Markets have been rallying quite strongly on this notion of fiscal hope but, as we move into the reality of 2017 and what a Trump presidency will actually look like, there is some risk of fiscal disappointment. Any disappointment at this point could be a source of downside risk for markets from here, so we’re incrementally being a bit more cautious.

That’s from Paul Eitelman, a strategist at Russell Investments who spoke to Bloomberg early this morning and it seemed like an appropriate way to start the day (nothing better than a sobering reality check to kick off your morning, right?).

Japanese markets reopened on Wednesday after an absurdly long holiday and it was full steam ahead on the back of stronger than expected manufacturing data and a weaker yen.

The Nikkei Japan manufacturing PMI for December printed at 52.4 for December reinforcing similarly buoyant data out of China, the US, and Europe.

Of course a weaker yen doesn’t hurt either when it comes to boosting equities.

So yeah, that’s a 13-month high.

Elsewhere, Chinese stocks rose with the yuan after reports that the Politburo is considering new measures to help shore up the flagging currency in the face of growing pressure from capital flight. Here are the bullet points via Bloomberg:

• Offshore yuan rises 0.45% and onshore yuan gains 0.13% even as PBOC cuts yuan fixing rate to weakest level since May 2008
• Shanghai Composite Index advances 0.7%, while Hang Seng China Enterprises Index of mainland shares listed in Hong Kong drops 0.2%
• China said to consider options to support yuan, curb outflows
• China’s benchmark money-market rates drop most in two years

Although the 7-day repo rate was down on the mainland, O/N CNH HIBOR remains elevated. “Analysts said the surge in the borrowing cost was a result of a shrinking yuan pool in Hong Kong as fewer people are seeking yuan-denominated assets as the currency is expected to weaken further,” Reuters noted this morning.

In Europe, decent inflation data doesn’t look like it’s going to be enough to propel equities higher, as shares are largely red as we go to print. Eurostat’s December flash CPI printed at +1.1% y/y vs Nov. final +0.6% y/y. The forecast range was 0.6% to 1.1% from 38 economists.

Meanwhile, oil is up despite the fact that, as tipped here on a number of occasions, market participants are generally distrustful of OPEC’s production cut promises…

(Chart: Citi)

Here’s a market wrap via Bloomberg:

• S&P 500 futures up 0.1% to 2255.8
• Stoxx Europe 600 down 0.1% to 365.3
• MSCI Asia Pacific up 1.3% to 136.7
• US 10Yr yield up 1 bps to 2.45%
• Dollar index down 0.3% to 102.94
• WTI oil futures up 0.8% to $52.75/bbl
• Gold spot up 0.6% to $1166.18/oz
• 7am: MBA Mortgage Applications, Dec. 30
• 8:55am: Redbook weekly sales
• 2pm: FOMC Meeting Minutes, Dec. 14
• 4:30pm: API weekly oil inventories
• J&J Judge Slashes $1 Billion Verdict Over Pinnacle Hip Implants
• Ford, Toyota Form Telematics Bloc to Stymie Google and Apple
• Trump Says His Briefing on ‘So-Called’ Russia Hacking Is Delayed
• China Said to Consider Options to Back Yuan, Curb Outflows
• Tesla Deliveries Miss Forecasts Again on Production Delays
• Qualcomm’s Newest Smartphone Chip Aimed at PC Breakthrough
• Nikkei’s Financial Times Buys GIS Planning to Expand Services
• Manhattan Home Prices Fall as Sellers Concede to Slowing Market
• PREVIEW U.S. DEC. AUTO SALES: GM May Outperform Amid ‘Plateau’
• Blackstone Said to Near Deal to Buy Sesac: WSJ

And finally, here’s a bit of color from Deutsche Bank’s Jim Reid:

It hasn’t taken long for markets to dust off the holiday cobwebs and start acclimatizing to 2017. The good news is that unlike the freefall sparked by China’s equity markets this time last year, the mood in 2017 is so far so good with some decent data out of the manufacturing sector helping to set the early pace.

