• Asian stocks were mostly lower as a downbeat tone rolled over from Wall St, where sentiment was pressured on tax reform discord
• ECB sources suggested that a minority of ECB rate setters wanted to signal guidance may change if inflation keeps accelerating
• Looking ahead, highlights include US Industrial Production, Baker Hughes Rig Count and the Brussels Summit

ASIA

Asia stocks were mostly lower as a downbeat tone rolled over from Wall St, where sentiment was pressured on tax reform discord after Republican Senator Rubio said he would not vote for the GOP tax bill unless it expands child tax credit. ASX 200 (-0.2%) closed negative as weakness in its top-weighted financials sector weighed, while Nikkei 225 (-0.5%) was pressured after a  mixed Tankan survey but then rebounded amid reports the BoJ is to tweak its language due to dovish dissent. Shanghai Comp. (-0.6%) and Hang Seng (-0.9%) were subdued after the recent quasi-tightening in China and with President Xi also expected to stress the need to curb financial risks at next week’s annual Central Economic Work Conference. Conversely, Indian markets  bucked the trend with gains of 0.9% after the country’s ruling BJP retained power in Gujarat with a clear majority and won  Himachal Pradesh from Congress in the state assembly elections. Finally, 10yr JGBs were relatively uneventful despite the  indecisive tone in Japan, while the BoJ Rinban announcement also failed to spur demand with the total amount at a reserved JPY 290bln in 10yr-25yr+ maturities. 

PBoC injected CNY 80bln via 7-day reverse repos and CNY 70bln via 28-day reverse repos, for a weekly net injection of CNY

80bln vs. last week's CNY 510bln net drain. (Newswires)

PBoC set CNY mid-point at 6.6113 (Prev. 6.6033).

BoJ reportedly is to tweak its message after dissenter calls for further easing, according to reports. (Newswires)

Japanese Tankan Large Manufacturing Index (Q4) 25 vs. Exp. 24 (Prev. 22). (Newswires)

Japanese Tankan Large Manufacturing Outlook (Q4) 19 vs. Exp. 22 (Prev. 19)

Japanese Tankan Large All Industry Capex (Q4) 7.4% vs. Exp. 7.5% (Prev. 7.7%)

UK

UK PM May is expected to back down on Brexit date plan in order to avoid a second defeat in the commons next week, according to press reports. (Times)

German Chancellor Merkel said EU leaders could move to Brexit phase 2 today, but added that a lot of work is still needed

regarding migration. (Newswires) There were also reports that EU leaders warned UK Conservative Party rebels have made a no

deal Brexit more likely. (Telegraph)

EU

ECB sources suggested that a minority of ECB rate setters wanted to signal guidance may change if inflation keeps accelerating. The minority were outnumbered and the debate was not heated, the sources added. (Newswires)

ECB’s Weidmann said loose EU monetary policy is contributing to a 'deceptive calm', it's a fallacy to believe the EU area is prepared for all cases. (Newswires)

ECB's Vasiliauskas said he doesn't see need for additional QE next year and that measures implemented are showing results,

while he also added that Euro area growth is gaining momentum. (Newswires)

FX

USD/JPY was initially dampened by safe-haven flows and eyed a retest of the prior day’s lows near 112.00. However, the pair later found mild support as Japanese stocks recovered and amid reports the BoJ is to tweak its message due to BoJ board member Kataoka’s dovish dissent. Elsewhere, CAD remained firmer after BoC Governor Poloz’s comments that he was increasingly confident less stimulus is needed in the future, while EUR continued to languish post-ECB and INR was underpinned following the ruling BJP’s firm win in PM Modi’s hometown.

Mexican Central Bank hikes rates by 25bps to 7.25%, in line with expectations; decision was not unanimous

BoC Governor Poloz said "increasingly confident" economy will need less monetary stimulus over time, but then later added that they want the economy to run hotter for a while to use up excess capacity. (Newswires)

COMMODITIES

Commodities were flat in which WTI and Brent crude futures held near the prior day’s highs as the Forties pipeline outage continues to provide support. Meanwhile, trade was also quiet across the metals complex with Gold and copper lacking any firm direction tspanoughout the entire session.

GEOPOLITICAL

US President Trump held a phone talks with Russian President Putin in which they discussed North Korea’s nuclear program and other topics. (Newswires)

US North Korea Envoy said the US is open to dialogue with North Korea and that first credible step is for the nation to halt missile and nuclear tests. (Newswires)

US Senator Lindsey Graham thinks there is a 30% chance US will use a military option, but added if North Korea conducts another nuclear test he sees a 70% chance of war. (Newswires)

North Korea is said to warn US against a naval blockage which it would view as an act of war. (Newswires)

US

USTs were lower in the early part of the trading day, paring back some of the Fed inspired Fed gains on hopes that tax reform was

getting closer. On a day with a number of central bank decision, the Bank of England and ECB failed to give markets too much new

to digest which caused some choppy trade as market participants looked for an edge. Nevertheless, the curve continued to flatten

with 5s30s flattening to its flattest levels since October 2007. Mar’17 10y T-note futures settled at 124.18, down 1+ ticks.

US Republican Senator Rubio said he will vote no on the Tax Bill unless there is an expansion to tax credit for the working poor. (Newswires) However, reports later stated that the final tax bill draft is said to have moved in Senator Rubio's direction and that the final text is locked and conference report is to be signed today, precluding any more changes. (Fox)

Federal Reserve Board approved to raise Discount rate by 25bps to 2.00% supported by 9 regional members. (Newswires)