In what was a surprisingly quiet trading session following the weekend's "Powell in Turmoil" newsflow and Mnuchin's bizarre "liquidity is fine" announcement which only sparked memories of similar notices from the peak of the financial crisis, which some speculated could result in a major hit to the market in Monday's holiday-shortened session, S&P futures suddenly tumbled in a what appears to be zero liquidity just around 7 am (when we suppose some human traders walked in to their trading desks)...

... dragging all US equity futures sharply lower.

Meanwhile, gold has continued its sharp recent ascent, rising to over USD 1262/oz which is just under a 6-month high. The yellow metal is benefiting from US political uncertainty as a partial government shutdown has begun alongside continued dollar weakness.

The sudden futures plunge followed what was a mixed if quiet session in Asia, where the MSCI Asia-ex Japan index dropped 0.4%. The  ASX 200 (+0.5%) and Shanghai Comp. (+0.4%) nursed opening losses with the former aided by IT and material names amid positive comments from China’s MOFCOM over the weekend that US and China have “made new progress” on trade and IP issues. Meanwhile, trade optimism also led Mainland China higher as most sectors moved into the green with telecom, healthcare, and tech leading the gains, however, upside was capped after the PBoC’s liquidity efforts amounted to a net daily drain of CNY 140bln. Finally, Hang Seng (-0.4%) came off intra-day lows but ultimately underperformed after the Hong Kong Finance Chief stated there will be “fewer sweeteners” in the FY19/20 budget and as such, almost all sectors were in the red with hardware names leading the decline. Over in Japan, Nikkei 225 was closed as participants observe the Emperor’s day public holiday.

China's Commerce Ministry said China and the US "made new progress" on the issues of trade balance and intellectual property during a phone call between officials. Chinese Finance Ministry said tariffs on some import and export products will be adjusted from Jan 1st, 2019. China will levy temporary import tariffs on over 700 items but not levy export tariffs on 94 items including fertilizer and iron ore. China will further cut MFN tariffs on 298 IT products from July 2019 and will maintain "relatively low" import tariffs temporarily on some aircraft engines.

Asia's lukewarm optimism did not carry over into Europe, where major indices are in the red with miners and retailers among the biggest decliners in the Stoxx Europe 600 Index as several European markets are closed ahead of the festive season. Sectors are similarly in the red. In terms of notable movers, JustEat (-2.5%) are in the red as shareholder rebellion gathers momentum following two of the Co’s largest investors gave support to Cat Rock Capital, which have attacked the flawed metrics surrounding executive bonuses.

The sudden plunge came hours after Treasury Secretary Mnuchin said he called the heads of the 6 biggest banks (from Cabo) to assure liquidity conditions also attempted to assure financial markets that Federal Reserve Chairman Jerome Powell would not be ousted from the central bank following an earlier report that said Trump has repeatedly discussed removing him.  On top of that, the U.S. government shutdown now in its third day looks set to last past Christmas as negotiations between Democrats and the White House continue over Trump’s demand for border wall funding.

“It would be extremely damaging for the President to carry through on his vague inquiries about whether or not he can fire the head of the Federal Reserve,” Stephen Davies, CEO and co-founder of Javelin Wealth Management, told Bloomberg TV in Singapore. “That will do market confidence no good whatsoever.”

Emerging market currencies and shares fell even as the dollar stumbled and China’s top policy makers said they’ll roll out more monetary and fiscal support in 2019, ratcheting up the targeted stimulus of 2018. Oil drifted as some OPEC members pledged to deepen output cuts.

The Bloomberg Dollar Spot Index dropped as Treasury Secretary Steven Mnuchin moved to reassure financial markets over Jerome Powell’s role as Fed chairman. Trading was subdued at the start of a holiday-shortened week, with Japan closed Monday.

The pound and euro both edged higher after Theresa May’s allies made plans that would keep her in office for more than two years after Brexit, the Sunday Times reported, citing a cabinet official it didn’t name AUD/USD snaps 3-day losing streak as leveraged funds buy the Aussie amid a rally in U.S. stock futures.

Treasuries rose along with U.K. gilts, while euro-area bond markets were closed.  JGBs and cash Treasuries closed in Asia due to Japan holiday.

In commodities, Brent (-0.1%) and WTI (-0.4%) prices have remained in a slim USD 1 range amidst holiday thinned conditions. Over the weekend, UAE Energy Minister Mazrouei stated that if a 1.2mln BPD production cut is insufficient, then an extraordinary meeting will be called where we will do what is necessary to balance the market. Mazrouei also added that a OPEC+ monitoring committee would meet late February or early March in Baku. Separately, ongoing concerns over oversupply were exacerbated by Friday’s Baker Hughes rig count which showed the number of active oil rigs increased by 10.

Expected economic events include the Chicago Fed activity index. No major companies are reporting.

Market Snapshot

• S&P 500 futures down 0.4% to 2,402.00
• STOXX Europe 600 down 0.5% to 335.09
• MXAP down 0.2% to 144.79
• MXAPJ down 0.4% to 470.62
• Nikkei down 1.1% to 20,166.19
• Topix down 1.9% to 1,488.19
• Hang Seng Index down 0.4% to 25,651.38
• Shanghai Composite up 0.4% to 2,527.01
• Sensex down 0.8% to 35,458.78
• Australia S&P/ASX 200 up 0.5% to 5,493.80
• Kospi down 0.3% to 2,055.01
• German 10Y yield rose 2.2 bps to 0.25%
• Euro up 0.3% to $1.1400
• Brent Futures down 0.4% to $53.61/bbl
• Italian 10Y yield rose 9.2 bps to 2.471%
• Spanish 10Y yield rose 2.7 bps to 1.401%
• Brent Futures down 0.2% to $53.69/bbl
• Gold spot up 0.4% to $1,262.47
• U.S. Dollar Index down 0.2% to 96.78

