• Asian markets traded lower across the board as the selling in US equity futures and retreat from record highs gathered pace overnight
• UK PM May will reject the EU’s proposed deal on the Brexit transition period and go into battle next week over freedom of movement and so-called “rule taking”
• Looking ahead, highlights include German regional and nation CPIs, Eurozone GDP and a slew of central bank speakers

ASIA

Asian markets traded lower across the board as the selling in US equity futures and retreat from record highs gathered pace overnight. ASX 200 (-0.9%) and Nikkei 225 (-1.5%) were both negative with Australia led lower by weakness across commodity-related sectors, while Japanese participants digested earnings and a slew of data including a contraction in Household Spending, as well as higher Unemployment. Furthermore, selling then accelerated in late trade amid a slump in US equity futures, in which DJIA futures fell over 200 points after a breakdown of near-term support at 26,400. Hang Seng (-1.0%) and Shanghai Comp. (-0.6%) conformed to the losses after continued PBoC inaction which resulted to a daily net drain of CNY 240bln and amid reports that banks were ordered to curb overnight lending, while tech names and Apple suppliers in the region were also mostly downbeat after the tech giant was said to reduce Q1 iPhone X orders by 50% due to slower than expected sales. Finally, 10yr JGBs were lower as Japanese yields played catch up to their US counterparts in which the US 10yr yield rose above 2.7% to its highest since April 2014, while firmer demand for the 2yr JGB auction only briefly provided relief as the Japanese 10yr yield then continued to rise to above 0.09%, which was the highest since July.

PBoC skipped open market operations again today for a daily net drain of CNY 240bln. (Newswires)

PBoC set CNY mid-point at 6.3312 (Prev. 6.3267).

Japanese All Household Spending (Dec) M/M -2.5% vs. Exp. -0.6% (Prev. 2.1%); YY -0.1% vs. Exp. 1.5% (Prev. 1.7%). (Newswires)

Japanese Unemployment Rate (Dec) 2.8% vs. Exp. 2.7% (Prev. 2.7%)

UK/EU

UK PM May will reject the EU’s proposed deal on the Brexit transition period and go into battle next week over freedom of movement and so-called “rule taking”. (Telegraph)

UK PM May is facing a donors’ revolt and growing pressure to leave Downing Street as soon as the outline of a trade deal is negotiated with the European Union this autumn. (Times)

UK government’s unreleased Brexit analysis reportedly showed that UK will be worse off in every scenario outside the EU. (BuzzFeed)

UK MPs could lose seats in new sexual harassment sanctions. (Guardian)

FX

The USD momentarily resumed gains against its major counterparts in which USD/JPY briefly reclaimed the 109.00 handle and which saw GBP/USD slip below 1.4050. However, the moves in the greenback were relatively light amid slight fatigue following the prior day’s advances, which were supported by rising US yields and expectations for a hawkish language tweak at this week’s FOMC. Furthermore, JPY was later underpinned by safe-haven flows as selling across US equity futures and Asia-Pac indices gathered pace, while NZDsaw early support after better than expected Trade Data which was later overshadowed by the moves in the greenback.

New Zealand Trade Balance (Dec) M/M 640M vs. Exp. -125M (Prev. -1193M, Rev. -1223M). (Newswires)

New Zealand Trade Balance (Dec) Y/Y -2.84B vs. Exp. -3.42B (Prev. -3.44B, Rev. -3.48B)

New Zealand Exports (Dec) 5.55B vs. Exp. 5.00B (Prev. 4.63B, Rev. 4.61B)

New Zealand Imports (Dec) 4.91B vs. Exp. 5.10B (Prev. 5.82B, Rev. 5.84B)

COMMODITIES

Commodities extended on the prior day’s losses with prices weighed by the recent bout of USD strength. As such, WTI crude futures retreated to below USD 65/bbl, while gold weakened due to the greenback and amid expectations of a hawkish tweak to the FOMC policy statement at Wednesday’s meeting. Furthermore, copper was also pressured and fell below USD 3.20/lb amid broad declines across the complex and with sentiment spooked as the equity sell-off gathered pace.

US

Bear-steepening was the theme for the US Treasury curve on Monday, with yields on 10s rising above 2.72% to the highest levels since 2014. Technical analysts were pointing out that 10-year yields had broken key technical trendlines dating back to the 1980s. Major curve spreads were also wider at settlement (2s5s +c.2bps, 2s10s +c.3bps, 2s30s +c3bps). Traders are expecting the US Treasury’s quarterly funding announcement on Wednesday to see UST issuance raised. Additionally, some are also expecting the FOMC to hawkishly tweak its language at the conclusion of its policy meeting on Wednesday, to prepare markets for a rate hike. CME Fedwatch indicates there is only a 4.1% probability of a hike at this week’s meeting, and a 60% chance of tspanee hikes in 2018 (as the Fed has forecast). US 10-Year T-Note futures settle 8 ticks lower at 121-26.

US Trade Representative Lighthizer said US President Trump has decided to request an extension of “Fast-Track” negotiating authority that is due to expire July 1^st. (Newswires)