• Asia stocks traded negative across the board with global sentiment hampered after the return of the market turmoil on Wall St (DJIA -4.2%)
• In FX markets, price action was relatively muted across the majors which mostly nursed the prior day’s losses against the greenback
• Looking ahead, highlights include UK production numbers, Canadian jobs and a slew of speakers

ASIA

Asia stocks traded negative across the board with global sentiment lambasted after the return of the market turmoil on Wall St, where the major indices closed in correction territory and the DJIA (-4.2%) tumbled over 1000 points on the day with the move accelerating heading into the close. Furthermore, political uncertainty in the US also added to the downbeat tone with the government officially in a shutdown after Senator Rand Paul blocked to fast track the Senate vote on the 2-year budget deal, other commentators have also paid credence to the continued upside in US yields adding pressure to equities. As such, ASX 200 (-0.9%) was weaker with energy names dampened after Brent crude prices fell to a near 2-month low, while losses in the Nikkei 225 (-2.7%) were magnified by recent JPY strength. Elsewhere, underperformance in China resumed in which Hang Seng (-3.7%) and Shanghai Comp (-5.3%) slumped as the large cap energy and financials dragged, while the PBoC remained steadfast in its efforts to keep interbank liquidity stable and refrained from open market operations for a 12th day. However, the central bank instead announced it released nearly CNY 2tln in temporary liquidity tspanough the Contingent Reserve Allowance which will allow banks to temporarily utilize deposit reserves to satisfy cash demand ahead of the Lunar New Year. Finally, 10yr JGBs were higher on safe-haven bids and with the BoJ also present in the market for JPY 850bln in JGBs across the curve.

PBoC skips open market operations, for the 12^th consecutive day, while it said it released temporary liquidity valued nearly CNY 2tln as it seeks to satisfy cash demand before the Lunar New Year. (Newswires)

PBoC set CNY mid-point at 6.3194 (Prev. 6.2822)

Chinese CPI (Jan) M/M 0.6% vs. Exp. 0.7% (Prev. 0.3%). (Newswires)

Chinese CPI (Jan) Y/Y 1.5% vs. Exp. 1.5% (Prev. 1.8%)

Chinese PPI (Jan) Y/Y 4.3% vs. Exp. 4.3% (Prev. 4.9%)

UK/EU

UK Prime Minister May reportedly told her Cabinet that she wants a bold Brexit deal that lasts a generation. (Newswires)

UK Labour leader Jeremy Corbyn told Michel Barnier that he was open to keeping Britain in the customs union after Brexit, a memo circulated to European nations suggests. (Telegraph)

UK Brexit Minister Davis said EU Tspaneats on market access are ‘unwise’ and ‘discourteous’ and EU tspaneat over Brexit transition is ‘not in good faith’. (Newswires)

FX

In FX markets, price action was relatively muted across the majors which mostly nursed the prior day’s losses against the greenback, aside from safe havens CHF and JPY which were the prior day’s notable beneficiaries from the stock market rout. However, they too pared some of their recent strength overnight which saw USD/JPY attempt to reclaim the 109.00 handle to the upside. Elsewhere, commodity-linked currencies were lacklustre amid losses in crude, with AUD also weighed after Home Loans data missed expectations and the RBA’s Quarterly Statement on Monetary Policy provided a pessimistic tone on inflation.

RBA Quarterly Statement on Monetary Policy reiterated that appreciating AUD will dampen growth and inflation, while the central bank stated that it will take time to reach full employment and mid-point of inflation target range. Furthermore, the RBA cut its near-term unemployment forecasts, but kept inflation and growth forecasts largely unchanged. (Newswires)

Australian Home Loans (Dec) -2.3% vs. Exp. -1.0% (Prev. 2.1%)

Australian Invest Housing Finance (Dec) -2.6% (Prev. 1.5%)

Mexico Central Bank hiked rates by 25bps as expected, with the decision made by unanimous vote. Banxico cited the need to anchor inflation expectations and was also due to expected Fed hikes. The central bank further commented that there was an upward bias in the risks to inflation, and that unfavourable evolution of NAFTA talks pose a risk to price pressures. (Newswires)

COMMODITIES

Commodities were range-bound overnight in which crude prices languished after Thursday’s losses, with WTI crude futures firmly below USD 61/bbl and Brent Crude at its lowest in nearly 2 months. Furthermore, some attributed the weakness to supply concerns with US crude output said to top Saudi Arabia, as well as the reopen of the Forties pipeline. Elsewhere, gold was relatively flat and took a breather from the prior session’s safe-haven support, while copper remained downbeat alongside the global risk appetite.

According to reports, China plans to launch crude oil futures on March 26^th. (Newswires)

GEOPOLITICAL

South Korean President Moon is said to plan meeting with North Korean officials on Saturday. (Newswires)

North Korean leader Kim urged his army to stay alert amid current situation. (KCNA)

US & China reaffirmed commitment to pressure North Korea, according to the State Department. (Nikkei)

US

Those seeking havens amid the risk-off mood will have been encouraged how Treasuries caught a bid amid the equity slide. As we entered NY trade, the curve was bear-steepening influenced by a decent slate of corporate supply, as well as some suggesting that the gilt sell-off post-BOE was leading fixed-income price action; but the steepness of the Treasury curve was unwound as equities fell, and havens caught a bid. The US auctioned $16bln in 30-year bonds, tailing by 1.2bps. The internals of the 30-year auction weren't particularly attractive: cover was softer, foreign takedown appears week (indirects were below recent averages), and dealers took the most since the November auction. The curve began flattening in wake if the auction. There has been nothing from this week's supply of 3s, 10s and 30s which suggests that there is strong demand for US paper at the higher yields seen as of late, which is demanding caution about the current ‘stabilisation’ in yields. Elsewhere, the US Treasury announced it will auction $7bln of 30-year TIPS next week. 10-Year T-Note Futures settle 3+ ticks lower at 120-28+.

Fed’s Dudley (voter, soft dove) said as long as inflation is beneath 2% the Fed can afford to be patient with rate hikes, and that he thinks 3 hikes in 2018 still seems very reasonable but 4 hikes are possible if the economic outlook improves.  Dudley also said the US is possibly moving to a path of faster wage growth but noted the FOMC shouldn’t put too much faith in one number, while he also said it is unlikely there will be a reason not to hike in March. (Newswires)

Fed's George (non-voter, hawk) said 3 rate hikes this year and next would be reasonable unless the economic outlook changes, while she also stated that with US economy at or past full employment, arrival of fiscal stimulus makes more hikes important. (Newswires)

US officially went into a shutdown for the 2^nd time in 3 weeks after the midnight deadline passed without a funding bill, although Congress are expected to vote in a few hours. The US government also advised workers to refer to the Home Agency for information in regards to reporting for duty. (Newswires)

House GOP leaders said the next votes are to occur after the midnight (EST) government funding deadline, with votes said to be conducted between 0400-0600 EST, while there were also reports that US Rep. Hoyer was said to ask GOP Representatives for a 1-day stopgap funding bill prior to the shutdown. (Newswires)

US Congressional Budget Office said budget deal would raise the deficit by USD 24.3bln by 2022. (Newswires)

US White House confirmed it will release a budget on Monday that includes spending caps. (Newswires)

US Republicans are reportedly considering more personal tax cuts amid the market rout. (Fox News)