MNI EUROPEAN MARKETS ANALYSIS: Risk Buoyant As U.S. House Approves Higher Stimulus Checks

BOND SUMMARY: U.S. Fiscal Matters Dominate, Weigh On Core FI

The U.S. House backed U.S. Pres Trump's call for boosting stimulus checks to $2,000 from $600, lending support to risk sentiment amid lingering optimism seen since the POTUS signed off on the Covid-19 relief bill. The vote created a loyalty dilemma for GOP Senators, who will have to decide between sticking to party line and supporting the outgoing Republican President. Most expect the bill to face headwinds in the upper chamber, while Democratic Senators pushed for a vote as soon as Tuesday. After passing legislation re: stimulus checks, the House voted to override Pres Trump's veto of the Defence Bill, which enjoys broad, bipartisan support in both chambers. T-Notes sold off albeit uncertainty re: fate of the stimulus checks proposal in the Senate likely cushioned losses, while markets continued to eye familiar coronavirus worry. When this is being typed, T-Notes trade -0-01+ at 137-28, off session low located at 137-26+. Cash Tsy curve runs steeper, with yields last seen -0.2bp to +1.5bp. Eurodollar futures trade unch. to +0.5 tick through the reds.

• JGB futures slipped into the lunch break but managed to claw back marginal losses and last trade at 151.98, 4 ticks above last settlement. Cash JGB yields mostly sit marginally below neutral levels. 2-Year JGBs were limited after the BoJ lowered the purchase range for 1-3 Year JGBs in its Rinban plan for Jan. Local equity markets provided some interest, as the Nikkei 225 hit multi-decade highs.
• In Australia, YM trades unch., XM +2.5. Cash ACGB curve bull flattened, though 10s outperformed. Bills trade -1 to +1 tick through the reds.

FOREX: Risk On In Asia As US House Passes Stimulus Bill, Goes To Senate

Risk appetite was boosted after U.S. President Trump signed off on the coronavirus relief bill. The news that U.S. Pres-elect Biden is planning to invoke the Defense Production Act to boost the production of Covid-19 jabs lent further support to risk appetite. The U.S dollar initially gained into year-end despite the risk on sentiment, but the move has reversed in Asia and a weaker DXY is driving most price action in the region.

• Markets are now assessing the chances of the coronavirus relief package making it through the Senate. Current indications are that the Republican controlled Senate will not support the increased amount, casting further uncertainty on the process.
• GBP/USD last up 42 pips at 1.3493. However, the move higher barely makes up any of the drop from Monday after the pair fell from highs of 1.3581. GBP has taken a hit and snapped a three-day winning streak in the process, concerns over the impact of the last minute Brexit trade deal are weighing
• Commodity currencies have made up some of the drop from Monday, AUD/USD and NZD/USD both around 18 pips higher, but still some way off highs seen in Monday's session. The move lower on Monday tracked a decline in oil prices as markets weigh reduced future demand on renewed Covid concerns. The commodity complex has gained on Tuesday which has helped support AUD & NZD.
• USD/JPY is seeing rangebound trade, last down 15 pips at 103.66.
• The PBOC set dollar/yuan midpoint at 6.5451. A higher fix initially saw yuan weaken, but USD/CNH has dropped as the U.S. dollar gives back its move higher from Monday. Equity markets in China were tempered by some geopolitical tensions after China said it opposed the U.S.'s Taiwan assurance act which was signed on Sunday, but the yuan shrugged this off.

FOREX OPTIONS: Expiries for Dec29 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1800(E1.2bln)
• GBP/USD: $1.3400(Gbp689mln-GBP puts), $1.3600(Gbp520mln-GBP puts)
• AUD/USD: $0.7350(A$662mln)
• USD/CAD: C$1.3000-20($500mln-USD puts)

EQUITIES: Equity Markets Take Positive Lead From Record Highs In US

Asia-Pac equity indices took their lead from the U.S., rising on Tuesday amid broad risk on sentiment after the US coronavirus relief bill progressed. Major bourses in the US hit record highs on Monday.

