Message body WEDNESDAY, DECEMBER 6, 2017 TOP NEWS • "Deadline of deadlines" in Brexit divorce talks this week Theresa May must deliver her offer on a Brexit divorce package this week if she wants EU leaders to grant Britain's request for talks on future free trade when they meet next week, EU diplomats and officials said. Failure could mean a delay until February, adding to the risk of businesses scaling back investment plans in Britain as uncertainty clouds the outlook beyond Brexit in March 2019. Additionally, UK finance minister Philip Hammond commented that Britain will need a "new paradigm" to sell financial services to the EU after Brexit as existing trade deals the EU has with foreign countries do not go far enough. • EU exec to propose deeper euro zone integration to unite EU The European Commission will propose deeper euro zone integration that would help unite the broader EU rather than just the single currency area. The Commission is likely to say that the European finance minister, a post that would only be set up in 2025, should be in charge of overseeing structural reform efforts and coordinating economic and fiscal policy in the euro area. The Commission is also likely to call for a swift completion of the EU's banking union by setting up a Europe-wide bank deposit insurance scheme, something that Germany insists can only happen after the bad loans on banks' books fall sharply. • BOJ's Masai advocates sticking with "powerful easing", warns on side-effects Bank of Japan board member Takako Masai on Wednesday advocated sticking with ultra-easy monetary policy due to uncertainty over how fast inflation will rise, while warning that the central bank should remain on guard against the possible side-effects. Despite a strengthening economy, Masai conceded that it was taking longer than expected to eradicate Japan's sticky deflationary mindset, or public perceptions that prices won't rise ahead. Separately, Japan's economy was expected to expand slightly faster in the third quarter than first estimated, a poll found, buoyed by strong capital spending and showing robust exports and business investment supporting the economy. • EU adopts tax haven blacklist, British territories spared EU finance ministers adopted a blacklist of 17 jurisdictions deemed as tax havens in an unprecedented step to counter worldwide tax avoidance, although they did not agree on financial levies for the listed countries. Blacklisted countries may no longer be used by EU institutions for international financial operations, and transactions involving them could be subject to closer scrutiny. EU states have not been screened and will not be on the list. The commission said none of the 28 members of the bloc can be classified as a tax haven, as all have agreed to respect EU tax standards. • PREVIEW - China Nov data to show economy facing pressure from debt, pollution crackdowns A raft of Chinese data in coming weeks is expected to show the world's second-largest economy came under growing pressure in November as the government intensified crackdowns on polluting industries and financial risks. Besides ramped-up efforts to shut down factories in some provinces to reduce winter smog, authorities unveiled fresh regulatory measures last month for the financial sector, clamping down on high-risk lending and halting some dubious infrastructure projects that would swell local governments' debt. Economists believe such measures will lead to a slight moderation in China's growth in the fourth quarter to around 6.7 percent, after a forecast-beating 6.9 percent in the first nine months of the year. BREAKINGVIEWS Brexit deal hinges on enlightened obfuscation Obfuscation offers the only hope of a breakthrough in deadlocked Brexit talks. Prime Minister Theresa May’s best hope is to fudge tough decisions, and use the threat of a chaotic exit – or another election – to quash dissent. ANALYSIS Regulatory angst curbs investor appetite for European banks Uncertainty about the timing and scope of regulatory efforts to strengthen Europe's financial system is adding to investor caution about increasing exposure to European over U.S. banks, even as the economy and earnings improve. Buy sterling on a "Brexit breakthrough"? Not yet, say investors Sterling investors remain hesitant about chasing the rallying pound higher even as the British government said it was close to an agreement with the European Union on how to move Brexit talks onto trade next year. CHART OF THE DAY MORNING MEETING RISK OFF, JGB'S STEADY BONDS, EQUITIES, OTHER ASSET MARKETS • US Treasury 10s indicated 2.348%, JGB 10s 0.052%, Bund 10s 0.309% • US-Japan-Germany respective 2s indicated 1.812%, -0.142%, -0.780% • JGBs steady but stuck in narrow range • Weakness in short-end JGBs stalls on some dip-buying • 6mo auction better than feared; stop at -0.1382%, -0.11% some had thought • JGB futures move in narrow 150.84/150.94 range • Large offers at 150.95 cap upside • At 150.89, futures up 2 ticks on day • Tokyo risk off, Nikkei from 22,528 to 22,234, at 22,248 -1.7% on day • AXJ down too - SSEC 0.6%, HSI 1.25%, KOSPI 0.9%, STI 0.6% and TWI 1.5% • ASX and NZX50 off too, around 0.5% each • Commodities weak, Dalian iron ore -2.4%, Shanghai rubber -3.2% • Tokyo rubber down too after overnight copper and gold plunges Currency Summaries JPY • Risk-off in Asia, USD/JPY, JPY crosses Nikkei all down, US yields soggy • USD/JPY from early 112.62 high to 112.19 before steadying • USD633 mln in option expiries at 112.25-30 bypassed on way down • More below though, supportive - 112.00 USD598 mln, 111.75-80 1.1 bln • Market heavy from 5-DMA at 112.76, daily Ichi kijun 112.79 • Ascending 100-HMA at 112.55 pierced, 112.24 base of hourly Ichi cloud too • Risk-off sentiment, long liquidation felt in most JPY crosses too • EUR/JPY 133.19 to 132.70, breaks below ascending 200-HMA at 133.00 • Also back in daily Ichi cloud, top 132.98, 55-DMA below at 132.70 • GBP/JPY from 151.99 NY retracement high to 151.44 Asia open and then 150.59 • On top of Brexit no-deal, reports of Cabinet revolt • AUD/JPY reverses course after move to 86.19 yesterday, Asia 85.68 to 85.05 • Move down exacerbated by weaker than eyed GDP data • NZD/JPY steady between 77.26-50 but downtrend since September 21 intact • Nikkei off 1.6% at writing at 22,260, US Treasury 10s @2.348% EUR • EUR/USD opened Asia at 1.1826 after falling as low as 1.1800 in NY • The EUR/USD was sidelined during the Asian session and traded 1.1817/48 • Technical support is found at 1.1795/1.1800 where 21 & 100 day MAs converge • Resistance at yesterday's 1.1876 high and break above eased downward pressure • Key to direction will be US/DE yield spread in the 2 to 5 year yields • German Industrial Orders and US ADP jobs data out today GBP • Cable steady in Asia despite Brexit no-deal, reports of Cabinet revolt • Asia range 1.3405-43, support ahead of 1.3400, ascending 200-HMA 1.3411 now • Upside likely limited on political to-do; Asia risk-off • Below 1.3400, support from pre-1.3350 - low yesterday 1.3370, 11/29 1.3341 • EUR/GBP Asia 0.8799-0.8825, steady, mostly above 200-DMA at 0.8800 CHF • USD/CHF steady in Asia, 0.9865-82, near 0.9888 high yesterday • Flat daily Ichi kijun 0.9887, top of daily Ichi cloud 0.9876 • Flat hourly Ichi kijun 0.9863, ascending 55-DMA below at 0.9843 • EUR/CHF in tight 1.1671-85 range in Asia, quiet, few flows, little interest • On hold just below recent highs, trend high Friday 1.1737 Market Briefs • Trump to recognise Jerusalem as Israel capital, upending decades of U.S. policy • Trump lawyer denies Deutsche Bank got subpoena on Trump accounts • US House tax positions begin to emerge ahead of talks with Senate • US Democrats flex muscles as Congress confronts a government shutdown • Australian citizenship threatens government with nine more MPs in doubt • AU Q3 GDP q/q, 0.6%, 0.8% last, f'cast 0.7%, 0.9% rvsd • AU Q3 GDP y/y, 2.8%, 1.8% last, f'cast 3.0% • Bitcoin surges above $12,000 to record high on relentless demand • "Deadline of deadlines" in Brexit divorce talks this week • Plot to kill British premier May foiled- Sky News • Britain needs "new paradigm" for financial services trade with EU - Hammond • EU exec to propose deeper euro zone integration to unite EU on Wed • BoJ Policy Board Masai sticks to Kuroda majority line, economy/CPI to rise • Current policy appropriate but some concerns over QQE side-effects, CPI • Foreign direct investment in Japan notched record in '16 - Nikkei • Japan to help finance China's Belt and Road project - Nikkei Looking Ahead - Economic Data (GMT) • 07:00 DE Oct Industrial Orders m/m, f' cast -0.3%, 1.0% last Looking Ahead - Events, Auctions, Other Releases (GMT) • N/A ECB Governing council meeting - Frankfurt • N/A ECB's Juncker speaks on ESM fund bailout - Brussels • 07:30 Riksbank's Ohlsson speaks at a seminar - Stockholm • 10:30 ECB's Mersch speaks at a conference - Frankfurt • 11:00 Riksbank's Jansson speaks at a seminar - Stockholm • 15:00 Bank of Canada key policy rate announcement - Ottawa See North American Open for a detailed listing of US/NorAm releases, events AUD/USD to be capped by weak consumer spending Australia's Q3 GDP was weaker than forecast, but at +2.8% year on year it still satisfied the 'trend growth' that the RBA was hoping for. What will concern the RBA is the weak consumer spending component of the GDP. Consumer spending edged up just 0.1% against expectations of +0.4%. The RBA has been fretting over the high household debt, rising house prices in some capital cities, weak wage growth and the potential negative impact it will have on the consumer. While those worries persist, the RBA won't even consider moving towards a tightening bias. The 2-year Australian yield has fallen 6 BPs today to 1.79% and is 3 BPs lower than the 2-year US Treasury yield, which trades at 1.82%. The AUD/USD will have trouble sustaining any rallies while the differential between the US and Australian 2-year yield widens in favour of the USD.