• Asia-Pac bourses traded somewhat mixed, as the region failed to maintain the early broad momentum from last Friday’s gains on Wall St.
• USD strengthened against its major counterparts in which EUR/USD briefly slipped below 1.2400 and AUD/USD gave up the 0.8100 hand
• Looking ahead, highlights include US personal consumption and PCE data, NZ trade, ECB’s Praet, Lautenschlaeger and Coeure

ASIA

Asia-Pac bourses traded somewhat mixed, as the region failed to maintain the early broad momentum from last Friday’s gains on Wall St. where sentiment was underpinned by earnings and in which all major indices closed at their all-time highs. ASX 200 (+0.4%) and Nikkei 225 (Unch.) opened positive with Australia buoyed by M&A activity including AWE shares which rose 16% on reports of a bid from Mitsui & Co., while Japan stocks were less decisive with price action dictated by currency moves. Both the Hang Seng (-0.3%) and Shanghai Comp. (-0.4%) initially conformed to the gains in which the former continued to post fresh record levels, although the tone later deteriorated amid increases in money market rates after the PBoC skipped open market operations, coupled with underperformance in Shenzhen where Leshi fell limit down for a 4th consecutive day. In addition, Wynn Macau was a notable underperformer in Hong Kong and slumped around 5% due to allegations of sexual misconduct by Wynn Resorts Chairman, CEO and founder Steve Wynn. Finally, 10yr JGBs are mildly lower as prices fell amid an initial positive risk tone in the region and alongside spill-over selling from their US counterparts, while the BoJ’s Rinban operation was relatively light with the central bank in the market for only JPY 435bln of JGBs.

PBoC skipped open market operations for a net daily drain of CNY 140bln. (Newswires)

PBoC set CNY mid-point at 6.3267 (Prev. 6.3436).

UK

UK PM May is said to be facing increasing demands from Tories to fire Chancellor Hammond due to his push last week for a very modest Brexit. (FT) Further to this, the Telegraph report, Brexiteers have begun a co-ordinated attempt to Chancellor Hammond and senior officials days before cabinet ministers see the first economic analysis of different options for exiting the European Union. (Telegraph)

The EU withdrawal bill is fundamentally flawed and needs to be rewritten in several ways, peers have said, as the House of Lords prepares to debate the legislation this week. (Guardian)

EU's Moscovici said that the door was open if the UK wants to change its mind on Brexit. (Newswires)

US President Trump commented that he would be ‘Tougher’ than UK PM May in Brexit discussions with the EU., while he also commented that US will make a trade deal with UK. (Newswires)

Economic growth in the UK is expected to slow in the first few months of 2018 as high inflation, weak consumer confidence and uncertainty surrounding Brexit discourage high street spending and investment, according to Lloyds. (Guardian)

EU

ECB’s Knot stated that the ECB should make it clear how it will end its asset purchases after September when its current purchase program finishes and that there isn’t any reason to continue with bond purchases. Knot also stated that the current program should end ASAP, but noted it was better to continue the program until September for credibility. (Newswires)

Fitch affirmed Austria at AA+, outlook stable and affirmed France at AA, outlook stable. (Newswires)

FX

USD strengthened against its major counterparts in which EUR/USD briefly slipped below 1.2400 and AUD/USD gave up the 0.8100 handle. This was triggered by a rise in the US 10yr yield, which rose closer towards 2.690% as T-notes tripped tspanough stops at prior support around 122.00, although the USD then gradually pared some of the gains which saw USD/JPY hit resistance at 109.00. Elsewhere, aside from the moves in the greenback, price action across FX markets was relatively uneventful amid a lack of data releases, quiet weekend newsflow and as participants looked ahead to this week’s main events including President Trump’s State of the Union Address, the FOMC policy meeting and the latest NFP jobs data.

COMMODITIES

Commodities were mixed overnight in which WTI crude futures marginally extended above the USD 66.00/bbl level to add to last week’s over 3% gains. Conversely, gold traded lacklustre and failed to hold on to initial upside as a bout of strength in the greenback weighed on the precious metal. Furthermore, commodity-related news was light over the weekend, although there are several upcoming key risk events to look forward to this week.

Iranian Oil Minister Zanganeh stated that output declined in some oil fields due to lack of resources and added that Iran will seek lower production in coming years if it cannot be fixed. (Newswires)

US Baker Hughes Total (Jan 26) 947 (Prev. 936)

- US Baker Hughes Gas (Jan 26) 188 (Prev. 189)

- US Baker Hughes Oil (Jan 26) 759 (Prev. 747)

US

Treasury yields were higher on Friday, with the underperformance mostly in the belly of the curve. The sell-off was inspired by a weaker than expected advanced GDP reading for Q4. The 2s30s, 5s10s and 5s30s curves all narrowed slightly, while 2s5s and 2s10s saw modest widening ahead of next week’s FOMC (2s rose to nine year highs), where the central bank is expected to stand pat in outgoing Fed chair Yellen’s final meeting. The Fed had forecast GDP growth of 2.5% in 2017, and as such, the Q4 data is a touch ahead of their forecasts, leaving it scope to continue on its hiking trajectory, where it has pencilled in tspanee 2018 rate rises. 10-Year T-Note settles -12 ticks at 122-02.

US President Trump plans to seek USD 716bln in defence spending, a massive increase that signals a shift away from concerns about deficits. (WaPo) Furthermore, there were also reports that draft of White House infrastructure plan would reduce environmental requirement for infrastructure projects. (Newswires)

US President Trump said he has a lot of problems with EU from a trade standpoint and that the US response would be very much to their detriment. (Newswires)

US Rep. Levin said that major issues remain after receiving briefing on NAFTA talks from US Trade Rep. Lighthizer. In related news, Canadian NAFTA negotiator said NAFTA talks could stretch into 2019 before deal, while Canada thought that some progress was made in discussions. (Newswires)

Mexican Deputy Economy Minister Baker said Mexico prioritises a good NAFTA deal over a fixed-time frame. He added that Mexico sees the presentation of auto ideas as a positive. (Newswires)

Canada and Mexico rejected proposal to rework NAFTA corporate arbitration system. (WSJ)