• Asia equity markets began a holiday-quietened week mostly positive. Japan away from market
• FX markets saw a quiet start to the week amid a sparse overnight calendar and light weekend newsflow
• Looking ahead, today sees a lack of tier 1 highlights

ASIA

Asia equity markets began a holiday-quietened week mostly positive in which the region got a mild lift as US equity futures extended on Friday’s late rebound. However, upside was contained with Japan away in observance of National Founding Day, while the ASX 200 (-0.3%) was the laggard as energy names reeled from last week’s drop in crude prices and with financials subdued as the Royal Banking Commission started its inquiry into the industry. Elsewhere, Hang Seng (+0.7%) and Shanghai Comp. (+0.7%) were positive ahead of this week’s Lunar New Year celebrations, while most of the Asia peripheries traded with cautious gains amid a lack of drivers and with various holiday closures scheduled tspanough to next week.

PBoC skipped open market operations. (Newswires)

PBoC set CNY mid-point at 6.3001 (Prev. 6.3194).

UK

Visa said that UK Household Spending saw its first January decline in 5 years, while reports also stated that UK retailers suffered the worst January for sales and footfall since 2013. (CityAM)

EU plans the next round of Brexit talks for 26 February. (Newswires)

UK firms face VAT border friction in the event of a hard Brexit, while there were also reports that Brussels warned that UK asset managers face a shutout post-Brexit. (FT)

UK Home Office sources admit that work on a separate registration scheme for immigrants post-Brexit had “barely begun” and “almost certainly” would not be ready in time. (Times)

UK Chancellor Hammond has been sidelined from a series of major "road to Brexit" interventions by Cabinet ministers over the next fortnight as Theresa May seeks to agree a cross-Cabinet vision for Brexit. Theresa May and Boris Johnson, David Davis and Liam Fox - the tspanee leading Cabinet Brexiteers - will all give key note speeches on the UK's EU withdrawal stance over the next tspanee weeks, but the Chancellor will not take part. (Telegraph)

BoE’s Haldane said that minor interest rate increases are likely to be introduced later this year, while he also stated that inflation is currently running above target and that’s one of the factors interest rates were hiked last year. (CspanonicleLive)

EU

ECB’s Nowotny said that the ECB is concerned regarding US attempts to politically influence FX rates. Nowotny also added that said that EU inflation still has room to increase so the ECB is still on the careful side, although that certainly won’t last forever and that there will be a need for higher interest rates in the foreseeable future. (Newswires)

ECB’s Visco said ECB will be patient on pursuit of its inflation goal and that it has been challenging to push up inflation expectations. (Newswires)

Fitch affirmed Germany at 'AAA'; Outlook Stable, affirmed Czech Republic at 'A+'; Outlook Positive, affirmed Malta at 'A+'; Outlook Stable and affirmed Finland at 'AA+'; Outlook Stable. (Newswires) Moody’s affirmed European Stability Mechanism rating at Aa1; Outlook Stable. (Newswires)

FX

FX markets saw a quiet start to the week amid a sparse overnight calendar and light weekend newsflow, while the absence of Japanese participants and upcoming slew of market closures also initially kept trade range-bound. Nonetheless, weakness in USD and Treasuries then emerged as the theme for the day following comments from White House Budget Director Mulvaney, who warned that interest rates could spike on a surging deficit and stated he would probably not have voted for the Trump budget deal. This saw EUR/USD and GBP/USD as the main beneficiaries which recovered some of last week’s losses, while USD/CNH briefly wobbled and tested 6.3000 to the downside after the PBoC set a firmer reference rate.

South Africa Ruling ANC party panel Is said to meet today regarding President Zuma’s exit. (Newswires)

COMMODITIES

Commodities were mostly higher overnight with WTI crude futures nursing some of last week’s losses, in which prices fell for a 6^thconsecutive session and briefly fell below USD 59/bbl. However, prices have since recovered and was just of reclaiming the USD 60/bbl level to the upside. Elsewhere, gold was underpinned by USD weakness and copper also gained amid the mostly positive risk tone.

US Baker Hughes Total Rig Count W/W 975 (Prev. 946). (Newswires)

US Baker Hughes Gas Rig Count W/W 184 (Prev. 181)

US Baker Hughes Oil Rig Count 791 (Prev. 765)

GEOPOLITICAL

North Korea invited South Korean President Moon for talks in Pyongyang, while President Moon stated that they should make preparations to realize the meeting. (Newswires)

US official stated that there is no differences between US, South Korea and Japan on need to isolate North Korea until it gives up its nuclear weapons program. (Newswires)

US

Yields narrowed along the curve, with Treasuries re-establishing themselves as a safe-haven amid the stock slide. At settlement, 2s10s were steeper by c.5bps, 2s30s wider by c5bps, 5s30s steeper by c.3bps. Fixed income traders were happy to look tspanough the budget deal reached by US lawmakers, despite the assumption that it will likely see issuance increased, likely weighing on prices. Given the sharp rise seen in bond yields over the last few weeks – which many have attributed it to better inflation prospects, solid growth, and a Fed which may hike ¾ times in 2018 – attention next week will be on US CPI data to assess how widespread inflation pressures are. US T-Note futures settled 9 ticks higher at 121-05+.

Office of Management and Budget Director Mulvaney said the is budget is to seek USD 3.0tln deficit reduction over 10 years and that interest rates may spike as a result of the increasing deficit, while he added that he would probably not have voted for the Trump budget deal. Furthermore, there were also source reports that Trump’s budget is said to not balance in 10 years. (Newswires)

Mick Mulvaney’s spokesman denied reports that his boss is in talks to replace John Kelly as White House Chief of Staff. (Newswires)

US White House stated that 2019 budget plan will project 3% growth. (Newswires)