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General Trend:

• Equity Futures pare losses amid reports China trade delegation to the US to include PBoC Gov Yi Gang
• Shanghai Telecom Services Index -3.1%; Canada confirmed US filed extradition request for Huawei's CFO
• China autos decline, NDRC commented on industry support measures
• Japan’s Machinery index declines, Komatsu drops on guidance from Caterpillar
• Daiwa Securities declines ahead of expected earnings report
• Energy and financial shares decline in Australia
• Canada confirms US filed extradition request for CFO Meng; China asks US to withdraw arrest order for Meng
• China PBOC said to be again planning to offer offshore yuan bills in February
• Japan 30-yr JGB yield fall below 0.65%, lowest level since Dec 2016
• Japan government downgrades view on exports for the first time in 3-months
• Aussie declines on NAB business conditions data (multi-year low), pares loss on RBA comments
• Australia Q4 CPI due for release on Wed
• US/China trade talks remain in focus (Jan 30-31st)
• US companies due to report earnings on Tuesday are 3M, AMD, Allergan, Amgen, Apple, Biogen, Corning, Harley Davidson, KLA-Tencor, Lockheed Martin, Pfizer, PulteGroup, Robert Half, Verizon, Xerox, eBay (includes afterhours)

Headlines/Economic Data

Japan

• Nikkei 225 opened -0.5%
• (JP) Spring 2019 Wage talks begin between business and labor leaders; key issue for the talks will be whether or not workers receive raises sufficient to prepare for October's planned consumption hike - Japan press
• (JP) Japan 2018 shipments of White goods $22B (highest in 22 years), driven by strong air conditioner sales - Japan press
• (JP) Japan Cabinet Office (Govt) Jan Monthly Economic Report: Maintains economic assessment; downgrades view on exports, cites US/China trade war (first cut in 3-months); exports are weakening vs flat prior view
• (JP) Japan MoF sells ¥399.5B v ¥400B indicated in 0.80% (prior 0.8%) 40-yr JGBs, highest accepted yield 0.7400% v 0.9400% prior, bid to cover: 3.79x v 3.85x prior

Korea

• Kospi opened -0.2%
• 010950.KR Reports Q4 (KRW) Net -247.9B v 386.9B y/y, Op Profit -292.4B v 369.3B y/y, Rev 6.9T v 5.8T y/y
• (KR) South Korea Treasury sells KRW800B v KRW800B indicated in 30-yr bonds; avg yield 2.095% v 1.96% prior, bid to cover 2.11x
• (KR) Bank of Korea (BOK): No plans to issue or authorize a digital currency in the near future

China/Hong Kong

• Hang Seng opened -0.7%, Shanghai Composite -0.2%
• (CN) China said to cut minimum spread for local government bond issues over China Treasury bonds to 25-40bps v 40bps prior - financial press
• (CN) China PBoC Open Market Operation (OMO): Skips reverse repo operations for the 7th consecutive session; Net: CNY0B drain v CNY0B drained prior
• (CN) China PBoC sets Yuan Reference Rate: 6.7356 v 6.7472 prior
• (CN) China Vice Premier Liu He has arrived in Washington DC ahead of the Jan 30-31 trade talks; Chinese delegation includes PBoC Gov Yi Gang, China NDRC Vice Chairman and China's Vice Finance Min - Xinhua
• (CN) China PBoC Dir of Monetary Policy Sun Guofeng: PBoC Bank Bills Swap (CBS) scheme is not China's version of quantitative easing;CBS does not change the net liquidity of the market, whereas with QE the central bank buys assets - Chinese press
• (HK) Hong Kong commercial spaces seeing increased termination of office leases due to trade war - HK press
• (CN) China expected to fight US demands for structural changes in next round of trade talks, parties still remain divided - US press
• (CN) China Banking and Insurance Regulatory Commission (CBIRC): Insurance companies being encouraged to buy more shares/bonds of high quality listed companies as part of their role in making long term investments to foster stable development – Xinhua
• (CN) China said to cut minimum spread for local government bond issues over China Treasury bonds to 25-40bps v 40bps prior - financial press
• (HK) Hong Kong Chief Exec Lam: Exports in early 2019 expected to be worse than Q4
• HUAWEI.CN DOJ unseals indictment against Huawei for conspiring to steal trade secrets from T-mobile

