Sterling plunges on expectations of Hard Brexit outline from PM May

Asia Mid-Session Market Update: Sterling plunges on expectations of Hard Brexit outline from PM May; Japan wholesale inflation jumps as Kuroda continues to expect slightly negative trend

Friday US markets on close: Dow flat, S&P500 +0.2%, Nasdaq +0.5%

- Best Sector in S&P500: Technology

- Worst Sector in S&P500: Utilities

- Biggest gainers: NFLX +3.5%; MNST +3.3%; QRVO +3.0%

- Biggest losers: ENDP -4.9%; DO -4.3%; SIG -4.2%

- At the close: VIX 11.2 (-0.3pts); Treasuries: 2-yr 1.20% (+2bps), 10-yr 2.38% (+2bps), 30-yr 2.98% (+2bps)

Weekend US/EU Corporate Headlines

- LUX.IT: Said to have reached €50B merger agreement with Essilor; deal to be announced before the market opens today - FT

- ANDE: To exit retail business; To close remaining 4 stores, eliminating 650 jobs in Toledo and 400 jobs in Columbus

Politics

- (US) Pres-elect Trump: Not looking to declare China a currency manipulator; will not commit to One China policy unless progress is seen on FX and trade issues in China - press interview

- (CN) China foreign ministry: the 'One China' principle is the non-negotiable basis for Sino-American relations

- (ES) Catalan separatists begin another independence campaign with 8 months to go to a planned referendum - press

- (JP) Japan Cabinet approval rating rises 6pts to 67% - Japan press

Key economic data:

- (JP) JAPAN NOV CORE MACHINE ORDERS M/M: -5.1% (biggest decline in 7 months) V -1.4%E; Y/Y: 10.4% V 8.1%E

- (JP) JAPAN DEC PPI (CGPI) M/M: 0.6% V 0.4%E; Y/Y: -1.2% V -1.4%E

- (AU) AUSTRALIA DEC MELBOURNE INSTITUTE INFLATION M/M: 0.5% (6-month high) V 0.1% PRIOR; Y/Y: 1.8% (10-month high) V 1.5% PRIOR

- (NZ) New Zealand Dec Food Prices M/M: -0.8% v -0.1% prior (4th consecutive decline)

- (UK) UK JAN RIGHTMOVE HOUSE PRICES M/M: +0.4% (3-month high) V -2.1% PRIOR; Y/Y: 3.2% (19-month low) V 3.4% PRIOR

Asia Session Notable Observations, Speakers and Press

- Sterling plunges 200pips below $1.20 as UK press reports PM May's Tuesday speech will lay the groundwork for a "clean and hard Brexit"; UK Treasury plans to speak with banks about measures to reassure investors; US President-elect Trump promises to offer UK a quick and fair trade deal.

- PBoC expanded its reverse repo operations to CNY230B relative to CNY70B on Friday, but also set Yuan midpoint firmer for the 3rd straight day; China CASS researcher laid out a case for the govt to stop intervening in FX markets and undergo a one-off Yuan devaluation; Another China state researcher also noted there's a chance that 2017 GDP is not lower than that of 2016.

- BOJ Gov Kuroda reiterates central bank is prepared to adjust policy, while still anticipating CPI to remain slightly negative; On the plus side, Kuroda expects price trends to pick up; Japan's PPI data did track in that direction, as annual decline was the smallest in 2 1/2 years; Also of note in Japan, the Sakura report on regional economies upgraded assessment for 3 and maintained assessment for 6 of the 9 regions.

China:

- (CN) China Academy of Social Sciences (CASS) researcher Xiao Lisheng: China govt urged to allow CNY to float freely and stop intervening in forex market - Chinese press

- (CN) China Premier Li pledges to further reduce public spending to alleviate tax burden - Chinese press

- (CN) China foreign ministry: the 'One China' principle is the non-negotiable basis for Sino-American relations

Japan:

- (JP) Bank of Japan (BOJ) Gov Kuroda: Reiterates will adjust monetary policy if needed; CPI to remain slightly negative for time being

- (JP) Japan's former currency chief Yamasaki: Amazing that Trump hasn't said anything about JPY - financial press

- (JP) Japan Cabinet approval rating rises 6pts to 67% - Japan press

Australia:

- (AU) Australia to call early parliamentary vote to ratify the TPP trade deal - Australia

- (AU) Fitch: Revises Outlook for Australia banking sector to Negative from Stable

- NAB.AU: Raises rates for various short term (2-yr, 3-yr, 4-yr, and 5-yr) mortgages; Changes apply to new fixed-rate loans only

Asian Equity Indices/Futures (00:00ET)

- Nikkei -0.8%, Hang Seng -1.0%, Shanghai Composite -1.4%, ASX200 +0.4%, Kospi -0.5%

- Equity Futures: S&P500 -0.2%; Nasdaq -0.2%, Dax -0.2%, FTSE100 +0.2%

FX ranges/Commodities/Fixed Income (00:00ET)

- EUR 1.0605-1.0635; JPY 113.98-114.47; AUD 0.7470-0.7505; NZD 0.7090-0.7150; GBP 1.1993-1.2055

- Feb Gold +0.6% at 1,203/oz; Feb Crude Oil +0.3% at $52.52/brl; Mar Copper -0.9% at $2.68/lb

- GLD: SPDR Gold Trust ETF daily holdings rise 3.0 tonnes to 808.0 tonnes; First increase since Nov 9th

- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.8874 V 6.8909 PRIOR; 3rd straight firmer setting

- (CN) PBOC to inject combined CNY230B in 7-day and 28-day reverse repos v CNY70B prior

- (KR) South Korea Finance Ministry sells KRW1.95T vs. KRW1.95T indicated in 10-year govt bond; Yield: 2.130% v 2.271% prior

Asia equities/Notables/movers

- Nanosonics NAN.AU: Reports Q2 Rev A$18.3M v A$17.8M y/y; +7.1%

- Zhongsheng Group 881.HK: Issues positive FY16 profit alert; Guides Net profit at least +350% y/y; +6.2%

- Duet Group DUE.AU: Board recommends A$3.03/shr cash improved offer from CKI; +5.4%

- Regis Resources RRL.AU: Reports H1 gold production 154.7K oz v 151K oz y/y; Q2 gold production 80.1K oz v 74.6K oz y/y; +2.0%

- Honda Motors 7267.jp: Targets sale of 5.15M cars in FY17/18, up 3% from FY16/17 estimate; Would mark 6th straight year of higher sales - Nikkei; +0.1%

- Fast Retailing 9983.JP: Haitong International Cuts 9983.JP to Sell from Buy; -2.3%

- Independence Group IGO.AU: Macquarie Cuts IGO.AU to Neutral from Outperform; -2.4%

- Whitehaven WHC.AU: Reports Q2 coal production 5.06Mt v 4.9Mt y/y; -2.7%