• Asia failed to sustain the positive lead from Wall St where all US majors resumed their record setting performance
• JPY continued to firm following yesterday’s BoJ purchase tweaks with USD/JPY down a further 30+ pips on the session
• Looking ahead, highlights include UK production and trade data, US import and export prices, DoEs, Fed’s Bullard and Evans

ASIA

Asia failed to sustain the positive lead from Wall St where all US majors resumed their record setting performance, with the regional bourses mostly lower as profit taking crept in. ASX 200 (-0.6%) was negative in which commodity names led the index’s pullback from decade highs, while Nikkei 225 (-0.2%) was subdued on continued JPY strength. Shanghai Comp. (-0.3%) and Hang Seng (+0.3%) were mixed with the mainland indecisive after the PBoC resumed open market operations for the 1st time in 13 sessions, although its efforts still amounted to a net neutral position after maturing operations were accounted for and as participants digested mixed CPI and PPI data. Finally, 10yr JGBs were lower in a continuation of yesterday’s post-Rinban pressure and in tandem of rising global yields, while a mixed 10yr auction result also failed to inspire demand.

Chinese CPI YY (Dec) 1.8% vs. Exp. 1.9% (Prev. 1.7%). (Newswires)

Chinese PPI YY (Dec) 4.9% vs. Exp. 4.8% (Prev. 5.8%)

PBoC injected CNY 60bln via 7-day reverse repos and CNY 60bln via 14-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.5207 (Prev. 6.4968)

UK/EU

EU Brexit Negotiator Michel Barnier said that the risk of a disorderly Brexit has decreased and that the UK is ready to take responsibility for its choice. (Newswires) However, separate reports suggest that the EU is said to warn UK companies of being shut-out should a no-deal Brexit occur. (FT) Additionally, opposition from Germany reportedly risks derailing UK hopes for a bespoke post-Brexit trade deal. The reports suggest that Merkel considers the idea another ruse for Britain to “have its cake and eat it”. (Telegraph)

UK Chancellor Hammond is going over the head of the EU’s chief Brexit negotiator and appealing directly to member states to agree a trade deal with Britain that includes financial services. In Berlin today Hammond will argue the case for an economic partnership covering the “length and breadth” of British and European economies. (Times)

BCC survey showed UK services and manufacturing firms were less confident regarding turnover for this year. (Newswires)

Italy’s 5 Star Movement leader said that it is no longer the right time to leave the Euro. (Newswires)

FX

JPY continued to firm following yesterday’s BoJ purchase tweaks with USD/JPY down a further 30+ pips on the session, while cross-related selling was led by GBP/JPY which slipped below the 152.00 handle. Elsewhere, the remainder of major currencies were range-bound with AUD slightly choppy as a proxy to the mixed Chinese inflation numbers, while CNY remained dampened following a weaker reference rate and prior reports that the PBoC suspended the counter-cyclical factor in CNY fixes which it had proactively implemented for 7 months as an effort to reduce volatility.

COMMODITIES

WTI crude prices were underpinned and finished electronic trade on Tuesday higher by 2.8% with support seen after the EIA raised its oil demand growth forecast for this year and following a significantly larger than expected draw down in headline API crude inventories. Elsewhere, gold prices languished as the greenback held on to most of the prior day’s strength against the backdrop of rising US yields, while copper was rangebound amid an indecisive risk tone in the region.

US API weekly crude stocks (5 Jan, w/e) -11.19M vs. Exp. -3.90M (Prev. -4.99M). (Newswires)

The EIA raised its forecast for 2018 world oil demand growth by 100k BPD, now forecasts a 1.72mln BPD Y/Y increase. The body said that 2019 world oil demand is to hit 101.76mln BPD, up 1.65mln BPD from 2018. Sees OPEC crude output up 62k BPD to 32.54mln BPD in December, driven by higher output in Angola, Algeria, Nigeria & UAE.

GEOPOLITICAL

North Korea state media confirmed there were high-level inter-Korean discussions and agreed to make efforts to ease tensions. (Newswires)

US

US 10-year yields broke above 2.5%, while the latest US 3-year note auction passed without any hiccups, stopping tspanough screens as direct bidders drove demand. A more conciliatory tone between the two Koreas also added to the pressure on the space. US 10-year T-Note Futures settled 14 ticks lower at 123-01+.

Fed hiked the discount rate by 0.25% to 2.00%; St Louis, Minneapolis and Chicago Fed sought to keep the rate unchanged. (Newswires)

Mexico’s Economy Minister Guajardo said that the energy and telecoms chapters in NAFTA are almost finished. (Newswires)