• Asia-Pac equity markets found some early support from the tech-led gains on Wall St, although later turned somewhat mixed
• EU’s top official offered Britain a legal guarantee that it would not be trapped by the Irish backstop last night but was swiftly rejected by Brexiteer MPs
• RBA kept rates unchanged at 1.50% as expected with the announcement interpreted as less dovish than some had expected
• Looking ahead, highlights include EZ and UK Services PMIs, Canadian Trade, US ISM Non-Manufacturing PMI, APIs, Fed’s Mester, ECB’s Praet, German I/L Bund, and US 3yr Note Auction
• EARNINGS: Anadarko Petroleum, Archer Daniels, Beckton Dickinson, Walt Disney, EA, Gartner, Estee Lauder, 21st Century Fox, Viacom, Snap, Intesa Sanpaolo, Assa Abloy, Infineon, Pandora, BP

ASIA-PAC

Asia-Pac equity markets found some early support from the tech-led gains on Wall St, although later turned somewhat mixed amid focus on earnings and with most the region shut for the Lunar New Year. Nonetheless, ASX 200 (+2.0%) was the stellar performer due to strength in its largest weighted financials sector as banks seemingly made light of the Banking Royal Commission final report regarding misconduct in the industry. As such, Australia’s banking powerhouses all edged firm gains in the aftermath of the report which recommended against structural separation and referred 24 misconduct cases to regulators but did not suggest criminal charges, while many viewed the report as unlikely to result in fundamental reforms for the industry in the long-term and Moody’s also noted that the recommendations will likely preserve profitability in the industry. Nikkei 225 (-0.2%) shrugged off opening gains and traded flat as earnings remained the main driver for price action in Tokyo after Panasonic cut its outlook, while Yahoo Japan outperformed following an upward revision to its FY giudance. Finally, 10yr JGBs were initially pressured as they followed suit to the recent downside in T-notes, although prices later rebounded following the 10yr auction in which the b/c and accepted prices increased from prior, while the average yield slipped to negative territory.

US Trade Representative Lighthizer said in report to Congress that the US intends to hold China accountable for unfair market distorting trade practices that harm US workers, businesses or farmers. (Newswires)

UN predicts US and China tariff hike would enable EU to take over about USD 70bln of US-China trade. (Newswires)

UK/EU

UK PM May reassured EU execs that she will deliver agreement by Mar 29th, while there were separate reports that members of the Torie Party are said to have had detailed and constructive talks on the Irish backstop. (FT/Newswires) However, reports suggested that Europe’s top official offered Britain a legal guarantee that it would not be trapped by the Irish backstop last night but was swiftly rejected by Brexiteer MPs. (Times)

EU Chief Brexit Negotiator Barnier said the EU is ready to work on alternative solutions to the backstop during transition but added that the backstop is only operational solution to Irish border issue today and the withdrawal agreement cannot be reopened. (Newswires)

As a reminder, UK PM May is heading to Northern Ireland in a bid to salvage her Brexit deal by finding an alternative to the "toxic" backstop proposal. (Sky News)

Telegraph Brexit Correspondent tweeted that an article in Der Spiegel suggests that if there is no Brexit deal Ireland will either be forced to impose a hard border or, if it refuses, be booted out of the EU's customs territory. (Twitter)

UK BRC Retail Sales YY Jan 1.8% vs. Exp. -0.2% (Prev. -0.7%). (Newswires)
UK Barclaycard Consumer Spending (Jan) Y/Y 2.9% (Prev. 1.8%)

FX

In FX markets, the lack of participants kept the greenback flat overnight and most its major counterparts rangebound in which EUR/USD and GBP/USD languished after the prior day’s mild losses. Elsewhere, USD/JPY was contained by the indecision in Japan, while antipodeans provided much of the price action overnight with early volatility seen in some NZD-crosses amid thin conditions although the moves were reversed shortly after. AUD/USD initially underperformed and briefly slipped below the 0.7200 handle following disappointing Retail Sales data, but then rebounded after the RBA rate decision in which they kept rates unchanged at the record low 1.50% as expected and with the announcement interpreted as less dovish than some had expected. The central bank mostly stuck with its usual rhetoric despite the recent slew of less than satisfactory data releases and shifting expectations that the RBA could cut this year as futures markets had implied around 50% chance of RBA lowering rates by year-end. The RBA also repeated that it expects inflation to pick up gradually, while it noted an increase in terms of trade and expects unemployment to fall further to 4.75% vs. current 5.0%.