Australia/New Zealand

• ASX 200 opened -0.0%
• (AU) Reserve Bank of Australia (RBA) member Harper: Reiterates expect next rate move to be up, strong budget and jobs growth show economy is strong; not a lot of evidence of negative wealth effect
• (AU) AUSTRALIA DEC NAB BUSINESS CONDITIONS: 2 V 11 PRIOR; CONFIDENCE: 3 V 3 PRIOR
• (NZ) New Zealand Dec Trade Balance (NZ$): +264M v +150Me; Exports: 5.5B v 5.5Be; Imports: 5.2B v 5.3Be; Trade Balance (12-month YTD): -5.86B v -5.8Be
• TPM.AU Halts roll out of 5G equipment after Australia govt announcement in Aug that it would prohibit use of Huawei equipment in 5G networks
• (NZ) New Zealand PM Ardern: Cannot comment on interim Kiwibuild targets; home building not at pace would like to see

Other Asia

• 2330.TW Discloses that a shipment of chemicals used in the manufacturing process deviated from specs and caused wafers to have lower yields at on facility; should still be able to achieve Q1 guidance as issued on 1/17
• 2330.TW Suppliers have agreed to cut prices by 10% after TSMC warned of a weaker H1 during talks with suppliers; TSMC in return promised suppliers that if H2 orders and profits recover, will boost order volumes to compensate for suppliers' losses - DigiTimes
• 2409.TW Reports Q4 (NT$) Net 280M v 1.6Be; Op 1.45B v 1.9Be; Rev 77.09B v 77.3Be

North America

• (MX) Mexico Central Bank Dep Gov Esquivel: it's possible a US slowdown could affect the Mexican economy
• PCG California regulator approves waiver needed for bankruptcy, the measure will allow the utility to receive DIP financing

Europe

• (UK) UK PM May urges MPs to support the 'Brady amendment' that calls for the Irish backstop to be replaced by alternative arrangements - press

Levels as of 12:50ET

• Hang Seng -0.3%; Shanghai Composite -0.1%; Kospi +0.1%; Nikkei225 +0.1%; ASX 200 -0.5%
• Equity Futures: S&P500 -0.3%; Nasdaq100 -0.4%, Dax -0.1%; FTSE100 +0.1%
• EUR 1.1418-1.1444; JPY 109.14-109.39; AUD 0.7138-0.7172; NZD 0.6817-0.6850
• Commodity Futures: Gold 0.0% at $1,303/oz; Crude Oil +0.5% at $52.27/brl; Copper +0.4% at $2.69/lb

For the 24 hours to 23:00 GMT, the EUR rose 0.12% against the USD and closed at 1.1427.

On the macro front, the Euro-zone's M3 money supply climbed 4.1% on a yearly basis in December, higher than market consensus for a rise of 3.8%. In the prior month, M3 money supply had recorded a gain of 3.7%.

Yesterday, the European Central Bank President, Mario Draghi expressed concerns over ongoing trade turmoil and geopolitical issues leading to a slowdown in the region's economic growth.

In the US, data indicated that the Chicago Fed national activity index advanced to a level of 0.27 in December, amid upbeat manufacturing production and robust hiring. In the previous month, the index had registered a level of 0.21. Moreover, the nation's Dallas Fed manufacturing business index rose to a level of 1.0 in January, compared to a reading of -5.1 in the prior month. Market participants had envisaged the index to record a gain to a level of -2.1.

In the Asian session, at GMT0400, the pair is trading at 1.1431, with the EUR trading slightly higher against the USD from yesterday's close.

The pair is expected to find support at 1.1399, and a fall through could take it to the next support level of 1.1368. The pair is expected to find its first resistance at 1.1453, and a rise through could take it to the next resistance level of 1.1476.

Amid lack of economic releases in the Euro-zone today, traders would focus on the US consumer confidence index for January and S&P/Case-Shiller home price index for November, slated to release later in the day.

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

For the 24 hours to 23:00 GMT, the GBP declined 0.33% against the USD and closed at 1.3150, ahead of series of significant Brexit votes in the parliament.

In the Asian session, at GMT0400, the pair is trading at 1.3151, with the GBP trading a tad higher against the USD from yesterday’s close.

The pair is expected to find support at 1.3123, and a fall through could take it to the next support level of 1.3096. The pair is expected to find its first resistance at 1.3192, and a rise through could take it to the next resistance level of 1.3234.

Going ahead, traders would closely monitor the UK’s BRC shop price index for January, set to release overnight.

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

For the 24 hours to 23:00 GMT, the USD slightly declined against the JPY and closed at 109.29.

In the Asian session, at GMT0400, the pair is trading at 109.24, with the USD trading 0.05% lower against the JPY from yesterday’s close.

The pair is expected to find support at 109.07, and a fall through could take it to the next support level of 108.90. The pair is expected to find its first resistance at 109.47, and a rise through could take it to the next resistance level of 109.70.

Moving forward, investors would await Japan’s retail trade for December and consumer confidence index for January, set to release overnight.

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

For the 24 hours to 23:00 GMT, the USD slightly declined against the CHF and closed at 0.9920.

