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Headlines/Economic Data

General Trend: Asian equities trade mixed ahead of FOMC statement/forecasts

Chip-related shares decline

S&P 500 Futures decline, US dollar weakens as Democrat Jones projected to win the special US Senate election in Alabama

Japan

Nikkei 225 opened +0.1%; closed -0.5%

Chip-related firms generally lower: SUMCO -4%, Tokyo Electron -2%

DeNA: -3.5%, GungHo Online +8%: Nintendo said seek new game alliances, amid performance of prior alliance with DeNA, according to press report

Financials track outperformance in US banks: Sumitomo Mitsui +1.3%, Mitsubishi UFJ +1.1%;

JAPAN OCT CORE MACHINE ORDERS M/M: 5.0% V 2.9%E; Y/Y: +2.3% V -3.4%E

Japan Govt said to plan to keep the assumed interest rate at record low of 1.1% in FY18 budget draft - financial press

Japan govt said to plan to end tax liability on firms that eliminate shell companies acquired in foreign buyouts, aiming to simplify corporate structures and reduce tax avoidance – Nikkei

Toshiba (+1.3%) and Western Digital reach global settlement and agree to strengthen flash memory collaboration; participate jointly in future rounds of investment in Fab 6; agreed to withdraw all pending litigation and arbitration actions

7974.JP Reports global sales of Switch device above 10M units; -0.2%

9507.JP Japan Court bars restarting of Ikata reactor; Will file an objection over court ruling; -10%

Looking Ahead: BoJ Gov Kuroda expected to speak during the European Morning.

Japan Prelim Dec Manufacturing PMI and Oct Industrial Production due for release on Thursday

Korea

Kospi opened +0.1%

Weakness in chip sector: Hynix -1.6%, Samsung Electronics -1.1%

Financials gain: Woori +2%, Shinhan Financial +1.4%

(KR) UN Political Affairs Chief Feltman: North Korea leadership agrees it is important to avoid war

(KR) South Korea to hold emergency meeting related to trading of cryptocurrency, according to press report; Bank of Korea confirms government to announce measures on cryptocurrency trading on Friday

(KR) South Korea President Moon: South Korea and china to resume additional negotiations for FTA; Talks aimed at expanding FTA to service and investment

(KR) South Korea joint Govt statement: To consider taxing capital gains from cryptocurrency trading; Considering allowing cryptocurrency trading only on eligible exchanges that ‘uphold investor protection and trade transparency’

South Korea announces to propose bill to regulate crypocurrency speculation and exchanges - comments after special meeting on crypocurrency

Cosmetics firms gain after losses in prior session: Amorepacific +1.5%

South Korea saw a 50% drop in China tourists due to THAAD dispute - Korean press

South Korea Nov Unemployment Rate: 3.7% v 3.6%e

Sec of State Tillerson: US is ready to talk to North Korea without preconditions; North Korea must be "ready to make a choice"

UN Political Affairs Chief Feltman: North Korea leadership agrees it is important to avoid war **Note: Feltman was briefed following a visit to North Korea.

005380.KR Exec: Will dramatically beef up pure electric car (EV) lineup in the next eight years

China/Hong Kong

Hang Seng opened +0.2%, Shanghai -0.1%

Hang Seng Financial Index +0.7%, Telecom Index +0.5% (China Unicom +0.9%)

(CN) China President Xi urges sound development of China's manufacturing – Xinhua

(CN) China securities regulator CSRC said to advise companies to avoid ‘frequent’ capital raisings – China Securities Times

(CN) China Academy of Social Sciences (CASS) official Yin Jianfeng: interbank liquidity will remain tight until the Chinese Lunar New Year given restrictions on wealth management businesses and expected Fed rate hikes, to solve problems related to liquidity, the solution is to lower the required reserve ratio (RRR)

(CN) China Academy of Social Sciences (CASS) Researcher Feng: Domestic economy on track to achieve 6.8% GDP growth; Govt to likely set 2018 GDP target at around 6.5% (unchanged from 2017 target); Govt deleveraging campaign set to intensify

