• US and China are reportedly closing in on the final stages of a deal, according to WSJ
• Major European indices are higher, continuing from a strong Asia session, albeit off of best levels
• Dollar is mixed, but has recovered from US President Trump’s dollar strength comments
• Looking ahead, highlights include US Construction Spending & earnings from Salesforce

TRADE

US and China are reportedly at the final stages of completing a trade deal as Beijing offered to lower tariffs and other restrictions (on US agricultural, chemical, autos, and other products) whilst US is considering removing most, if not all, sanctions levied against Chinese products. A formal agreement could be reached at a Trump-Xi summit around March 27th; according to sources familiar with the plans. (WSJ)

China spokesperson Zhang said substantial progress has been made in trade talks with the US. He added that the new China foreign investment laws will strengthen IP protection. (Newswires)

US President Trump has asked China to immediately remove all tariffs on US agricultural products as US-China are “moving along nicely” in trade talks. (Twitter)

ASIA

Asian equities were higher across the board amid trade-optimism after WSJ noted that a US-Sino trade deal is reportedly being finalised and may be signed during a Trump-Xi Summit at the end of March. On Friday, US equities rose amid the overall risk appetite wherein the S&P closed above the 2800 level for the first time since November last year. The Dow closed above 26000 as Nike and Chevron led the gains, whilst Nasdaq advanced due to outperformance in heavyweight Amazon. ASX 200 (+0.4%) was led by the outperformance in the IT sector alongside a strong performance in material names, whilst Nikkei 225 (+1.0%) was lifted by its heavy China-exposed machinery sector and a marginally weaker domestic currency. Elsewhere, Shanghai Comp. (+1.2%) was the marked outperformer and breached the key 3000 level to the upside with all sectors firmly in the green ahead of the China National People’s Congress coupled with reports of optimistic trade developments. Meanwhile, Hang Seng (+0.5%) posted modest gains but initially failed to piggy-back on the same momentum as its mainland peers as the heavy-weight financial and energy names weighed on the index.

Huawei are said to be preparing to sue the US government for banning federal agencies from using their products. Prior to this, Huawei CFO Meng Wanzhou has sued the Canadian government, police and border officials, claiming her legal rights were violated. Elsewhere, the UK could cap the use of Huawei equipment following the UK government’s review of the company; according to FT citing sources (NYT/WSJ/FT)

PBoC set CNY mid-point at 6.7049 (Prev. 6.6957) (Newswires)
PBoC injected a net CNY 40bln via 7-day reverse repo

BoJ Governor Kuroda noted that achieving the 2% price target in FY 2020 is difficult, but the economy is sustaining momentum to reach this goal. Furthermore, the governor reiterates that the BoJ will patiently maintain powerful monetary easing to achieve the BoJ's price goal and repeated that Central Bank will discuss an exit strategy from easy policy at the appropriate time. (Newswires)

US

US President Trump reiterated that the US Dollar is too strong, stating that it is prohibitive for business and referred to Fed Chair Powell as “a gentleman who likes raising interest rates”. (Newswires)

US House Judiciary Committee plans to request documents from more than 60 associates of President Trump this week as part of a House investigation into obstruction of justice, corruption and abuse of power. (WSJ)

GEOPOLITICAL

North Korean Leader Kim Jong Un continued home without stopping in China. (Yonhap) This comes amid speculation that the North Korean leader may make a stop in Beijing on his train home.

Russian Foreign Minister Lavrov said Russia is ready to take part in bilateral talks with the US over the situation in Venezuela. (CNBC)

UK/EU

1922 Committee Chairman Sir Graham Brady shifted his stance and said he is now ready to drop his opposition for PM May’s deal if she can secure assurances for the Northern Irish backstop. (The Independent/ The Guardian) The ERG group have drawn up “three tests” the government must meet to secure their support for PM May’s deal. This includes demands for a “clear and unconditional” route out of the backstop, language that “must go beyond simply re-emphasising/re-interpreting the temporary nature” of the arrangement and a legally binding guarantee that the backstop is temporary. (The Times) Following this, Telegraph's Swinford reports that "Eurosceptics are clear the threat of A50 extension will not be enough to persuade them to back the PM's deal". (Twitter)

