• Asian equity markets traded broadly firmer after Wall Street extended on record levels once again
• However, gains were capped given the lack of material breakthrough from the recent slew of optimistic US-China trade rhetoric
• US President Trump said we are in the final throes of reaching a trade deal with China and wants to see democracy in Hong Kong
• Latest YouGov/Sky News poll shows an 11-point lead for Conservatives; down from the prior 14-point lead shown by YouGov
• Fed's Brainard called for a flexible average inflation target and suggested the Fed should consider capping treasury bond rates in the next crisis
• Looking ahead, highlights include US Durables, GDP 2nd Estimate, Jobless Claims, Personal Income, Consumption, Core PCE Price Index, DoEs, Japanese Retail Sales, Fed’s Beige Book, YouGov MRP Model, Day 1 of OPEC's Economic Commission Board Meeting, ECB’s Lane, de Cos, supply from Germany, US

ASIA-PAC

Asian equity markets traded broadly firmer after Wall Street extended on record levels once again, but with gains capped given the lack of material breakthrough from the recent slew of optimistic US-China trade rhetoric and following a further slump in Chinese Industrial Profits. ASX 200 (+0.9%) and Nikkei 225 (+0.4%) were positive with notable strength in Australia’s telecoms sector as Telstra was boosted in anticipation of a stronger performance in H2 and with gold miners underpinned after the precious metal found relief from support at USD 1450/oz, while Tokyo sentiment rode on the recent upward trajectory in USD/JPY and with Toshiba lifted by prospects of a sooner return to the main market following reports the Tokyo Stock Exchange will ease requirements to fast-track promotion to the main board as soon as next year. Hang Seng (Unch.) and Shanghai Comp. (-0.1%) were somewhat indecisive with Hong Kong kept afloat by hopes protests were waning and that the university siege may have drawn to an end, although the mainland was choppy due to continued PBoC liquidity inaction and after Industrial Profits further deteriorated with its largest decline since 2011. Finally, 10yr JGBs ignored the mostly positive tone in stocks and extended on the prior day’s post-40yr auction rebound to briefly test resistance at the 153.50 level, with prices also supported by the BoJ’s presence in the market today with the central bank’s Rinban operations heavily concentrated on 5yr-10yr maturities.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 7.0349 vs. Exp. 7.0344 (Prev. 7.0344)

Chinese Industrial Profits (Oct) Y/Y -9.9% (Prev. -5.3%); largest decline since 2011. (Newswires)

US President Trump said we are in the final throes of reaching a trade deal with China and wants to see democracy in Hong Kong. (Newswires)

UK/EU

Latest YouGov/Sky News poll shows an 11-point lead for Conservatives at 43% (+1), Labour 32% (+2), Lib Dems 13% (-3), Brexit Party 4% (+1) SNP 4 (-) Green 2 (-2), conducted November 25th-26th. (Sky News)

EU Brexit Negotiator Barnier reportedly told MEPs in a private meeting that UK PM Johnson will be expected to sign up to free movement for people if the PM wants to secure a tariff-free trade deal with the EU after Brexit according to Express's Barnes. Furthermore, Barnier also suggested securing a new trade deal by December 2020 would be very difficult and that a no deal was still possible, according to Sky's Goodall. (Twitter)

UK BRC Shop Price Index (Nov) Y/Y -0.5% (Prev. -0.4%). (Newswires)

FX

DXY was slightly firmer overnight but kept to within the prior day’s range where price action was choppy heading into month-end and amid the holiday-shortened week, while the latest Fed rhetoric from Brainard and Kaplan backed the neutrality concept. EUR/USD remained indecisive and reverted to yesterday’s Asia-Pac levels just north of the 1.1000 level where there is a significant option expiry of EUR 1.1bln for today’s New York cut, and GBP/USD languished around 1.2850 following the latest YouGov and Kantar polls which both showed a narrowing lead for the Conservatives. Elsewhere, USD/JPY was propped up by another record setting session for Wall Street, while antipodeans were steady for most the session after an uneventful RBNZ Financial Stability Report, relatively inline Exports/Imports data from New Zealand and recent comments from RBA Governor Lowe who pushed back on the notion of QE and reiterated that negative rates are extremely unlikely. However, AUD/USD was then pressured in late trade following a fiercely dovish forecast by Westpac for the RBA to lower rates to 0.25% from current 0.75% by June and begin QE in H2 2020.   

