• Asia equity markets began the week mostly positive following Friday’s gains on Wall St. where tax reform optimism buoyed all major indices to record levels
• EU Brexit Chief Michel Barnier said the EU is not prepared to come up with a makeshift trade deal for the UK that knits together all the best bits of existing models
• Looking ahead, highlights include Eurozone (F) inflation figures

ASIA

Asia equity markets began the week mostly positive following Friday’s gains on Wall St. where tax reform optimism buoyed all major indices to record levels after reports Republican Senators Rubio and Corker were to support the tax bill. ASX 200 (+0.7%) was higher as miners gained after an early 6% surge in Dalian iron ore prices, while Nikkei 225 (+1.6%) outperformed on JPY weakness and after encouraging Japanese Trade Data in which Exports rose a 12th consecutive month. Elsewhere, Hang Seng (+0.7%) was positive and Shanghai Comp. (-0.1%) traded indecisive after a significant CNY 300bln injection by the PBoC, and as some property names lagged after the latest China House Price data continued to show the effectiveness of government measures to cool the property sector. India markets were volatile on election risk during vote counting day with the NIFTY (+0.7%) down 2% at the start of trade as early results suggested a closer race in Gujarat between the ruling BJP and the opposition Congress Party than what was seen in Friday’s exit polls. However, stocks later pared losses and then some, after the BJP pulled ahead and trends pointed to a comfortable majority win. Finally, 10yr JGBs were uneventful with prices flat as pressure from the heightened risk appetite in Japan was counterbalanced by a respectable Rinban announcement by the BoJ for nearly JPY 1tln of JGBs in 1yr-10yr maturities.

PBoC injected CNY 120bln in 7-day, CNY 110bln in 14-day and CNY 70bln in 28-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.6162 (Prev. 6.6113).

Chinese House Prices YY (Nov) 5.1% (Prev. 5.4%). (Newswires)

Chinese Property Prices rose M/M in 50 out of 70 cities (Prev. 50) and rose Y/Y in 59 out of 70 cities (Prev. 60).

Japanese Trade Balance (JPY)(Nov) 113.4B vs. Exp. -40.0B (Prev. 285.4B). (Newswires)

Japanese Exports (Nov) Y/Y 16.2% vs. Exp. 14.7% (Prev. 14.0%)

Japanese Imports (Nov) Y/Y 17.2% vs. Exp. 18.0% (Prev. 18.9%)

UK

EU Brexit Chief Michel Barnier said the EU is not prepared to come up with a makeshift trade deal for the UK that knits together all the best bits of existing models. (Independent) Following this, the Telegraph have reported that this will lead to a cabinet row in the UK. The Telegraph have also reported that leading Remain campaigners plan to utilize the 'meaningful vote' on final Brexit deal with the aim of keeping UK in the EU. (Telegraph) On the subject of trade, Britain’s banks have written to Theresa May and Philip Hammond warning that a Canada-style free trade agreement with the EU post-Brexit is not ambitious enough and that alignment with EU rules on finance is crucial. (Guardian)

UK Conservative party rebels are reportedly urging PM May to form a cross-party alliance for a soft Brexit. (The Guardian)

UK PM May is being urged to delay her departure until close to the next election to avoid the Tory party engaging in a bloody battle that could ruin trade talks with the EU before they are complete. (Times)

DBRS affirmed its credit rating on UK at AAA; Outlook Stable. (Newswires)

EU

Fitch raised Ireland credit rating one notch from A to A+; Outlook Stable and raised Portugal 2 notches from BB+; Outlook Positive to investment grade of BBB; Outlook Stable. (Newswires)

Austria’s far-right nationalist Freedom party will control several powerful ministries when the new government is sworn in today. (FT)

FX

Major FX pairs were relatively quiet with the greenback holding onto most of Friday’s advances which were spurred by the tax reform optimism. Nonetheless, most major currencies attempted to nurse some of their losses with only little success so far, although NZD/USD gradually reclaimed the 0.7000 handle after an improvement in Performance of Services data. Elsewhere, GBP/USD was off worst levels but remained near last week’s lows despite Brexit talks moving on to the 2nd phase as EU’s Juncker also warned the next phase could be more difficult, while some EM currencies suffered against USD amid prospects of outflows from tax reforms and higher rates stateside. Finally, INR was volatile with early pressure on prospects of a tight race between BJP and Congress in the official vote counts for the Gujarat State Assembly elections, although the majority of the losses was pared once trends showed a likely majority win for the ruling BJP.

Moody's affirmed Australia sovereign rating at AAA; Outlook Stable, although it stated that it still sees risks deficits will overshoot government forecasts. (Newswires)

Australian 2017/2018 Budget Deficit forecast was narrowed to AUD 23.6bln vs. Prev. forecast AUD 29.4bln, while 2017/2018 GDP forecast was revised lower to 2.50% from 2.75% in May in the Mid-Year Economic and Fiscal Outlook. (Newswires)

COMMODITIES

WTI crude futures were flat overnight amid a lack of drivers and with the latest Baker Hughes rig count ignored, despite the 1^st reduction in 6 weeks. Elsewhere, gold was flat with upside restricted amid a broad positive risk tone, while price action in the metals complex centred around China in which Dalian iron futures surged around 6% on the back of recent gains in global prices.

Baker Hughes Rig Count (Total) 930 (Prev. 931). (Newswires)

Baker Hughes Rig Count (Oil) 747 (Prev. 751)

Baker Hughes Rig Count (Gas) 183 (Prev. 180)

GEOPOLITICAL

US Defense Secretary Mattis stated on Friday that North Korea has not yet demonstrated the capability to tspaneaten the US with a capable ICBM. (Newswires)

US

Treasuries fell on Friday after the news broke that Rubio will vote in favour of the tax legislation. The curve continued its flattening trend with 30y yields dropping to their lowest level since September.

US Congressional Conference Committee released the final text of the tax reform bill on Friday, while the House is to vote on the final bill on Tuesday. Furthermore, Republican Senator Corker who had previously voted against the draft bill at the Senate, stated he would now support the final tax reform bill and is said to have sent a letter to Senator Hatch for more information on tax reform bill pass-tspanough provision. (Newswires)

US Senator Cornyn said he is confident Senate will pass tax reform bill probably on Tuesday, while US Senator McCain will likely miss the vote as he won’t be returning to Washington DC until January. (Newswires)

US President Trump’s private legal team is to meet with Special Counsel Mueller as early as this week as an opportunity to get a better understanding regarding next steps in the Russia investigation. In addition, President Trump also commented that he has no intention of firing Mueller. (Newswires)