• Asian Asia equity markets traded mostly higher as the region mirrored the tone seen in US, where all majors posted fresh record highs
• JPY strengthened on a reduced Rinban announcement in which USD/JPY slipped below 113.00
• Looking ahead, highlights include APIs, Fed’s Kashkari and supply from the Netherlands, Austria, Germany, UK and the US

ASIA

Asia equity markets traded mostly higher as the region mirrored the tone seen in US, where all majors posted fresh record highs but the DJIA still snapped its New Year streak. ASX 200 (+0.1%) and Nikkei 225 (+0.6%) were positive in which commodity names led in Australia and the Japanese benchmark outperformed as it played catch up on return from the extended weekend. However, some of the gains in Japan were later pared on tapering concerns after the BoJ reduced its Rinban announcement for longer dated bonds. Elsewhere, KOSPI (-0.4%) was dampened after index-heavyweight Samsung Electronics missed on Q4 preliminary results, while both Hang Seng (+0.3%) and Shanghai Comp. (+0.1%) also gained despite initial cautiousness on further inaction by the PBoC which resulted to a net daily drain of CNY 130bln. Finally, 10yr JGBs were lower by about 15 ticks on concern of BoJ tapering after the Rinban announcement saw a reduction of buying in 10yr-25yr maturities to JPY 190bln from JPY 200bln, as well as the amount in 25yr+ maturities which was cut to JPY 80bln from JPY 90bln.

PBoC skipped open market operations again today. (Newswires)

PBoC set CNY mid-point at 6.4968 (Prev. 6.4832)

UK/EU

UK BRC Retail Sales YY (Dec) 0.60% vs. Exp. 0.30% (Prev. 0.60%). (Newswires)

UK Brexit Secretary David Davis consulted lawyers over the EU’s preparations for a no-deal Brexit, which is said to harm British business and breach the UK’s rights as a member state. (FT)

During UK PM May’s cabinet reshuffle yesterday, Health Secretary Jeremy Hunt, successfully faced down the Prime Minister when she asked him to become business secretary, forcing Mrs May to tear up her plans to promote or move other ministers who were already pencilled in. Furthermore, Justine Greening, who had been asked to become the new Work and Pensions Secretary, dug in her heels during two and a half hours inside Downing Street, refusing the new role before finally announcing she was quitting the Government altogether. (Telegraph)

FX

JPY strengthened on the reduced Rinban announcement in which USD/JPY slipped below 113.00 and GBP/JPY gave up the 153.00 handle. Antipodeans were also firmer against the greenback with AUD/USD underpinned after stronger than expected Building Approvals, while NZD/USD eyed a test of the 0.7200 level to the upside.

Australian Building Approvals (Nov) M/M 11.7% vs. Exp. -1.3% (Prev. 0.9%). (Newswires)

Australian Building Approvals (Nov) Y/Y 17.1% vs. Exp. 4.6% (Prev. 18.4%)

COMMODITIES

WTI crude futures extended on gains overnight with prices back above USD 62/bbl. The unrest in Iran continues to be in focus, with OPEC officials suggesting that the situation was being monitored, and output will only be raised in the event that there is a significant and sustained disruption to output. Elsewhere, a poll suggested expectations for a draw of 4.1mln barrels in headline crude inventories. The metals complex was less eventful with both gold and copper relatively flat on the day despite the positive risk tone and early strength in Dalian iron ore prices.

India Trade Ministry official said comprehensive gold policy will likely be prepared by March and that there is also a likelihood for the recommendation of lower import tax on gold. (Newswires)

GEOPOLITICAL

North Korea delegation head said that inter-Korean talks were expected to go well and that he hoped to achieve precious results. Furthermore, it was later reported after discussions finished, that North Korea is to send a delegation of high-ranking officials, athletes and cheering squad to the Olympics. (Newswires)

US Secretary of State Tillerson and Secretary of Defense Mattis are reportedly trying to hold President Trump back from striking North Korea, while National Security Adviser McMaster is in favour of a bloody nose attack. (Business Insider)

US officials were said to consider North Korea strike feasibility, according to press reports. (WSJ)

US

US yields were little change on the day, with a small bias towards a steeper curve. Attention now moves towards this week’s supply out of the US Treasury. Excluding bills, the US will this week sell a total of USD 56bln in 3s, 10s and 30s this week ($24bln of 3s on Tuesday, $20bln in a 10s reopening on Wednesday, $12bln in a 30s reopening on Thursday). The sales will raise a net $15.5bln in new cash, given the $40.5bln maturing at the mid-month settlement.

Fed’s Bostic (voter) struck a dovish tone, arguing that a lack of wages and prices pressures should keep the Fed cautious in raising rates. Bostic suggested that there was no need to hike rates tspanee times in 2018 (the Fed’s ‘dots’ have pencilled in tspanee hikes in 2018). The Atlanta Fed president also warned on yield curve inversion, saying he did not want Fed policy to drive a yield curve inversion, and will be closely watching long-term yields when voting on rates.

US Special Counsel Mueller told President Trump's lawyers that he may want a one-on-one interview with President Trump soon. (Newswires)