Asian indices pretty positive overnight, U.S. indices relatively flat.

In FX, CAD lost a little ground overnight after BoC's Macklem comments yesterday.

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The two hot topics are still Brexit & Stimulus...

Will they or won't they?

Hill leaders nearing long-sought stimulus deal

Congressional leaders closed in on an agreement to provide a new tranche of coronavirus relief on Tuesday, haggling deep into the night over how to spend hundreds of billions of dollars before adjourning for the year.
“We're making significant progress and I’m optimistic that we are going to be able to complete an understanding some time soon," said Senate Majority Leader Mitch McConnell (R-Ky.) as he left the Capitol after a day of furious negotiating. "We're getting closer."
While the congressional leaders did not publicly discuss details, their discussions were prompted by a $748 billion proposal from centrist senators to spend on small businesses education, vaccine distribution, health care and beefing up unemployment benefits. Republicans have said they want to jettison talks over a liability shield and $160 billion for state and local government, though Democrats have yet to concede defeat on the local funding issue.
The leaders met for more than two hours over the course of two meetings. Treasury Secretary Steven Mnuchin also joined by phone. Government funding expires on Friday, so negotiators could buy more time with another stop-gap spending bill if talks drag out.
“We're exchanging paper and ideas back and forth making progress and hopefully we can come to an agreement soon," Schumer said as the night came to a close.
Still, not everyone likes what they are hearing from the leadership suites. Progressives in the House have stepped up their demands that any coronavirus deal include stimulus checks along with supplemental unemployment benefits.
The Congressional Progressive Caucus took it a step further Tuesday night, with CPC Chair Pramila Jayapal (D-Wash.) raising the idea of opposing any bill that doesn’t include direct payments. CPC members on the call were receptive to the idea, according to multiple Democrats.
The group then sent out a whip notice to formally gauge how many of the roughly 100-member group would be willing to vote against a bipartisan relief deal that didn’t include stimulus checks. Responses are due back to CPC leadership by noon Wednesday. Sens. Bernie Sanders (I-Vt.) and Josh Hawley (R-Mo.) are also still pushing for stimulus checks to be sent directly to individuals and families. President Donald Trump also wants direct payments to Americans.

MPs primed to vote for a potential Brexit trade deal next week

The Telegraph understands plans being studied by the Commons leader involve lawmakers being asked to sit on Monday, Tuesday and Wednesday
MPs have been primed to vote for a possible Brexit trade deal at the beginning of next week as hopes rise of a breakthrough in Brussels.
Senior Government sources have confirmed that Boris Johnson is preparing to push back the Christmas recess should he secure an agreement with the EU by the weekend.
The Telegraph has been told that plans being studied by Jacob Rees-Mogg, the Commons leader, involve MPs and peers being asked to sit on Monday, Tuesday and Wednesday if there is a deal, with December 24 still under discussion.
Ministers have ruled out sitting on Christmas Day for the first time since 1656, but have not ruled out asking MPs to return on Boxing Day, if it is deemed necessary to do so.
Instead, talks on how an independent arbitrator might function and rule on disputes are believed to be progressing.
However, the two sides are yet to bridge significant gaps on whether the EU should be allowed to take action if it deems there is a “risk” of its businesses being undercut, or whether a “threshold” of proof would be required first.
“It’s about reciprocity and a fair system,” a source said.
On Tuesday a senior Cabinet source said: “If we are now talking about an evidential threshold that’s a very promising sign.”
In a bid to reassure Brexiteers on Tuesday night, Mr Johnson issued a message to the European Research Group of Tory MPs, which said: “Never fear folks we will vindicate the people in full or else, as I have said many times, we will start the new year [on World Trade Organisation] terms!”

Japan posts record run of export declines on soft U.S., China demand

Japan’s exports fell in November, dashing expectations for an end to the two-year run of declines, largely due to weaker U.S.- and China-bound shipments and suggesting a slower pace of recovery for the world’s third-largest economy.
The trade data is likely to be of some concern for policymakers counting on solid external demand to boost factory output and broader corporate activity to revive the economy.
“The risk that Japan’s economy will stall in the first quarter is gradually becoming stronger,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“It feels like Japan’s economic recovery is somewhat behind that in China and the United States and European countries given the exports trend and state of domestic demand.”
Ministry of Finance (MOF) data out on Wednesday showed exports fell 4.2% in November from a year earlier, defying the economists’ median estimate of a 0.5% increase in a Reuters poll.
That marked the 24th straight month of decline, the longest stretch on record based on comparable data going back to 1979, and follows a 0.2% drop in the previous month.
Takeda added that a long stretch of import declines, which fell for their 19th straight month in November, pointed to persistent weakness in domestic demand, highlighting Japan’s relatively slow economic recovery.
By destination, shipments to the United States contracted for the first time in three months, falling 2.5% in November versus the same month a year earlier, as weak demand for aircraft equipment helped offset higher car exports.
Exports to China, Japan’s largest trading partner, rose at the slowest pace in five months, growing 3.8%, driven by communication devices.
Shipments to Asia fell for the first time in two months, decreasing 4.3%, while those to the European Union dropped 2.6% in November.
Imports shed 11.1% in November compared with the same month a year earlier, versus the median estimate for a 10.5% decrease. Japan’s trade surplus narrowed to 366.8 billion yen ($3.54 billion), versus the median estimate for a 529.8 billion yen surplus.