(CN) Analysts note that with little change expected in the yuan through 2018, there might be limited pressure on Chinese authorities to boost Treasury holdings as part of currency intervention efforts - financial press

(CN) Said that some China financial institutions are pressuring regulators to ease restrictions - Caixin

(CN) PBOC Open Market Operations (OMO): injects CNY130B v CNY150B prior in 7 and 28-day reverse repos v skips prior; Net injections CNY60B v CNY40B prior

(CN) China MoF sells 5-yr upsized bonds at 3.8605%, bid-to-cover 3.34x

(CN) PBoC sets yuan reference rate at 6.6251 v 6.6162 prior (lowest setting in 3-weeks)

(CN) China to invest $1.0T into autonomous driving - financial press

(CN) China to build cybersecurity industrial park in Beijing – Chinese Press

HNA Group Chairman and Directors to increase capital of Bohai Capital unit by CNY8.6M - US financial press

Looking Ahead: China Nov Fixed Assets Investment, Industrial Production and Retail Sales due for release on Thursday

Australia/New Zealand

ASX 200 opened flat: closed +0.1%

ASX 200 REIT index +1.9%; Westfield [WFD.AU] +14% (received offering from Unibail-Rodamco with $24.7B EV); Utilities -0.8%, Consumer Discretionary -0.7%

RBA officials don’t address monetary policy, instead focus on cryptocurrencies

(AU) Reserve Bank of Australia (RBA) Gov Lowe: bitcoin fascination feels like speculative mania - speaking at Australian Payment Summit

(AU) Reserve Bank of Australia (RBA) Assistant Gov Kent: External finance more redily available for firms - 30th Australasian Finance and Banking Conference

(AU) Australia Dec Westpac Consumer Confidence Index: 103.3 v 99.7 prior; m/m: +3.6% v -1.7% prior

(AU) Australia sells A$1.0B v A$1.0B indicated in 2.25% Nov 2022 bonds, avg yield 2.2218%, bid to cover 3.53x

(NZ) New Zealand Gov't expects previously announced law banning foreign house buyers to pass in early 2018; plans to introduce legislation on Thursday, Dec 14th

(NZ) New Zealand Nov Food Prices M/M: -0.4% v -1.1% prior

(NZ) New Zealand REINZ Nov House Sales Y/Y: -8.9% v -15.8% prior

Looking Ahead: Australia Nov Employment data due for release on Thursday

Other Asia

(SG) Singapore Central Bank (MAS) survey of economists: Sees 2018 GDP at 3%

Asia Development Bank raises 2017 Developing Asia GDP growth forecast to 6% from 5.9%

(IN) India 10-year bond yield opens 7.25% (up over 5bps), amid CPI data and rise in oil prices

Singapore’s Noble Group has gained over 54% in 3 sessions amid press speculation of debt-for-equity restructuring plan

North America

(US) DEMOCRAT JONES PROJECTED TO WIN ALABAMA US SENATE RACE VS REPUBLICAN MOORE - FOX NEWS AND AP; Jones with 50.38% of the vote v Moore's 48.24%

(US) The Senate race in Alabama is not expected to impact the GOP's plan to pass tax reform, as Republican leaders are racing to approve the tax legislation by early next week, which would be before the new Alabama Senator arrives in Washington D.C., says a financial press report

US equites closed mixed: Dow Jones +0.5%, S&P500 +0.2%, Nasdaq -0.2%, Russell 2000 -0.2%

S&P 500 Financials Index +1%; Utilities -1.7%

Western Digital [WDC]: +3.5% in afterhours: Announced settlement with Toshiba and raised Q2 EPS guidance

M&A: 21st Century Fox [FOX]: CNBC's Faber: sources say 21st Century Fox and Disney are on "glide path" for Thursday announcement about deal for Fox assets; Still not clear on the price being discussed, said to be an all stock deal. FOX spinco would retain approx $10/shr value

(US) Private economists expect 3 Fed rate hikes in 2018; expect rate hike at upcoming Dec meeting due to be concluded on Wed – US financial press poll; The forecasts are in line with the Nov survey.