In economic news, Switzerland’s total sight deposits slightly rose to a level of CHF576.7 billion in the week ended 25 January, from CHF576.3 billion in the previous week.

In the Asian session, at GMT0400, the pair is trading at 0.9916, with the USD trading marginally lower against the CHF from yesterday’s close.

The pair is expected to find support at 0.9903, and a fall through could take it to the next support level of 0.9891. The pair is expected to find its first resistance at 0.9931, and a rise through could take it to the next resistance level of 0.9947.

Trading trend in the Swiss Franc today is expected to be determined by Switzerland’s trade balance data for December, scheduled to release in a while.

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 rose 0.37% against the CAD and closed at 1.3263.

In the Asian session, at GMT0400, the pair is trading at 1.3260, with the USD trading marginally lower against the CAD from yesterday’s close.

The pair is expected to find support at 1.3213, and a fall through could take it to the next support level of 1.3167. The pair is expected to find its first resistance at 1.3296, and a rise through could take it to the next resistance level of 1.3333.

In absence of key economic releases in Canada today, investor sentiment would be determined by global macroeconomic events.

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

For the 24 hours to 23:00 GMT, the AUD declined 0.47% against the USD and closed at 0.7160.

LME Copper prices rose 1.6% or $95.0/MT to $5996.0/MT. Aluminium prices declined 0.4% or $6.5/MT to $1860.0/MT.

In the Asian session, at GMT0400, the pair is trading at 0.7164, with the AUD trading 0.06% higher against the USD from yesterday’s close.

The pair is expected to find support at 0.7133, and a fall through could take it to the next support level of 0.7103. The pair is expected to find its first resistance at 0.7199, and a rise through could take it to the next resistance level of 0.7235.

Going ahead, investors would keep an eye on Australia’s consumer price index for the fourth quarter, slated to release overnight.

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

Daily Pivots: (S1) 0.8647; (P) 0.8672; (R1) 0.8710; More...

No change in EUR/GBP's outlook. Intraday bias stays neutral with focus on 0.8620 key support level. At this point, we'd continue to expect strong support from 0.8620 to contain downside to bring rebound. On the upside, above 0.8725 minor resistance will turn bias to the upside for 0.8763/8862 resistance zone first. However, sustained break of 0.8620 will resume larger decline from 0.9305 and target 100% projection of 0.9305 to 0.8620 from 0.9101 at 0.8416.

In the bigger picture, EUR/GBP is seen as staying in long term range pattern started at 0.9304 (2016 high). The medium term range is set between 0.8620 and 0.9101. Downside breakout of 0.8620 will pave the way back to 0.8312 support . Break of 0.9101 will bring retest of 0.9304/5 resistance.

The forex markets remain rather quiet today so far. The selloff in stocks and oil overnight triggered some pull back in Canadian and Australian Dollars, but losses were limited. Similar, Yen was given just a mild pop while it's unmoved by the shallow decline in Asian stocks.

Though, "softness" in Sterling is the general theme so far as it's paring yesterday's strong gains. Focus is turning to the UK Commons today. MPs will vote on Prime Minister Theresa May's so-called plan B. But importantly, they will vote on amendments which could shape the way forwards. In particular, there are amendments including ways to block no-deal Brexit.

Technically, Sterling will be in focus today. EUR/GBP recovers after breaching 0.8620 key support. But such recovery is so far rather weak. GBP/USD also retreats, in rather shallow way, after breaching 1.3174 resistance. Positive news on Brexit today could give the Pound a boost. And firm break of the two levels will carry larger bullish implications for Sterling.

In Asia, Nikkei dropped -0.84% to 24528.22. Hong Kong HSI is down -0.29%. China Shanghai SSE is down -0.20%. Singapore Strait Times is down -0.29%. Japan 10-year JGB yield is up 0.0028 at 0.002. Overnight, DOW dropped -0.84%. S&P 500 dropped -0.78%. NASDAQ dropped -1.11%. 10-year yield closed down -0.009 at 2.744.

US Mnuchin: IP protection, forced JVs & enforcement top on agenda in China trade talks

US Treasury Secretary Steven Mnuchin said yesterday that "IP (intellectual property) protection, no more forced joint ventures, and enforcement are three of the most important issues on the agenda" in trade negotiation with China.

He emphasized that "we want to make sure that when we get a deal, that deal will be enforced." Though, he also admitted "The details of how we do that are very complicated. That needs to be negotiated."

Mnuchin, a relative trade dove, also said there had been "significant movement" in the trade talks so far. And he expected this week's meetings to end with significant progress.