Top Overnight News

• Treasury Secretary Steve Mnuchin looked to quash big-bank worries over plunging stock markets and reports that Trump might move on his Fed chief by reassuring the financial community that market liquidity is in good shape
• President Donald Trump directed Defense Secretary James Mattis to depart his administration by Jan. 1, two months earlier than planned, and will replace him with the Pentagon’s second-ranking official Patrick Shanahan
• White House Budget Director Mick Mulvaney said Sunday the government shutdown may last into 2019, as Republicans and Democrats remain at an impasse over President Trump’s demand for billions of dollars in border-wall funding
• OPEC hasn’t even started implementing its new six-month agreement to cut output, and already members responsible for most of the reductions have pledged to extend or even deepen it
• Euronext NV is making a 625 million-euro ($712 million) cash tender offer for Oslo Bors VPS, the Norwegian Stock Exchange, as consolidation among trading exchanges accelerates

Asia-Pac bourses traded mixed in holiday-thinned liquidity following the downbeat lead from Wall St. on Friday, where the S&P notched a weekly loss of 7%, Nasdaq closed in bear market and the Dow posted its worst week since the 2008 financial crisis. ASX 200 (+0.5%) and Shanghai Comp. (+0.4%) nursed opening losses with the former aided by IT and material names amid positive comments from China’s MOFCOM over the weekend that US and China have “made new progress” on trade and IP issues. Meanwhile, trade optimism also led Mainland China higher as most sectors moved into the green with telecom, healthcare and tech leading the gains, however, upside was capped after the PBoC’s liquidity efforts amounted to a net daily drain of CNY 140bln. Finally, Hang Seng (-0.4%) came off intra-day lows but ultimately underperformed after the Hong Kong Finance Chief stated there will be “fewer sweeteners” in the FY19/20 budget and as such, almost all sectors were in the red with hardware names leading the decline. Over in Japan, Nikkei 225 was closed as participants observe the Emperor’s day public holiday.

Top Asian News

• China Cuts Tariffs on More Than 700 Goods Amid Open-Trade Drive
• Thin Trading and Slew of Weekend News Leave Asia Stocks Mixed
• Nissan Asks Staff to Avoid Contacting Ghosn, Kelly Amid Probe
• Top Fund Proves Value Investing Works in China With 159% Return

Major European Indices are in the red [FTSE 100 -0.6%; CAC 40 -1.0%] despite Asian bourses trading mostly higher and as
several European markets are closed ahead of the festive season. Sectors are similarly in the red. In terms of notable movers JustEat (-2.5%) are in the red as shareholder rebellion gathers momentum following two of the Co’s largest investors gave support to Cat Rock Capital, which have attacked the flawed metrics surrounding executive bonuses.

Top European News

• OPEC Is in ‘Whatever It Takes’ Moment to Prop Up Oil Prices
• Euronext Makes $712 Million Takeover Offer for Oslo Bourse
• London’s Streets No Longer Paved With Gold as Miners Struggle
• Telefonica Chairman Takes No Chances as Activist Stalks Europe

In FX, AUD/NZD was the major beneficiary of latest US-China trade developments, and reports about fresh progress on certain issues ahead of official negotiations set for early 2019, while Beijing has also announced a series of import tariffs to be implemented on January 1st at concessionary levels. Aud/Usd and Nzd/Usd have subsequently rebounded relatively firmly of recent and new ytd lows to 0.7050+ and towards 0.6750 respectively, with the former eyeing resistance around 0.7073 ahead of 0.7085-90 and Kiwi looking to breach its 50 DMA at 0.6741 convincingly, as the Aud/Nzd cross slips back under 1.0500.

• EUR/GBP - Also prospering at the Greenback’s expense, as Eur/Usd climbs above a cloud base to retest 1.1400+ levels, while Cable is pivoting 1.2650 and Eur/Gbp hovers around 0.9000. A distinct lack of independent drivers as much of mainland Europe enjoys a full Xmas Eve holiday and UK markets are only open until midday or 12.30GMT, though weekend Brexit news appears marginally supportive for the Pound as PM May’s allies are said to be more confident that Parliament will decide in favor of the draft withdrawal agreement.
• CAD/JPY - Both mildly firmer vs the Buck, with the Loonie deriving some traction from comparative stability in crude prices to pare worst losses from yet another new 2018 low just under 1.3600, while the Jpy is consolidating recent hefty gains within a tight  range around 111.00 having tested, but not breaching the 200 DMA (circa 110.94).

In commodities, Brent (-0.1%) and WTI (-0.4%) prices have remained in a slim USD 1 range amidst holiday thinned conditions.   Over the weekend, UAE Energy Minister Mazrouei stated that if a 1.2mln BPD production cut is insufficient, then an extraordinary meeting will be called where we will do what is necessary to balance the market. Mazrouei also added that a OPEC+ monitoring committee would meet late February or early March in Baku. Separately, ongoing concerns over oversupply were exacerbated by Friday’s Baker Hughes rig count which showed the number of active oil rigs increased by 10. Gold has risen to over USD 1262/oz which is just under a 6-month high. The yellow metal is benefiting from US political uncertainty as a partial government shutdown has begun alongside continued dollar weakness. Separately, a subsidiary of China Minmetals Corp has begun the initial phase of a new battery raw materials project in Tangshan; with the project being part of China’s push to safeguard new resources as demand for batteries continues to rise.

US Event Calendar

• 8:30am: Chicago Fed Nat Activity Index, est. 0.2, prior 0.2