(US) TREASURY'S $12B 30-YEAR BOND REOPENING DRAWS 2.804%; BID-TO-COVER RATIO: 2.48 V 2.53 PRIOR AND 2.33 AVG OVER THE LAST 8 SALES

Tax Reform: (US) White House: US President Trump to host House and Senate conferees on Wed (regarding tax bill)

(US) Ways and Means Chair Brady (R-TX): tax bill conference report release likely Friday

(US) Rep Lamar Smith (R-TX): House leadership indicates goal is for a vote next Tuesday (12/19) on reconciled tax reform bill

(US) GOP reportedly in talks to lower top income tax rate from 39.6% to 37% as part of final tax bill - Wash Post; Also said to be settling on 21% corporate rate starting in 2018 (vs 20% in initial bills), down from 35% currently

Government Funding: (US) Sen Maj Leader McConnell (R-KY): There is no chance we'll shut down govt

(US) Dem Leader Schumer (D-NY): negotiations on budget bill are advancing well

Energy: (US) Weekly API Oil Inventories: Crude: -7.4M v -5.5M prior

OPEC Barkindo: Affirms rebalancing of oil market ‘on its way’; Reiterates sees 2018 global oil demand up 1.5M B/D, in line with 2017

(US) Port Houston cargo handled through Nov: ~35M tons, +9% y/y; driven by steel volumes

Looking Ahead: US Fed FOMC Statement/Forecasts and US Nov CPI due to be released on Wed, along with weekly DOE Crude Inventories.

OPEC Dec Monthly Report tentatively due for release on Wed

Europe

(UK) EU Chief Brexit Negotiator Barnier: Friday's Brexit deal was an important step; we all must remain cautious on Brexit; Draft withdrawal agreement will come early 2018; Brexit treaty will include declaration on trade

Energy: (UK) Scotland Min: there are no plans to shut down Grangemouth refinery (200K bpd capacity) after Forties pipeline shutdown; Grangemouth refinery has enough oil stocks to run for about a week

Centrica [CNA.UK]: Revises end date for outage at UK North Morecambe gas sub-terminal to Dec 13th from Dec 12th

M&A: Abertis [ABE.ES]: Atlantia reportedly mulling all-cash offer for Abertis to outbid Hochtief - press

Levels as of 01:00ET

Nikkei225 %, Hang Seng +1.0%; Shanghai Composite +0.4%; ASX200 +0.1%, Kospi +0.5%

Equity Futures: S&P500 -0.1%; Nasdaq100 -0.0%, Dax -0.1%; FTSE100 +0.1%

EUR 1.1762-1.1736; JPY 113.57-113.13; AUD 0.7581-0.7553;NZD 0.6961-0.6932

Feb Gold +0.4% at $1,246/oz; Jan Crude Oil +0.7% at $57.55/brl; Mar Copper 0.0% at $3.02/lb

President Trump suffered a major setback as the once strictly Republican state of Alabama has, for the first time in 25 years, elected a Democrat to the US Senate. Democrat Doug Jones staged a stunning come-from-behind win against GOP Roy Moore in, what many believe, will trigger a political earthquake that will be felt nationally and internationally. The vote had been nip-and-tuck and, with 99% of the vote in, Jones was holding a 50% to 49% lead. The win puts the Democrats just two seats away from the majority in the US Senate in 2018. In early Wednesday trading, the markets have not yet digested the news as USD is relatively unchanged against its peers. Once we enter the European trading session we may see a negative reaction to USD, although today's US inflation data and FOMC meeting may provide some USD support.

On Tuesday, the American Petroleum Institute said crude stocks in the United States fell by 7.4 million barrels last week. That is almost twice the decline of market expectations, which were for a decline of 3.8 million barrels. WTI was higher on the drawdown news, trading up to $57.57 overnight. The markets will now be awaiting today's Energy Information Administration (EIA) report on Crude Oil Stocks change which could possibly see further strengthening in the price of Oil.

