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RANsquawk EU Open Rundown 01.12.17

      • Asia equity markets were choppy as the region counterbalanced the momentum from the record highs on Wall St. with disappointing Chinese Caixin Manufacturing PMI data
      • WTI crude was stable overnight and mildly nursed some of the losses from the prior session, where prices were dampened by the OPEC announcement
      • Looking ahead, highlights include Eurozone, UK and US manufacturing PMIs, Canadian jobs, Fed’s Bullard and Kaplan

ASIA

Asia equity markets were choppy as the region counterbalanced the momentum from the record highs on Wall St. with disappointing Chinese Caixin Manufacturing PMI data. ASX 200 (+0.3%) and Nikkei 225 (+0.6%) took impetus from the rally in US where tax optimism fuelled advances in S&P 500 and Dow to fresh all-time highs, in which the latter also surmounted the 24,000 level for the first time. However, sentiment was brought down a notch and Japanese stocks briefly gave up all their gains amid a pullback in USD/JPY, miss on Chinese data and after the Senate postponed a tax reform vote to Friday morning. Shanghai Comp. (-0.2%) and Hang Seng (-0.2%) were indecisive in the wake the aforementioned data and after the PBoC skipped operations due to high liquidity, with Tencent also jittery following its fall out from the USD 500bln club. Finally, 10yr JGBs eventually found mild support from an indecisive risk tone and the BoJ’s Rinban operation for nearly JPY 1tln of JGBs in 1yr-10yr maturities, which underpinned prices to above 151.00.

Chinese Caixin Manufacturing PMI Final (Nov) 50.8 vs. Exp. 50.9 (Prev. 51.0). (Newswires)

PBoC skipped open market operations for a net weekly drain of CNY 40bln vs. last week's CNY 150bln net injection. (Newswires)

PBoC sets CNY mid-point at 6.6067 (Prev. 6.6034)

Japanese CPI (Oct) Y/Y 0.2% vs. Exp. 0.2% (Prev. 0.7%). (Newswires)

Japanese CPI Ex. Fresh Food (Oct) Y/Y 0.8% vs. Exp. 0.8% (Prev. 0.7%)

UK/EUROPE

UK has agreed on a formula for calculating the Brexit Divorce bill and London has committed to paying a set share of EU budgets after leaving EU, while the EU has agreed a financial settlement with UK on future commitments, according to a senior EU official. (Newswires)

Irish government spokesman states that there has not been enough progress regarding border issue. (Newswires) Elsehwere, the Times reports that Senior Democratic Unionist Party figures tspaneatened to bring down the government over Brexit yesterday while telling EU leaders to ignore Irish claims that the peace process could be undermined. (Times)

FX

A quiet tone was observed in Asia FX trade as major pairs consolidated from Thursday’s price action. As such, EUR/USD and GBP/USD remained elevated after having reclaimed the 1.1900 and 1.3500 handles respectively, with GBP continuing its tear. Elsewhere, JPY attempted to nurse some of the prior day’s losses, although this was only brief amid widening yield differentials, while AUD/USD languished following the Chinese PMI data miss.

COMMODITIES

WTI crude was stable overnight and mildly nursed some of the losses from the prior session, where prices were dampened despite the announcement of an output cut extension as there was some disappointment the cartel would "review" the output cut pact on a quarterly basis. Furthermore, the inclusion of Libya and Nigeria to deal also failed to spur demand given that they weren’t producing above the 'cap' levels on a sustainable basis. Elsewhere, the metals complex was also relatively uneventful with both gold and copper sideways tspanoughout Asia hours.

OPEC & Non-OPEC agreed to extend the supply cut pact tspanough to the end of 2018. The new agreement is set to start in January and will be subject to quarterly reviews, allowing the monitoring committee to see how much progress has been made with regards to drawing down global inventories. Crucially, Libya and Nigeria – who were previously exempt – have agreed to join the efforts, with their production levels being capped at 1.8mln and 1mln barrels respectively. (Newswires)

CME lowered Comex Copper December and January contract margins by 11.1% to USD 2,800. (Newswires)

GEOPOLITICAL

South Korea Unification Ministry said North Korea was unable to demonstrate technology such as re-entry, terminal stage guidance and warhead activation in its latest missile launch, while it added that there is a high likelihood North Korea will not conduct provocations for a while. There were also comments from the Defense Ministry that North Korea’s test seemed to have succeeded, in which they are able to reach Washington. (Newswires)

US

Treasury yields steepened across the curve (at settlement: 2s c. +3bps, 5s c. +6bps, 7s c. +6bps, 10s c. +5bps, 30s c. +3bps) on optimism that the GOP tax reform bill would clear a floor vote in the Senate, also taking its cue from a firm risk tone, with the rally in stocks also contributing. Additionally, PCE deflator data ticked higher in October, in line with the CPI data already reported, though the Y/Y PCE rate was unchanged after an upward revision to the prior. With Fed officials attributing the weakness to transitory factors, the data doesn’t present any obstacles to a December rate hike, which is fully priced, according to the CME’s Fedwatch tool. US 10-Year T-Note futures settled 13 ticks lower 124-10

US Senate postponed a vote on the GOP tax bill on Thursday night with the debate to continue on Friday, in which US Senate Majority leader McConnell stated that the next floor votes will be 1100EST. in related news, US Senator Mike Rounds said the Senate is to adopt a USD 10K state-local tax deduction and  Senator Cornyn said other trigger ideas are being vetted for tax reforms, while Senator Corker stated the bill is to include USD 350bln in tax increases. (Newswires)

Senate sources stated that Senate GOP is considering making corporate tax cuts temporary, which will increase in either the 6th or 7th year, while reports also noted that Senators Johnson and Flake who were holding out support on the tax bill to get more relief for pass-tspanough business, were said to come out of Senator Cornyn's office with a happy look. (Newswires)

Joint Committee on Taxation said the Senate tax bill does not pay for itself and would increase deficit by USD 1trln over 10-years, while official Congressional analysis found GOP tax bill pays for less than half of its cost. (Newswires)

GOPs plan a 2-week government funding extension that will keep the government open tspanough 22nd December and avoid a shutdown. Separately, there were comments from the Congressional Budget Office that US borrowing could continue until late March without raising of the Debt ceiling. (Newswires)

Fed's Mester (Non-Voter, Hawk) said there is a compelling case for the FOMC to remain on a gradual hike trajectory, while she added the tax plan is unlikely to have a major impact on growth. (Newswires)

Fed's Kaplan (Voter, Soft Hawk) said the main debate on the Fed is whether we are at or near full employment and repeated that hikes should be gradual and patient. Kaplan added it would be wise to lift rates in the near future and that Fed will hit inflation target in the medium term. (Newswires)

US President Trump is said to have urged senior Republicans to end Russia probe. (NYT) Furthermore, there were also reports that US Attorney General Sessions was evasive in the Russia probe and refused to answer essential questions during a congressional hearing on Thursday. (Jerusalem Post)

US President Trump’s visit plans to the UK in January have been dropped amid tensions with PM May related to Trump's far-right retweets. (Telegraph)
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