amid similar price action in the greenback and copper attempted to nurse some of last week’s losses, although the recovery was capped by a cautious risk tone and resistance at the USD 3.20/lb level.

OPEC and Russia reaffirmed they will continue with oil-production cuts until year-end and indicated a willingness for cooperation beyond the date as Saudi Energy Minister Al-Falih commented that there is consensus among producers to continue their cooperation beyond this year, while UAE’s Oil Minister Mazrouei said UAE wants a proposal for cooperation after 2018. (Newswires)

US Baker Hughes Total (Jan 19) 936 (Prev. 939). (Newswires)

US

Fed’s Williams (voter, neutral) repeated view for tspanee hikes in 2018 and said he has no concerns about slope of the US yield curve, while he also commented that the US economy is moving from a period of headwinds to tailwinds. (Newswires)

US government went into a shutdown after the Senate on Friday failed to secure a deal to fund the government prior to the deadline, as only 50 Senators voted for the procedural motion which was 10 short of the 60 needed to advance the bill. (Newswires)

The White House stated that President Trump made several calls and spoke to a few Senators regarding the shutdown, while there were earlier reports of Trump blaming the shutdown on the Democrats and suggested for Republicans to invoke a ‘nuclear option’ to try pass a long-term bill instead of continuing resolutions. (Newswires)

US Senate Majority Leader McConnell said the intention is to resolve immigration as quick as possible and declared the next Senate procedural vote will be held Monday at 1200EST vs. initial expectations of a 0100EST vote, while US Senate Minority Leader Schumer said they have yet to reach an agreement on a path forward. In related news, US Republican Senator Flake noted that a bipartisan meeting is to be held 1000EST to discuss continuing resolution, while US Senator Cornyn had earlier stated he was now more optimistic after leaving a GOP leaders’ meeting. (Newswires)