Data from the UK Office of National Statistics (ONS) on Tuesday showed that the annual rate of change in the consumer price index rose to 3.1% in November, compared with 3% in October. With inflation 1.1% above the Bank of England's 2%, Governor Mark Carney now must write a letter to the UK Chancellor of the Exchequer providing an explanation why the BoE has missed its inflation target after prices increased last month at the fastest rate for more than 5 years. With the UK Monetary Policy Committee meeting this week, the letter will not be published until the BoE publishes its next inflation report in February. GBP lost some ground on its peers following the release but has somewhat stabilized overnight.

EURUSD is 0.1% higher in early Wednesday trading at around 1.1755.

USDJPY is 0.2% lower in early session trading at around 113.33.

GBPUSD is little changed overnight, trading around 1.3322.

Gold is unchanged in early trading at around $1,243.75.

WTI is 0.1% higher, trading around $57.47.

Major data releases for today:

At 07:30 GMT: Destatis will release German Harmonized Index of Consumer Prices annualized for November. Forecasts are suggesting the release will be unchanged from the previous release of 1.8%. Any significant deviation from forecast will see EUR volatility.

At 13:30 GMT: the US Bureau of Labor Statistics will release a plethora of Consumer Price Index data for November:

• Core CPI s.a. forecast at 253.961, previously 253.428
• CPI (MoM) forecast at 0.4%, previously 0.1%
• CPI ex-Food & Energy (YoY) forecast unchanged at 1.8%
• CPI (YoY) forecast at 2.2%, previously 2.0%
• CPI ex-Food & Energy (MoM) forecast unchanged at 0.2%
• CPI n.s.a (MoM) forecast at 246.660, previously 246.663

Any significant deviation from the forecast will likely see USD volatility in the markets.

At 15:30 GMT: the US Energy Information Administration will release EIA Crude Oil Stocks change for the week ended December 8th, an always impactful data release for both WTI and BRENT.

At 19:00 GMT: the US Federal Open Market Committee will announce its interest rate decision. The markets are fully expecting an increase from 1.25% to 1.5% and such a hike has been “priced-in” by the markets. The markets are keen to hear the Fed's economic projections, as the US economy experiences healthy economic growth. It is highly likely that there will be USD volatility following the announcement, as existing positions are closed and new positions opened.

Market movers today

Today's main event is the FOMC meeting. It is one of the big meet ings where we get updat ed project ions and ‘dots'. In line with consensus, we expect the Fed to raise the target range to 1.25-1.50%, which by itself should not have a great market impact . What is more important is the updated ‘dots', but we expect the FOMC to still signal three hikes in 2018. For more details, see our FOMC Preview – Third hike and unchanged dot signals.

In the US, CPI numbers for November are due. We est imate CPI core rose 0.2% m/m (1.7% y/y versus 1.8% y/y in October). In our view, it is likely that headline inflation increased significant ly more given the large increases in fuel prices and we estimate an increase of 0.4% m/m in November (2.2% y/y versus 2.0% y/y in October).

In the UK, the labour market report for October is due to be released, where we expect a further drop in the unemployment rate to 4.2%. It is likely to be accompanied by continued modest growth in average weekly earnings of 2.2% y/y, meaning that real wage growth will cont inue to be negat ive.

Also in the US, President Trump is expected to deliver a speech on US tax reform.

In Germany, party leaders from SPD and CDU/CSU will meet today for first exploratory talks about a possible governing coalit ion.

In the UK, discussions on t he government 's EU wit hdrawal bill, which repeals the European Communit ies Act 1972, cont inues today. The opposition and Conservat ive rebels want a meaningful vote in Parliament on the final Brexit deal and PM Theresa May might have to give some concessions here.

In Sweden, Prospera is due to release its quarterly inflat ion expectations survey this morning (see next page).

