• Asian equity markets traded mixed with the region somewhat cautious following the subdued lead from Wall St.
• In FX, USD held on to the majority of the prior day’s yield-driven gains. RBNZ stood pat on rates and stated that policy will remain accommodative for a considerable period
• Looking ahead, highlights include the BoE rate decision and a slew of speakers

ASIA

Asian equity markets traded mixed with the region somewhat cautious following the subdued lead from Wall St. where price action was choppy and all majors closed in the red. ASX 200 (+0.2%) was lower for most of the day as weakness in the commodity complex weighed on mining names, and with industry giant Rio Tinto also pressured after investors bought the rumour and sold on the news of a strong earnings report. However, the index then gradually pared losses as strong Chinese Imports provided some encouragement. Elsewhere, Nikkei 225 (+1.1%) outperformed with corporate earnings back in the limelight, while Hang Seng (+0.8%) and Shanghai Comp. (-1.5%) ignored strong trade data and were indecisive after the PBoC skipped open market operations for the 11th consecutive occasion, and with heavy losses seen across the big 4 banks in the mainland. Finally, 10yr JGBs were marginally lower with demand subdued amid gains in Japanese risk assets, while the 30yr JGB auction also failed to provide support despite increased demand and higher accepted prices.

PBoC skipped open market operations and was net neutral on the day. (Newswires)

PBoC set CNY mid-point at 6.2822 (Prev. 6.2882)

Chinese Trade Balance (CNY)(Jan) 135.80B vs. Exp. 330.00B (Prev. 361.98B). (Newswires)

Chinese Exports (CNY)(Jan) Y/Y     6.0% vs. Exp. 2.6% (Prev. 7.4%)

Chinese Imports (CNY)(Jan) Y/Y     30.2% vs. Exp. 5.3% (Prev. 0.9%)

Chinese Trade Balance USD (USD)(Jan) 20.3B vs. Exp. 54.7B (Prev. 54.7B). (Newswires)

Chinese Exports (USD)(Jan) Y/Y 11.1% vs. Exp. 10.7% (Prev. 10.9%)

Chinese Imports (USD)(Jan) Y/Y 36.9% vs. Exp. 10.6% (Prev. 4.5%)

UK/EU

UK RICS House Price Balance (Jan) 8 vs. Exp. 5 (Prev. 8). (Newswires)

UK government analysis shows that a hard Brexit would cost public finances GBP 80bln. (Guardian)

The European Commission is having issues trying to translate the U.K.’s Brexit pledges on Ireland into a legally binding text, even before they present it to the U.K. in negotiations, according to sources. (Newswires)

George Soros, the billionaire known as the man who “broke the Bank of England”, is backing a campaign to overturn Brexit. (Guardian)

Some CDU/CSU lawmakers are said to voice concern about a coalition with the SPD, while there were also reports that SPD’s Schulz is to step down as leader of the party with Nahles to replace him. (Newswires)

FX

USD held on to the majority of the prior day’s yield-driven gains, although its major counterparts were off worst levels in which GBP/USD reclaimed the 1.3900 handle. Elsewhere, JPY saw outflows amid the positive tone in Japan, while NZD was pressured after the RBNZ rate decision where the central bank kept rates unchanged at 1.75% as expected and stated that it assumes NZD will ease over its forecast horizon. Furthermore, the RBNZ also commented that policy will remain accommodative for a considerable period and maintained its forecast to begin raising rates during Q2 next year, although both Governor Spencer and Assistant Governor McDermott kept all options on the table and suggested that the next rate move could either be a cut or hike. Elsewhere, the CNY is on track for its largest plunge for since the Chinese devaluation following Chinese trade data and regulators seemingly taking a lessening tough stance on capital outflows (as a reference, the USD/CNY mid-point stands at 6.2822 vs. Prev. 6.2882).

RBNZ held rates at 1.75%, as expected. The central bank said it sees growth strengthening in the medium-term on the back of accommodative policy, high terms of trade and fiscal spending, although it noted “numerous uncertainties”. RBNZ also commented that the NZD has firmed since November, in part due to a weaker USD and assumed NZD will ease over its forecast horizon. RBNZ Governor Spencer also stated that he is not concerned about NZD and that the next rate move could be a hike or cut. (Newswires)

Canadian PM Trudeau said will not accept a win-loss NAFTA deal and that no NAFTA agreement may be better than a bad deal. (Newswires)

COMMODITIES

Commodities were lacklustre overnight in which WTI crude futures languished at a sub-USD 62/bbl level after the prior day’s post-DOE weakness as the inventory report showed a build in headline crude stocks vs. API drawdown on Tuesday. Elsewhere, gold extended on recent decline amid the backdrop of a firmer greenback, while copper’s attempts to nurse losses was restricted by the risk averse tone in its largest consumer China.

China’s crude oil imports rose 19.6% Y/Y and iron ore imports rose 9.3% Y/Y during January. (Newswires)

GEOPOLITICAL

North Korea said it has no intention to meet with US delegation in South Korea and that it will not use the Winter Olympics as a political venue. (Newswires)

US Vice President Pence said US will meet any nuclear weapons with a rapid response and that the US seeks peaceful solution to North Korea, but all options are on the table. (Newswires)

US Pentagon chief said that the North Korea standoff is 'firmly in the diplomatic lane.’ (Newswires)

US-led coalition carried out a strike against Syrian pro-regime forces to repel an unprovoked attack against Syrian democratic forces' headquarters. (Newswires)

US

The Treasury curve bear-steepened on Wednesday, (2s +4.5bps, 5s +6.4bps, 10s +8.5bps, 30s 8.3bps). There was also modest steepening in major curve spreads (2s10s + 2bps, 5s30s +3bps, 2s30s +3bps). A weak 10-year auction, as well as US lawmakers agreeing on a two-year bipartisan budget that would lift caps on government spending – and increase the debt ceiling tspanough March 2019 – were the main drivers.  The US Treasury sold $24bln of 10-year notes, in a soft auction, which tailed by 0.8bps, while cover fell versus the previous auction and recent averages. Dealer participation rose, leaving directs and indirects with a lower takedown. The auction of 10s follows the soft auction of 3s on Tuesday; markets were keeping an eye out to see if current yields are at attractive levels for investors to step in, arresting the sharp rise in yields witnessed recently; however, evidence of this remains to be seen. In wake of today’s auction, the curve continued to sell-off, with 10s hitting 2.85% shortly afterwards. T-Note Futures settled -15+ ticks at 121-00.

US lawmakers reached a 2-year bipartisan budget deal that will lift government spending by around USD 300bln and raise the debt ceiling tspanough March 2019. The deal still needs to be voted on in the House and the Senate, while sources also stated that the US budget deal would increase non-defence spending by USD 131bln over 2 years and sets USD 20bln over 2 years for infrastructure investments. (Newswires)

Fed's Williams (Voter, Neutral) maintained outlook for healthy economic growth and gradual rate increases. Williams added that recent market turmoil has not changed policy or economic outlook and that the economy can clearly cope with gradual rate hikes. (Newswires)

Fed's Evans (Non-Voter) said that his dissenting vote against a December hike was a close call. Evans also stated that he believes the US economy is firing on all cylinders and that the Fed can change the pace of its balance sheet runoff if needed, while he added that the risks seem to be moving towards additional inflation. (Newswires)