Japan's Flash PMI Data

“The Japanese private sector continued to struggle in December, with flash PMI survey data signalling a further deterioration in business activity in the final month of the year. New orders also declined amid a further reduction in new export orders.
“One positive note was private sector businesses in Japan recording the softest rate of job shedding in ten months, as overall employment levels only reduced fractionally. Manufacturing staffing levels even ticked higher.
“Despite the short-term disruption caused by a resurgence in coronavirus disease 2019 (COVID-19) cases, Japanese private sector businesses were optimistic that business conditions would improve in the year-ahead. Positive sentiment stemmed from the expectation that there would be an end to the pandemic which would fuel both domestic and international demand.
Nevertheless, uncertainty surrounding the timing and pace of the economic recovery resulted in a softening of expectations.”

Australian PMI's told a different story

Australian economic growth gathers momentum at year end
"Not only was the Australian economic recovery sustained in December, but growth also gathered momentum as the loosening of COVID-19 restrictions underpinned further improvements in demand for goods and services.
As such, private sector output expanded at the quickest pace in five months.
"The preliminary PMI results also brought good news regarding employment.
Both goods producers and service providers continued to hire extra staff, the former to the greatest extent in close to three years.
"News of vaccine development and hopes that COVID-19 worries will fade underpinned upbeat growth projections towards the year-ahead outlook for business activity.
Private sector companies were at their most optimistic in over two years.
"One area that failed to improve was exports, with stricter lockdown measures in some nations, border controls and travel restrictions continuing to restrict external demand for Australian goods and services. The latest fall in international sales was the eleventh in successive months."

Oil prices ease on surprise build in U.S. inventory, demand worries

An evergreen headline.

Oil prices dropped on Wednesday on a surprise gain in crude oil inventories in the United States and as investors continued to worry about demand for fuel being squeezed amid tighter lockdowns in Europe to counter the coronavirus pandemic.
“Crude prices are slightly softer after the API (American Petroleum Institute) inventory report posted a second consecutive build,” said Edward Moya, senior market analyst at OANDA.
Crude inventories swelled by 2 million barrels in the week to Dec. 11 to about 495 million barrels, according to industry group API.
Analysts had expected a draw of 1.9 million barrels, according to a Reuters poll. Official government data was scheduled for Wednesday.
The rollout of vaccines this month to combat the coronavirus pandemic will not quickly reverse the destruction wrought on global oil demand, International Energy Agency (IEA) warned on Tuesday.
The IEA revised down its estimates for oil demand this year by 50,000 barrels per day (bpd) and for next year by 170,000 bpd, citing scarce jet fuel use as fewer people travel by air.
“On the demand side, the biggest near-term downside risk to oil demand expectations is the United States, predominately due to persistent weaknesses in U.S. gasoline demand, given the current trajectory of COVID-19 in the country,” analysts at FGE wrote in a note.

Switching focus back to the supply side, OPEC caution on increasing supply has been relatively successful from a price management perspective.  

OPEC’s President Says Oil Cartel Cannot Rush Output Increases

  • Group must be ‘very cautious,’ says Algerian energy minister
  • No guarantee OPEC+ will pump extra 2 million barrels by April
“Despite the positive signs and a significant improvement in oil prices, I think we should be very cautious,” Attar said in an interview. “In the best-case scenario, we will be able to reach 2 million barrels daily as early as April. But this is not a goal in itself. What is important is to ensure that the global oil inventory surplus continues to erode, and that we are on the path to lasting market stabilization.”

Looking ahead, we have UK & Canadian inflation data, Flash PMI's, U.S. Retail Sales & EIA crude oil inventories.

The FOMC meeting will be the main event, although no overall policy action is expected.

All eyes and ears will be on the specificities and guidance.

Will the Fed lengthen the WAM (Weighted Average Maturity) of asset purchases and target longer-dated bonds?

Will they be more specific and link the programme to economic metrics?