China's Xinhua news agency reported that a Chinese delegation led by Vice Premier Liu He arrived in Washington yesterday, for the meeting with US Trade Representative Robert Lighthizer. PBoC Governor Yi Gang is expected to join the meeting too. On the US side, Lighthizer will lead the talks with participation from Mnuchin, Commerce Secretary Wilbur Ross, White House economic adviser Larry Kudlow and White House trade and manufacturing adviser Peter Navarro.

EU Weyand: No Brexit renegotiation, no time-limit of backstop, just margin on political declaration

EU deputy chief negotiator Sabine Weyand reiterated that "there will be no more negotiations on the Withdrawal Agreement". And given just 60 days from the March 29 Brexit date, time is already tight to complete the ratification of the treaty. However, she also pointed out "where we do have margin is on the political declaration". But she also emphasized that "we need decisions on the UK side on the direction of travel."

Also, Weyand echoed chief negotiator Michel Barnier's comments regarding Irish backstop. She said "a time-limit on the backstop defeats the purpose of the backstop because it means that once the backstop expires you stand there with no solution for this border."

ECB Draghi: Euro's international role in foreign reserves and debt market eroding

ECB President Mario Draghi appears in the Hearing of the Committee on Economic and Monetary Affairs of the European Parliament yesterday. Regarding Euro's internal dimension, Draghi said "euro has indeed provided two decades of price stability". And, thanks to the "collective efforts of all European citizens, the euro area has emerged from" the global financial crisis, with "22 consecutive quarters of economic growth, the unemployment rate at its lowest level since October 2008, and wages and incomes on the rise."

But Draghi also repeated last week's cautious comments. He noted "over the past few months, incoming information has continued to be weaker than expected on account of softer external demand and some country and sector-specific factors. The persistence of uncertainties in particular relating to geopolitical factors and the threat of protectionism is weighing on economic sentiment." He reiterated that "significant monetary policy stimulus remains essential", and "the Governing Council stands ready to adjust all of its instruments".

On Euro's external dimension, Draghi said since the global financial crisis, "the euro's international role seems to have gradually eroded. While its importance as the currency of invoice for international trade transactions has remained broadly stable, its role in global foreign reserves and global debt markets has declined." And he urged that "the international role of the euro is supported by the pursuit of sound economic policies in the euro area and a deeper and more complete EMU. And this requires further efforts along the path of deeper integration."

Japan cabinet office downgraded exports assessment to weakened recently

Japan Cabinet Office left overall economic assessment unchanged and said it's in gradual recovery. However, export assessment was downgraded from "flattened" to "weakened recently". In particular, shipments of electronics and semiconductor manufacturing equipment to China have slowed sharply.

The office noted in the monthly report that "we need to keep in mind that there is uncertainty about how trade disputes and China's economic outlook will affect the global economy."

On inflation, the report noted that consumer prices have leveled off. It's another downgrade from last month's description that gains were slowing. Consumer spending was recovering while capital expenditure was increasing. Both assessments were unchanged.

Australian NAB business conditions: Largest fall since global financial crisis

Australia NAB Business Confidence was unchanged at 3 in December. However, Business Conditions dropped sharply by -9 pts from 11 to 2. That's the largest monthly fall since the global financial crisis. And the deterioration was "relatively broad-based across states and industries".

NAB also noted that "at face value, the fall over the past 6 months suggests a significant slowing in the momentum of activity in the business sector – especially from the highs seen earlier in the year."

Looking ahead

Swiss will release trade balance in European session. US will release S&P Case-Shiller house price and consumer confidence. But main focus will be on Brexit votes in Commons, and any comments on US-China trade talks.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8647; (P) 0.8672; (R1) 0.8710; More...

No change in EUR/GBP's outlook. Intraday bias stays neutral with focus on 0.8620 key support level. At this point, we'd continue to expect strong support from 0.8620 to contain downside to bring rebound. On the upside, above 0.8725 minor resistance will turn bias to the upside for 0.8763/8862 resistance zone first. However, sustained break of 0.8620 will resume larger decline from 0.9305 and target 100% projection of 0.9305 to 0.8620 from 0.9101 at 0.8416.

In the bigger picture, EUR/GBP is seen as staying in long term range pattern started at 0.9304 (2016 high). The medium term range is set between 0.8620 and 0.9101. Downside breakout of 0.8620 will pave the way back to 0.8312 support . Break of 0.9101 will bring retest of 0.9304/5 resistance.

Economic Indicators Update

For the 24 hours to 23:00 GMT, Gold slightly rose against the USD and closed at USD1308.70 per ounce, amid weakness in the greenback.

In the Asian session, at GMT0400, the pair is trading at 1308.70, with gold trading flat against the USD from yesterday’s close.

The pair is expected to find support at 1304.33, and a fall through could take it to the next support level of 1299.97. The pair is expected to find its first resistance at 1311.43, and a rise through could take it to the next resistance level of 1314.17.

The yellow metal is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.