Selected market news

In the US, Doug Jones (Democrat) won the Alabama special Senate election over Roy Moore in an otherwise safe Republican state. This reduces the Republican's already slim majority to 51-49 (from 52-48) amid tax reform negot iations. It is difficult to extract much information from the elect ion given the child molest at ion allegat ions against Moore. Trump took the defeat well and tweeted congratulat ions to Jones, perhaps since a Moore victory would also have put the Republican party in a bad situat ion, as many Republicans wanted nothing to do with Moore (also note that Trump init ially supported another Republican candidate). Doug Jones wil l take office no later than 3 January and until he does so, the Republicans still have a 52-48 majority. Markets think on the margin this means tax reform has become a bit more unlikely by sending USD lower, S&P500 futures down and US 10Y yields lower.

With respect to US tax reform, Republicans are now leaning towards a corporate tax rate of 21% (and not 20%) and cut t ing the top individual rate to 37% from 39.6%. The Republicans hope they can reach an agreement this Friday so that both the House and the Senate can vote on the final tax bill early next week, meaning that Trump can sign it before Friday 22 December, where the short -term funding bill expires (risk of government shutdown).

For the 24 hours to 23:00 GMT, the AUD rose 0.36% against the USD and closed at 0.7556.

LME Copper prices rose 1.0% or $66.5/MT to $6614.0/MT. Aluminium prices rose 0.6% or $12.5/MT to $2004.0/MT.

In the Asian session, at GMT0400, the pair is trading at 0.7575, with the AUD trading 0.25% higher against the USD from yesterday's close.

Overnight data revealed that Australia's Westpac consumer confidence index rebounded 3.6% MoM in December, compared to a drop of 1.7% in the previous month.

The pair is expected to find support at 0.7542, and a fall through could take it to the next support level of 0.7508. The pair is expected to find its first resistance at 0.7595, and a rise through could take it to the next resistance level of 0.7614.

Looking ahead, market participants will await the release of Australia's unemployment rate data for November, scheduled to release overnight.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the EUR declined 0.3% against the USD and closed at 1.1738, following the release of downbeat ZEW economic sentiment data across the Euro-zone.

The Euro-zone’s ZEW economic sentiment index declined to a level of 29.0 in December, after recording a reading of 30.9 in the prior month.

Additionally, mood among German investors eased more-than-anticipated to a level of 17.4 in December, dropping for the first time in four months, hurt by heightened political uncertainty as the Euro-bloc’s largest economy is struggling to forge a new government. The index had registered a reading of 18.7 in the previous month, while markets were expecting it to fall to a level of 18.0. On the other hand, the nation’s ZEW current situation index unexpectedly climbed to a level of 89.3 in December, notching its highest since July 2011. The index had posted a level of 88.8 in the previous month, while investors had anticipated for a fall to a level of 88.7.

In the US, macroeconomic data indicated that producer prices advanced 3.1% on an annual basis in November, rising by the most since January 2012 and boosting hopes that price pressures may pick-up. Market participants had envisaged the index to gain 2.9%, following a rise of 2.8% in the previous month. Moreover, the nation’s NFIB small business optimism index climbed to a level of 107.5 in November, surpassing market consensus for a rise to a level of 104.0 and following a reading of 103.8 in the prior month.

Other data indicated that the US budget deficit surprisingly widened to $138.5 billion in November, confounding market expectations for it to narrow to $134.5 billion and compared to a deficit of $136.7 billion in the prior month.

In the Asian session, at GMT0400, the pair is trading at 1.1756, with the EUR trading 0.15% higher against the USD from yesterday’s close.

The pair is expected to find support at 1.1718, and a fall through could take it to the next support level of 1.1681. The pair is expected to find its first resistance at 1.1793, and a rise through could take it to the next resistance level of 1.1831.