RBA kept the Cash Rate Target unchanged at 1.50% as expected. The RBA reiterated that low rates are supporting the economy and that progress on inflation and unemployment is expected to be gradual. Furthermore, the RBA noted that the labour market remains strong and that it sees a gradual inflation pick up over next couple of years but added that the central scenario for GDP growth is to average around 3% this year and to slow in 2020 vs. Prev. forecast of around 3.5% growth for the next 2 years back at the December meeting. (Newswires)

Australian Retail Sales (Dec) M/M -0.4% vs. Exp. -0.1% (Prev. 0.4%, Rev. 0.5%). (Newswires)
Australian Retail Sales (Q4) Q/Q 0.1% vs. Exp. 0.4% (Prev. 0.2%)

COMMODITIES

Trade across commodities was mostly muted amid a lack of catalysts and participants during Asia trade. As such, WTI crude futures consolidated after the swings seen in the prior session where prices pulled back from 2-month highs, while gold was also uneventful amid a similar picture in the greenback. Elsewhere, copper somewhat outperformed the complex in which prices mildly extended on yesterday’s risk-fuelled gains to above the USD 2.80/lb level.

US doesn't plan to extend sanction waivers to purchasers of Iranian oil and are seeking to reduce Iranian oil shipments to zero ASAP, according to reports citing US State Department Senior Policy Adviser Hook. (NHK)
 

GEOPOLITICS

UN sanctions monitor report said North Korea nuclear and ballistic missile program remains intact and that North Korea is working to protect those capabilities from military strikes. Furthermore, it added that North Korea is violating UN arms embargo and is breaching sanctions through illegal ship-to-ship transfers of petroleum products and coal. (Newswires)

US

Treasuries started off the week on the back foot amid think trade and ahead of supply this week. The complex ticked temporarily higher after Factory Orders missed expectations. Most of the action was concentrated in the belly of the curve where yields were higher by c.3bps at settlement. In afternoon trade the complex attempted to stir direction but struggled to retain gains and ended the session close to lows of the day. Spreads were close to the unchanged mark, and only slightly steeper. US T-note futures (H9) settled 7 ticks lower at 121-23.

US President Trump's inaugural committee said it received a subpoena for documents. Elsewhere, there were separate reports that US Rep. Neal is building a case to subpoena US President Trump's tax returns. (Newswires)

Fed's Senior Loan Officer Survey showed that banks tightened standards on commercial real estate loans in Q4 2018, while demand weakened for loans to businesses and households. Furthermore, banks also expect to tighten standards in 2019 for all categories of business loans, credit card loans and jumbo mortgages. (Newswires)

Fed said Chairman Powell and Vice Chair Clarida met with President Trump at the White House in which they discussed the economic outlook. Fed added that Powell's comments were inline with last week's press conference and did not include expectations for monetary policy, while Powell stressed that policy will depend entirely on incoming economic information (Newswires)

Fed's Mester (Non-Voter, Hawk) said Fed's wait and see approach is well calibrated to outlook and that US economy is in a good place. Furthermore, Mester forecasts 2.00-2.50% GDP growth, 2% inflation and unemployment at 4% for this year, while she added that rates may need to go a bit higher if economy performs as she expects but will adjust outlook and policy views if the economy is weaker than what she anticipates. (Newswires)

Alphabet Inc (GOOGL) reported Q4 diluted EPS USD 12.77 vs. Exp. USD 10.82, revenue USD 39.28bln vs. Exp. USD 38.93bln. Co. reported capital expenditures just above USD 7.0bln, above the projected USD 5.63bln and subsequently Co. shares fell over 3% after-market. (Newswires/CNBC)