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Sterling Rebounds ahead of Johnson’s Brussels Trip, Euro and Swiss Soften

Sterling rebounds strongly today on hope that the physical meeting between the leaders of UK and EU would yield some positive progress on post Brexit trade talks. Yet, traders are not too committed on the bullish side yet, after Prime Minister Boris Johnson reiterated his hard-line stance. Australian Dollar is currently the stronger on , as helped by overall risk-on sentiments and solid consumer confidence data. Dollar trades some what lower, but Euro and Swiss Franc are even weaker, as pressured by respective Sterling crosses.

Technically, with BoC rate decision in sight,k 1.2768 minor support in USD/CAD is a level to look at. Break will resume recent down trend for 1.2711 projection level. Meanwhile, firm break of 81.91 resistance in CAD/JPY and 1.5447 support in EUR/CAD should seal the case for Canadian Dollar’s rally.

In Europe, currently, FTSE is up 0.24%. DAX is up 0.72%. CAC is up 0.03%. German 10-year yield is up 0.0079 at -0.596. Earlier in Asia, Nikkei rose 1.33%. Hong Kong HSI rose 0.75%. China Shanghai SSE dropped -1.12%. Singapore Strait Times rose 0.62%. Japan 10-year JGB yield rose 0.0008 to 0.021.

UK Johnson sets red lines ahead of EU talks

UK Prime Minister Boris Johnson indicated to the parliament that he won’t accept a deal with EU that requires the UK to move in step automatically. He told the parliament, “our friends in the EU are currently insisting that if they pass a new law in the future with which we in this country do not comply … then they want the automatic right … to punish us and to retaliate.”

“And secondly, they are saying that the UK should be the only country in the world not to have sovereign control over its fishing waters”, he added. “I don’t believe that those are terms that any prime minister of this country should accept.”

Johnson is set to travel to Brussels later today for a dinner with European Commission President Ursula von der Leyen to work through a list of major sticking points

Released in European session, Germany trade surplus widened to EUR 18.2B in October, above expectation of EUR 17.0B.

China CPI fell for first time since 2009

China’s CPI dropped -0.5% yoy in November, well below expectation of 0.0% yoy. That’s also the first annual decline in more than a decade since October 2009. Though, it’s driven by one off factor as pork supply improved from the disruption African swine fever. At the same time, demand remained solid despite Wuhan coronavirus outbreak. PPI decline slowed to -1.5% yoy, versus expectation of -1.8% yoy.

Deflation is not a good sign to the economic outlook. It signals weakness in domestic demand, pointing to slowdown in production and subdued economic growth. In theory, monetary stimulus is needed to boost inflation. However, we do not expect PBOC to lower RRR or interest rates further as the government has shifted the focus to deleveraging and tightening of the property market.

More in China Fell into Deflation First Time in More than a Decade

Japan machine orders rose 17.1% mom in Oct, largest monthly jump since 2005

Japan machine orders rose 17.1% mom in October, well above expectation of 2.8% mom. That’s also the largest month-on-month rise on record since 2005. By sectors, manufacturing orders rose 11.4% mom while non-manufacturing rose 13.4% mom.

The data affirmed the improving trend in capital expenditure. Investments could be further boosted ahead by the government’s Fresh JPY 40T stimulus. Yet, the volatile series is up for revision while the exporters might continue to struggle to gain momentum due to global weakness.

Australia Westpac consumer sentiment hit decade high, fully recovered from COVID recession

Australia Westpac Consumer Sentiment rose 4.1% to 112 in December, up from 107.7. It’s now 48% above the trough in April, and hit the strongest level since October 2010. Westpac said, “after only eight months the evidence seems clear that sentiment has fully recovered from the COVID recession.”

Westpac expects RBA to lower its unemployment forecast a raise growth forecasts at its February meeting. Als