Moving forward, investors would focus on the Euro-zone’s industrial production data for October and Germany’s final inflation figures for November, both slated to release in a few hours. Later in the day, all eyes will be on the Federal Reserve’s (Fed) interest rate decision, wherein the central bank is widely expected to raise its key interest rates. Moreover, the US consumer price index for November, scheduled to be released later in the day, will be on investors’ radar.

The currency pair is showing convergence with its 20 Hr moving average and trading below its 50 Hr moving average.

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For the 24 hours to 23:00 GMT, the GBP declined 0.19% against the USD and closed at 1.3318.

Earlier in the session, the Pound advanced against the USD, after latest data indicated that annual inflation in Britain jumped to its highest in nearly six years in November.

UK's consumer price index (CPI) climbed more-than-expected by 3.1% on a yearly basis in November, suggesting that the Bank of England (BoE) needs to explore the possibility of raising interest rates in the near future as higher inflation will further pinch spending in a slowing economy. In the preceding month, the CPI had registered a rise of 3.0% in the prior month, while markets were expecting for a gain of 3.0%.

In the Asian session, at GMT0400, the pair is trading at 1.3322, with the GBP trading marginally higher against the USD from yesterday's close.

The pair is expected to find support at 1.3291, and a fall through could take it to the next support level of 1.3259. The pair is expected to find its first resistance at 1.3367, and a rise through could take it to the next resistance level of 1.3411.

Going ahead, traders would closely monitor UK's ILO unemployment rate and average weekly earnings for the three months to October, scheduled to be released in a few hours.

The currency pair is showing convergence with its 20 Hr moving average and trading below its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD marginally rose against the JPY and closed at 113.56.

In the Asian session, at GMT0400, the pair is trading at 113.30, with the USD trading 0.23% lower against the JPY from yesterday's close.

On the economic front, Japan's machinery orders rebounded 5.0% on a monthly basis in October, beating market expectations for a rise of 2.9%. Machinery orders had fallen 8.10% in the previous month.

The pair is expected to find support at 113.04, and a fall through could take it to the next support level of 112.77. The pair is expected to find its first resistance at 113.66, and a rise through could take it to the next resistance level of 114.01.

Going ahead, traders would look forward to Japan's flash Nikkei manufacturing PMI for December, set to release overnight.

The currency pair is trading below its 20 Hr moving average and showing convergence with its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD traded flat against the CHF and closed at 0.9918.

In the Asian session, at GMT0400, the pair is trading at 0.9902, with the USD trading 0.16% lower against the CHF from yesterday’s close.

The pair is expected to find support at 0.9883, and a fall through could take it to the next support level of 0.9863. The pair is expected to find its first resistance at 0.9929, and a rise through could take it to the next resistance level of 0.9955.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.12% against the CAD and closed at 1.2873.

In the Asian session, at GMT0400, the pair is trading at 1.2854, with the USD trading 0.15% lower against the CAD from yesterday’s close.

The pair is expected to find support at 1.2814, and a fall through could take it to the next support level of 1.2774. The pair is expected to find its first resistance at 1.2893, and a rise through could take it to the next resistance level of 1.2932.

Ahead in the day, investors would focus on Canada’s Teranet/National Bank house price index for November.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages.

Dow Future Short Term Elliott Wave view suggests that Intermediate wave (4) ended with the decline to 23205. Up from there, Intermediate wave (5) is unfolding as an Ending Diagonal Elliott Wave structure where Minor wave 1 ended at 24536 and Minor wave 2 ended at 24073. The Index has been able to break above Minor wave 1 at 24536 which adds validity to this view.

Near term, rally from 24071 low remains in progress as 5 waves impulse Elliott Wave Structure and expect more upside before Minute wave ((i)) ends. Index should then pullback in Minute wave ((ii)) in 3, 7, or 11 swing to correct cycle from 12/7 low (24071) before the rally resumes. We don’t like selling the pullback and expect Index to find buyers in Minute wave ((ii)) pullback in 3, 7, or 11 swing as far as pivot at 24073 low stays intact.

YM_F Dow Future 1 Hour Elliott Wave Chart