Citi no longer expects RBA to deploy QE next year and noted recent comments from RBA Governor Lowe which suggests 0.25% is the effective lower bound for rates. Conversely, Westpac forecasts RBA to lower rates to 0.25% by June 2020 and start QE in H2 2020, while RBC sees the RBA cutting rates to 0.25% in 2021 and to begin QE that year also. (Newswires)

RBNZ Financial Stability Report noted that New Zealand’s financial system is resilient to a range of economic risks although global financial stability risks and domestic debt vulnerabilities remain, while it added that prolonged low long-term interest rates could generate excess leverage and overheated asset prices. Furthermore, the RBNZ stated negative OCR is not currently a central scenario in its published forecasts and it is considering potential impacts of unconventional monetary policy tools on bank profitability. (Newswires)

RBNZ Governor Orr said low rates are needed to achieve targets but added that persistently lower global rates bring about challenges, while he also stated they were not particularly close to loosening LVR rules and need to get more confident around bank lending behaviour before considering loosening LVRs. (Newswires)

New Zealand Trade Balance (Oct) -1013.0M vs. Exp. -1621.0M (Prev. -1242.0M) New Zealand Exports (Oct) 5.03B vs. Exp. 5.00B (Prev. 4.47B) New Zealand Imports (Oct) 6.05B vs. Exp. 6.00B (Prev. 5.71B) 

COMMODITIES

Commodities were mostly lacklustre in which WTI crude pared back the marginal gains that had been spurred by the risk appetite as Wall Street edged fresh record highs and amid reports OPEC is reportedly considering extending oil production cuts by 3-6 months. Nonetheless, oil prices were contained overnight with mild pressure seen following a surprise build in API crude inventories which forced a brief pullback in February Brent Crude futures to test support at the USD 63.00/bbl. Elsewhere, gold consolidated from the prior session’s bout of volatility where the precious metal momentarily attempted a breakdown of USD 1450/oz with overnight price action restricted by a slightly firmer USD, while copper saw some profit taking amid the indecision in China after the worst slump in its Industrial Profits since 2011.

US API Weekly Crude Stocks (26 Nov) +3.6mln vs. Exp. -0.4mln (Prev. +6.0mln). (Newswires)

US

The TPLEX found modest support through the session amid the ongoing month-end inflows. Similar to yesterday, the large Treasury issuance and appetite for equities is failing to see a deterioration in US sovereign debt demand – meanwhile there has been little material US-China trade updates. The US sold USD 41bln of 5-year notes at 1.587%, in what was a rather average auction, tailing the WI by 0.3bps and below average domestic demand, although the B/C ratio of 2.5x was above average and the strong international demand saw dealers take less than usual. At settlement, the Treasury curve was slightly flatter, with the 30-year yield down 3bps and the 2-year yield was down slightly under 2bps. US T-note futures (Z9) settled 5+ ticks higher at 129-22.

Fed Discount Rate Minutes stated that only two Fed banks (Minneapolis and San Francisco) voted to lower the discount rate before the last meeting, although the Fed still lowered the discount rate to 2.25% from 2.50% alongside its cut in the FFR. (Newswires)

Fed's Brainard (Voter, Neutral) called for a flexible average inflation target and said that shifting target to average 2% over time would be simpler than a stricter rule that commits to an outcome. Brainard added that she is concerned trend inflation has slipped below 2% and that changes to the framework are needed to raise it, while she suggested that the Fed should consider capping treasury bond rates in the next crisis rather than relying on the sort of QE it used last time. Furthermore, she expects the US economy to grow above trend next year and noted risks to economic outlook are to the downside, but sentiment appears to be improving. (Newswires)

Top trade ministers from US, Mexico and Canada will sit down in Washington today for talks on USMCA. In related news, Mexican trade official said he was told by US House Speaker Pelosi that she should have a completed USMCA deal from the USTR by month-end, while Mexican President AMLO sent a letter to Pelosi yesterday reassuring her about the USMCA deal. (Politico/Fox)

US Democratic Presidential Candidate National poll: Biden 24% (+3) Buttigieg 16% (+6) Warren 14% (-14) Sanders 13% (-2). (Twitter)