EU Chief Brexit Negotiator Barnier reportedly told EU ambassadors that he is having to repeatedly rebut UK demands for a temporary backstop, but he is working on a legal add-on to help PM May. Furthermore, he stated that there is not enough time for the EU to ratify the Brexit Withdrawal Agreement, even if the deal passes through the UK House of Commons, hence PM May will have to delay Brexit. Barnier also suggested that Parliamentary arithmetic may be moving towards PM May’s favour. (Die Welt/ The Guardian/The Independent)

UK Attorney General Cox has reportedly ditched attempts to secure a hard time limit or a unilateral exit mechanism from the Irish backstop. He is said to be focusing on securing an enhanced "arbitration mechanism" that allows the UK or the EU to provide formal notice that the backstop should come to an end. (The Telegraph)

Eight pro-Brexit lawyers want to examine any agreement Attorney General Cox has reached with the EU over the Northern Irish backstop, to make sure it is temporary before they support PM May’s Brexit deal. (BBC)

The Independent Group is taking steps to become a fully-fledged political party that can rival the Conservative and Labour parties at the next general elections amid rumours that more defectors could soon going the newly formed party. (The Guardian) Labour Deputy Leader Tom Watson is reportedly set to pull together 50 or more disaffected colleagues to form the third largest group in the Commons in a move to dwarf The Independent Group.  (The Times)

UK PM May will set out details of a GBP 1.6bln fund this week to support less well-off towns post-Brexit in a bid to win Labour support for her deal. (FT)

Details of UK import duties for foreign goods has reportedly been delayed again and may now come after PM May's vote on her Brexit deal expected on March 12th; according to sources cited by The Sun. Insiders said the details of the tariff plan had been agreed by Cabinet Ministers with duties likely on beef, lamb, car parts and ceramics. Downing Street is said to be worried about upsetting Brussels by revealing its plans with negotiations over the Irish backstop at such a delicate stage. (The Sun)

Many senior MPs believe that PM May’s premiership could end in November as the one-year grace period for a Tory no-confidence vote expires. (The Times)

DUP Leader Dodds states they want 'treaty-level change' before they will support PM May's Brexit deal. (BBC)

UK PM May spokesperson says the UK have definitely been making progress with the EU but more needs to be done. (Newswires)

UK Markit/CIPS Cons PMI (Feb) 49.5 vs. Exp. 50.3 (Prev. 50.6)

The Spanish government has approved unilateral contingency measures to protect the rights of Britons in Spain in a no-deal Brexit scenario. (The Guardian)

Moody’s upgraded Greece’s rating two notches to “B1”; outlook Stable (Prev. “B3”; outlook Positive) (Newswires)

EQUITIES

Major European indices are off best levels [Euro Stoxx 50 +0.2%], continuing from a strong overnight session where Shanghai Comp breached 3000 to the upside. Although, there is some slight underperformance in the DAX (U/C) which is weighed on by Fresenius Medical Care (-2.3%) after US President Trump’s administration have stated they are looking at value based pricing to promote home dialysis and kidney transplants, designed to spur innovation and decrease in-clinic dialysis; with the market currently dominated by the Co. and US Company DaVita, who are down by around 2% in the pre-market. Sectors are similarly in positive territory; however, the healthcare sector is largely unchanged with sentiment capped by the aforementioned performance of Fresenius Medical Care, along with Novarits (-2.5%) who in spite of their positive update regarding psoriasis are in the red as they are trading ex-dividends today. Other notable movers include, British American Tobacco (+0.5%) who opened down by just under 2% following a class action lawsuit against the Co’s Canadian unit. Elsewhere, Casino (-1.6%) are in the red after being downgraded at Societe Generale. Towards the top of the Stoxx 600 are Daily Mail (+4.9%) after the Co. stated they are offloading their GBP 900mln stake in Euromoney, with funds to be returned to shareholders. Separately, Julius Baer (+0.9%) are up after the Co. increased their stake in NSC Asesores by 30% to 70% for an undisclosed amount.

FX

USD - The Dollar is somewhat mixed vs its major counterparts, but the DXY recovered from another US President Trump set-back to revisit 96.600 and marginally eclipse tech resistance (96.594 Fib) on the way. However, latest encouraging reports on US-China trade, suggesting a deal is in the offing have hampered the Greenback to an extent, especially vs more risk-sensitive and high beta currency peers.

GBP - The Pound has shrugged off an unexpected fall in UK construction PMI through the 50 growth/contraction threshold, and instead remains supported at the top of the G10 table on the more positive Brexit-related news in the form of growing support for PM May’s Withdrawal Agreement among the more ardent Tory leaver ranks, albeit with set conditions. Indeed, Cable remains close to 1.3250 and Eur/Gbp has retreated from highs around 0.8600, though the latter partly due to relative weakness in the single currency. Note, however, a hefty 1 bn option expiry at the 0.8500 strike looks too distant to come into play today as the cross hovers near 0.8560.