• Risk on sentiment was boosted after U.S. President Trump signed off on the coronavirus relief bill, with liquidity thinned out in the festive season. The news that U.S. Pres-elect Biden is planning to invoke the Defense Production Act to boost the production of Covid-19 jabs lent further support to risk appetite.
• Markets are now assessing the chances of the coronavirus relief package making it through the Senate. Current indications are that the Republican controlled Senate will not support the increased amount, casting further uncertainty on the process.
• Despite this uncertainty most Asia stock markets posted decent gains, the Nikkei outperforming as the bourse hits the highest levels in 30 years and climbs over 27,000.Optimism is tempered by coronavirus concerns. Hospitalisations in the U.S. reached new highs, while other countries including Indonesia and Taiwan have increased containment measures and Germany is seeking to expand vaccine production to help the inoculation programme in Europe. This was evident in South Korea where the Kospi fell 0.29% after South Korea reported the biggest daily death toll so far.
• Markets in China have struggled compared to peers, some caution in the region evident after China said it opposed the U.S.'s Taiwan assurance act which was signed on Sunday.

JAPAN STOCKS: Nikkei 225 Prints 30-Year High After Trump Approves Covid Relief Package

The Nikkei 225 has crossed above the 27,000 mark for the first time since Apr 1991, boosted by a positive session at Wall St. seen after U.S. Pres Trump signed off on a Covid-19 relief package, despite his earlier threats to the contrary. Reports suggesting that Pres-elect Biden would take action to boost Covid-19 vaccine production further aided risk appetite. In the U.S./Asia crossover, the House of Reps voted in favour of Trump's proposal re: stimulus checks increase, sending it to the Senate, creating a conundrum for Republican Senators.

• The index managed to establish itself above the 61.8% recovery of its 1989 - 2008 slide (26,748). Today's jump allowed it to challenge the upper bound of an ascending channel drawn off the 2012 low, intersecting at 27,074. A close above there would reinforce the bullish case. Meanwhile, longer-term topside focus falls on the 76.4% recovery of the 1989 - 2008 decline at 31,414 & 1990 high of 33,345.

OIL: Oil Slightly Higher On The Session As US Dollar Slips

Oil has risen in Asia trade on Tuesday, WTI last up $0.23 at 47.85, while Brent is up $0.20 at 51.06. WTI has risen off lows seen late in the session on Monday, but is still within yesterday's range. Oil slipped to start the week as renewed coronavirus concerns globally clouded the demand picture for oil.

• Risk on sentiment was boosted after U.S. President Trump signed off on the coronavirus relief bill, with liquidity thinned out in the festive season. The news that U.S. Pres-elect Biden is planning to invoke the Defense Production Act to boost the production of Covid-19 jabs lent further support to risk appetite.
• The U.S. dollar has slipped in Asia, which has helped support the slight uptick in oil prices. Markets are assessing the chances of the coronavirus relief package making it through the Senate. Current indications are that the Republican controlled Senate will not support the increased amount, casting further uncertainty on the process
• The OPEC+ group looks likely to increase output by 500k bpd from January, while Russia's deputy prime minister said last week Russia would be supportive of additional gradual increases in February. The alliance will meet next week to make a decision on February output levels.

GOLD: Yellow Metal Rises As Monday's Move Reversed

The yellow metal has seen rangebound trade in Asia-Pac hours on Tuesday, last up $4.22 at 1877.92. Gold finished lower on Monday, slipping as risk on sentiment took hold even as the U.S. dollar gained into year end.

• Risk appetite was boosted after U.S. President Trump signed off on the coronavirus relief bill, with liquidity thinned out in the festive season. The news that U.S. Pres-elect Biden is planning to invoke the Defense Production Act to boost the production of Covid-19 jabs lent further support to risk appetite.
• Gold rose in Asia as markets assess the chances of the coronavirus relief package making it through the Senate. Current indications are that the Republican controlled Senate will not support the increased amount, casting further uncertainty on the process. If the measure does pass, the increased measures will add a further $400bn to the bill. As a result the U.S. dollar receded while gold gained slightly.