• USTR Lighthizer said talks with China made substantial progress but there is still much work to do
• US President Trump stated that he could meet soon with Chinese President Xi in order to finalise a potential deal
• Asian equity markets traded cautiously as disappointing Chinese data clouded over the momentum from Wall St
• Looking ahead, highlights include, French, German, UK & EZ Manufacturing PMI, EZ CPI (Flash), US Jobs Report, ISM Manufacturing PMI, Fed’s Kaplan
• EARNINGS: Honeywell, Aon, Cigna Corp, Chevron, Dominion Energy, Exxon Mobil, Deutsche Bank, Novo Nordisk, BBVA, Caixabank

TRADE

US President Trump said ‘something will happen’ on China trade and that he wants a big trade deal with China or will ‘postpone it’, while he added that China has opened its financial industry but must open the agricultural market too. Trump also stated the deadline was not extended and that he thinks he can get a China deal completed by March 1st. Furthermore, Trump noted progress from China on IP and technology, while he announced a US delegation will visit China soon and thinks everything will be agreed to when he meets Chinese President Xi in the future. (Newswires)

USTR Lighthizer said talks with China made substantial progress and that there is still much work to do, while he added that talks focussed on structural issues and enforcement. There were also comments from the US Chamber of Commerce that suggested progress was made on IP rights enforcement and market access in China, although there was no progress on forced technology transfers and industrial subsidies.  (Newswires)

White House said that China trade discussions included the role of currencies, while the US also said that China is open to enforcement mechanism as part of a trade deal. (Newswires)

Chinese President Xi told US President Trump in a letter that he hopes both sides will meet half way to reach an early trade deal, while Chinese Vice Premier Liu He is also hopeful of a trade deal with the US and hopes to accelerate 90-day period for deal. (Newswires)

China said talks with US make important progress for current stage and were said to be candid, specific and fruitful. China added it will actively respond to US concerns on IP and creating a fair market environment, while it will expand imports of agriculture, energy, service and industrial products from US. Furthermore, China also commented that the sides also discussed China’s concerns and that the US will seriously respond to China's concerns. (Newswires)

China Mofcom said it will continue to impose anti-dumping duties on potato starch from the EU for another 5 years. (Newswires)

ASIA-PAC

Asian equity markets traded cautiously as disappointing Chinese data clouded over the momentum from Wall St. where most major indices finished positive and the S&P 500 posted its best January performance in over 3 decades, with sentiment driven by earnings and progress in US-China trade discussions. ASX 200 (Unch.) and Nikkei 225 (Unch.) both opened higher amid broad optimism following the trade talks and with corporate updates dominating news flow in Japan, although China slowdown concerns later pressured both indices off intraday highs. Hang Seng (-0.4%) and Shanghai Comp. (+0.8%) traded indecisively after Chinese Caixin Manufacturing PMI printed its weakest in around 3 years. However, the mainland has kept afloat on trade-related hopes and after another liquidity effort by the PBoC ahead of the Lunar New Year week-long market closure, while Barclays also speculate the PBoC could lower interest rates as soon as today due to the weak data. Finally, 10yr JGBs were higher as they continued to track the upside in T-notes in the aftermath of this week’s dovish Fed, and as Japanese yields continued to decline in which 20yr and 30yr JGB yields fell to their lowest since 2016.

PBoC injected CNY 80bln via 14-day reverse repos. (Newswires)
PBoC set CNY mid-point at 6.7081 (Prev. 6.7025)

Chinese Caixin Manufacturing PMI (Jan) 48.3 vs. Exp. 49.6 (Prev. 49.7). (Newswires)

UK/EU

UK cabinet ministers are said to be increasingly expecting a delay in Brexit, with Home Secretary Javid warning colleagues a delay is likely as PM May could run out of time to pass legislation needed for Brexit. (Telegraph)

Almost a third of UK businesses are planning to relocate some of their operations abroad or have already shifted them amid fears of a no-deal Brexit; according to the Institute of Directors. (The Guardian)

DBRS affirmed Switzerland at AAA; Stable trend. (Newswires)

FX

In FX markets, the DXY drifted sideways overnight ahead of Non-Farm Payrolls, although it has held on to the prior session’s gains where focus centred on the encouraging tone during trade discussions. As such, the greenback’s major counterparts were lacklustre with EUR/USD subdued after its recent failure to maintain above 1.1500 and with GBP/USD now at a sub-1.3100 level. Elsewhere, USD/JPY was rangebound amid the indecisive risk tone which also hampered its high-beta peers, while AUD/USD was further impacted by softer Australian PPI figures and weak Chinese PMI data.

COMMODITIES

Commodities were lacklustre overnight amid an indecisive risk tone in which WTI crude futures languished below USD 54.00/bbl following the prior day’s pull back from above USD 55.00/bbl. Elsewhere, gold was also uneventful amid similar price action in the greenback with participants tentative ahead of today’s key US jobs report, while copper prices were weighed by the cautious tone in the region and disappointing China data.
 

GEOPOLITICS

US Secretary of State Pompeo is reportedly expected to announce today that the US will suspend Intermediate-Range Nuclear Forces arms control treaty with Russia. (Newswires)

US President Trump said the date and location of the meeting with North Korea's Kim will be announced next week. In related news, the US envoy to North Korea said that for denuclearisation process to be final there must be a declaration of understanding of the full extent of North Korea's WMD and missile programmes, while the envoy added that the US has "contingencies if the diplomatic process fails" with North Korea. (Newswires)
 

US

T-Note futures pushed higher through the course of the day, fuelled by risk factors such as Italy entering a recession and disappointing US jobless claims. The treasury complex saw further upticks after a disappointing Chicago PMI, whilst the market ignored the strong November New Home Sales. There was modest flattening across the front to belly of the curve whilst the 2s/30s steepened by 1.5bps. US T-note futures (H9) settled up 15 ticks at 122-15.

US President Trump is reported to be considering Herman Caine for Federal Reserve board, while White House Economic Adviser Kudlow later commented that there is a long list of candidates for openings at the Fed. (Newswires)

Amazon.com Inc (AMZN) reported Q4 EPS USD 6.04 vs. Exp. USD 5.68, revenue USD 72.4bln vs. Exp. USD 71.87bln. Web Services rose 45% to USD 7.43bln vs. Exp. USD 5.113bln. Co.’s “other revenue” category, consisting of mostly advertising rose 95% to USD 3.39bln in Q4. Co. Sees Q1 net sales USD 56bln-60bln vs. Exp. USD 60.99bln. Shares dropped almost 5% after the Co. warned of increased investments and spending in 2019. (Newswires)