EUR - As noted above, an underperformer amidst broadly risk-on trade at the start of the new week, with stops noted vs the Usd on a break of 1.1350 once last Friday’s low was breached taking the headline pair down to 1.1335. Similarly, sell orders are said to have been triggered in Eur/Jpy, possibly through 127.00 and in Eur/Gbp, but the single currency has pared some lost ground in wake of a more upbeat than forecast Sentix index.

CHF/JPY - A bit of divergence between the traditional safe-havens, as the Franc remains below parity vs the Greenback on the aforementioned positive US-China paper talk, but the Jpy rebounds from worst levels circa 112.00, perhaps with the aid of those Eur cross sales, to sit just off 111.73 highs.

NZD/AUD/CAD - The Antipodean Dollars are off best levels achieved overnight when the WSJ trade deal between Beijing and Washington near to completion report broke, but still underpinned as the Kiwi keeps its head above 0.6800 and Aussie hovers just below 0.7100. However, Aud/Nzd has slipped back towards 1.0400 in wake of some disappointing pre-RBA data in the form of Gross Company Profits and the Loonie is still underperforming circa 1.3300 lows following last Friday’s sub-consensus Canadian GDP release in the run up to the BoC.

EM - The Lira and Peso are under pressure vs the Buck on bearish specific/independent impulses, as softer than expected Turkish CPI could prompt the CBRT to tweak its tight monetary stance on Wednesday, or even shift guidance in preparation for an ease ahead, while the Mxn is clearly feeling the adverse effects of S&P’s move to credit watch negative from stable. Note, Usd/Try is currently around 5.3850 vs almost 5.4000 at one stage and Usd/Mxn circa 19.3500 vs 19.3820 earlier, while in stark contrast the Thai Central Bank has been forced to curb excess Thb strength with a 31.75-85 range.

FIXED INCOME

Gilts have deviated a bit further from previous Liffe trading parameters, and perhaps perversely the 10 year UK debt future recently declined to a new intraday low at 125.62 (-19 ticks on the day) irrespective of the weaker than anticipated and under-50 construction PMI. Conversely, and also rather against normal behaviour, Bunds have just inched up to a fresh, albeit marginal Eurex peak of 165.53 (+31 ticks) after a better than envisaged headline Eurozone Sentix reading, but this can be put down to a relatively pronounced reversal in Italian BTPs from 128.61 at best to 127.77, and for no obvious reason aside from the shaky state of the economy and the fact that Rome continues to challenge Brussels on 2019 budget forecasts. Elsewhere, US Treasuries have also carved out slightly loftier highs in relatively thin conditions and the curve is flatter for choice ahead of a light agenda that including NY ISM and construction spending.

COMMODITIES 

Brent (+0.7%) and WTI (+0.9%) are benefitting from the positive trade sentiment following reports that US and China are in the final stages of completing a trade deal, alongside China’s spokesperson Zhang stating that substantial progress has been made. Adding to the upside is Friday’s Baker Hughes rig count where US oil rigs fell by 10 to 843, the lowest level since May 2018. Elsewhere, Russian oil output was 11.34mln BPD in February, 75k barrels below the October baseline level; according to Energy Ministry Data. Separately, Barclays have maintained their Brent price forecast, stating that prices have moved in-line with their view however Barclays does note that downside risks remain.

Gold (-0.4%) prices are weaker weighed on by the positive risk sentiment, with the yellow metal trading towards the bottom of a USD 10/oz range. Elsewhere, Vale have, on a temporary basis, removed its Chief Executive Schvartsman, along side 3 other executives following recommendations by both state and federal prosecutors. Elsewhere, nickel futures, which is used to make stainless steel, have climbed to around a 5-month peak, as the price of stainless steel continues to rise with Chinese steel mills actively replenishing their stocks in-spite of the rising prices; although some mills have been delaying purchases due to the price increase.

OPEC crude exports in February 24.086mln BPD, falling by 669k BPD, on Gulf cutbacks. Combined Saudi and UAE shipments fell by 763k BPD from January, while exports from Southern Iraq were 3.808mln, +207k BPD.

Iraq exports 3.996mln BPD in February, below the 4.081mln BPD average in January