• Asian equity markets kick-started December on the front-foot with risk appetite stimulated by a flurry of better than expected Chinese data
• Chinese markets welcomed the encouraging PMI data which aside from the headline beat, also showed Non-Manufacturing PMI and Caixin Manufacturing PMI topping estimates
• US-China deal was said to be stalled because of Hong Kong legislation according to Axios sources
• China Global Times noted that the trade deal must include tariff rollbacks
• Recent polling data showed a narrowing lead for PM Johnson’s Conservatives
• Looking ahead, highlights include EZ, UK and US Markit Manufacturing PMI (Final); US Construction Spending & ISM Manufacturing PMI, ECB President Lagarde

ASIA-PAC

Asian equity markets kick-started December on the front-foot with risk appetite stimulated by a flurry of better than expected Chinese data including official Manufacturing PMI which expanded for the first time in 7-months. ASX 200 (+0.2%) and Nikkei 225 (+1.0%) were higher with Australia led by outperformance in the defensive and financial sectors but with upside capped by energy following the recent slump in oil prices after Russian Energy Minister Novak triggered doubts for a deal extension at this week’s OPEC+ meeting, while the advances in Tokyo were mainly fuelled by a weaker currency. Hang Seng (+0.3%) and Shanghai Comp. (+0.1%) welcomed the encouraging PMI data which aside from the headline beat, also showed Non-Manufacturing PMI and Caixin Manufacturing PMI topped estimates, although gains were limited by continued PBoC inaction, the resumption of violence in Hong Kong protests over the weekend and ongoing trade uncertainty with Beijing said to be insistent on a tariff rollback and as other reports suggested Hong Kong legislation may have stalled the US-China agreement but that a phase one deal would still probably occur by year-end at the soonest. Finally, JGBs were lower amid similar pressure in T-notes and with demand for bonds sapped by the mostly upbeat sentiment, while the BoJ’s presence for a respectable JPY 890bln of JGBs did little to help 10yr JGB prices after having slipped through prior support at the 153.00 level.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 7.0262 vs. Exp. 7.0247 (Prev. 7.0298) US is reportedly mulling new regulations to further restrict Huawei suppliers according to sources. (Newswires)

US-China deal was said to be stalled because of Hong Kong legislation according to reports citing a source close to President Trump's negotiating team, although the article noted the phase one deal would probably happen year-end at the earliest. (Axios)

China Global Times noted that the trade deal must include a tariff rollback with Beijing insisting that a pledge to scrap new tariffs in December cannot replace rolling back existing tariffs in a phase one agreement. (SCMP)

Hong Kong Police clashed with protesters over the weekend as protests resumed following the recent lull in violence. (Newswires)

Chinese Manufacturing PMI (Nov) 50.2 vs. Exp. 49.5 (Prev. 49.3). first expansion in 7 months. (Newswires) Chinese Non-Manufacturing PMI (Nov) 54.4 vs. Exp. 52.0 (Prev. 52.8) Chinese Composite PMI (Nov) 53.7 (Prev. 52.0) Chinese Caixin Manufacturing PMI (Nov) 51.8 vs. Exp. 51.4 (Prev. 51.7)

UK/EU

UK Election YouGov/Sunday Times poll: Conservatives 43% (Unch.), Labour 34% (+2), Lib Dems (13% (Unch) and Brexit Party 2% (-2), conducted November 28th-29th. (Sunday Times/Twitter) UK Election Survation/Good Morning Britain poll: Conservatives 42% (+2), Labour 33% (+3). Lib Dems 11% (-4), Brexit Party 3% (-2), conducted November 26th-30th. (Newswires) Other polls from over the weekend showed varying margins of victory for the Conservatives with Observer showing Conservatives 15 ahead (vs. Prev 19), Delta 13 ahead (vs. Prev. 13), ComRes 10 ahead (vs. Prev. 10), BMG ahead by 6 (vs. Prev. 13). (Twitter)

EU's Dombrovskis warned City of London regarding post-Brexit access in which he stated that the bloc could cut off UK access if it diverges from Brussels standards. (FT)

In Germany, Finance Minister Scholtz lost his bid to become leader of the SPD after suffering defeat at the hands of Norbert Walter-Borjans and Saskia Esken, who have been highly critical of the coalition between their party and the CDU/CSU. The Chief economist at the Centre for European Reform noted that Walter-Borjans and Esken have been critical of the debt brake but accept that it probably cannot be changed, adding that it is unlikely the coalition will collapse but the SPD will likely make the GroKo more painful for the CDU. (BBC/Twitter)

FX

DXY was slightly firmer overnight with price action relatively stable in comparison to Friday’s failed blitz on the 98.50 level which was also a function of the lighter volumes and reduced trading hours post-Thanksgiving, while its transatlantic peers were mixed as EUR/USD remained relatively unchanged just north of the 1.1000 level and with GBP/USD dragged closer to 1.2900 after recent polling data showed a narrowing lead for PM Johnson’s Conservatives. Elsewhere, USD/JPY and JPY-crosses were lifted by the positive risk appetite, while antipodeans also benefitted due to their high-beta characteristics, exposure to China amid the PMI elation and with gains in NZD/USD exacerbated by stronger than expected Terms of Trade data.

New Zealand Terms of Trade QQ (Q3) 1.9% vs. Exp. 0.7% (Prev. 1.6%). (Newswires)

COMMODITIES

Commodities were mixed with oil prices recovering from some of the over-4% slump seen in Friday’s session with selling exacerbated after Russia Energy Minister Novak said he favours taking a decision on the extension of the output deal closer to 1st April 2020. Nonetheless, prices have since recouped some of those losses, as well as the USD 56.00/bbl level with reprieve in the complex coming from the better than expected Chinese PMI data and comments from Iraq’s Oil Minister that suggested OPEC+ will consider deepening cuts by 400k bpd when it meets later this week. Elsewhere, gold saw marginal losses amid the lack of safe haven demand and a stable greenback, while copper took impetus from the mostly positive tone across stocks and surprise expansion in China’s factory data.

Iraq’s Oil Minister Ghadhban suggested that OPEC+ producers will consider deepening their existing oil output cuts by about 400k bpd to 1.6mln bpd at their meetings this week. (Newswires)

US

T-Notes traded flat on Friday as the complex took its cues in a thin liquidity environment given the early Thanksgiving closure, which also saw a lack of pertinent updates. Treasury futures sold off in the tail-end of the European session, however as the early close approached, some of the losses were pared. By settlement yields were little changed on the day.

White House lawyer responded that President Trump cannot be fairly expected at December 4th impeachment hearing after the US House judiciary committee deadline passed, while other reports noted that White House lawyers are sceptical about cooperating in the impeachment hearings and instead are focusing on how to prepare for the eventual Senate battle. (Newswires/Axios)

The Fed are looking at potential introducing a new rule that would let inflation run above it’s 2% goal in an attempt to avoid an entrenchment of US prices undershooting its target. (FT)