Indeed after the generally positive data in Europe on Monday, the UK manufacturing PMI was yesterday reported as surging to 56.1 in December (vs. 53.3 expected) from 53.6 and to the highest in two and a half years. In the afternoon we then learned that the ISM manufacturing reading in the US had risen to 54.7 in December (vs. 53.8 expected) and the highest since December 2014. The details revealed that the new orders component surged to 60.2 from 53.0 in the month prior too which is particularly noteworthy in light of the recent strength for the US Dollar. To put in perspective this component printed at 48.8 in December 2015. Meanwhile the final manufacturing PMI for the US last month was revised up a tad to 54.3 (from 54.2). It’s worth noting that Greece is the only developed nation with a manufacturing PMI below 50 but even that reading (49.3) is still at a four-month high.

Equity markets were generally firmer across the board yesterday as a result with the Stoxx 600 closing +0.70% and the S&P 500 kicking off 2017 with a +0.85% gain. European Banks (+2.84%) have also started the year in style with the catalyst yesterday appearing to be the news that the Basel Committee had postponed a meeting due for this weekend to consider a contentious reforms package, fuelling expectations that some of the proposals could potentially be watered down. Meanwhile the US auto sector was also in focus after Ford announced that they were to scrap plans for a $1.6bn expansion in Mexico and instead create new jobs in Michigan following proposals by President-elect Trump to slap tariffs on foreign made vehicles. That news also came as Trump turned to social media to criticize General Motors for production of vehicles in Mexico. The Peso (-1.82%) was a notable underperformer in FX as a result.

If that wasn’t enough then a complete reversal for Oil also added another dimension to yesterday’s session. WTI Oil peaked at $55.24/bbl in the early morning, or over 2% higher, before then plummeting some 5% from those early highs to close -2.59% on the day at $52.33/bbl. Natural Gas also tumbled -10.66% for the biggest one-day decline since February 2014. While forecasts for milder weather in the US this month were attributed to the decline for the latter, there didn’t appear to be an obvious catalyst for the sharp swing in Oil aside from the continued strength for the Greenback.

Meanwhile the rates market was an interesting microcosm of the volatility that we expect this year. Yields initially surged in Europe supported by the early gains for Oil and then later on by the bumper inflation report in Germany where headline CPI jumped +1.0% mom in December (vs. 0.6% expected) and so helping the YoY rate to hit +1.7% from +0.7% in November and the highest since July 2013. The wider Euro area CPI report is due today and a similar jump, assuming it can be maintained, will surely give the ECB some food for thought. Anyway the data helped 10y Bund yields jump +7.7bps to 0.258% while yields in the periphery were anywhere from +9.0bps to +20.8bps higher. The Treasury market opened in similar fashion with that US data also helping matters and 10y Treasury yields peaked at 2.516% (after opening at 2.445%) before the energy complex went into reverse. Treasury yields completely unwound that move higher and finished unchanged by the closing bell.

A reminder that today we’ll also get the FOMC minutes from that December meeting where we’re expecting the tone to reflect the moderately more hawkish nature of the statement. Ahead of this sentiment has remained fairly buoyant in the Asia session this morning where bourses in Japan in particular have reopened in style. The Nikkei and Topix have surged +2.14% and +2.17% respectively with financials leading the way while there are also gains in China with the Shanghai Comp +0.39% and CSI 300 +0.42%. The Kospi and ASX are little changed along with the Hang Seng while credit indices are generally tighter in Asia Pac. US equity index futures are also up modestly while Oil has rebounded about half a percent.

Moving on. Yesterday we got the latest ECB CSPP breakdown as of the end of December. The numbers took on added interest with the addition of the primary and secondary market split too. With regards to holdings, the ECB announced total holdings of €51.07bn which works out as net purchases settled during the month of €3.89bn, albeit with an unsurprising slowdown into year end. In terms of the split, of the total holdings currently, €6.93bn or 13.6% were made in the primary market and €44.14bn or 86.4% were made in the secondary market. Interestingly while the overall primary market purchases (in percentage terms) were ramped up from June to October, they have held relatively steady over the months of November and December although this may also reflect the slowdown in the new issue market into the end of the year.

Meanwhile there were some interesting developments on the Brexit front in the UK yesterday too with the announcement that Britain’s ambassador to the EU, Sir Ivan Rogers, had unexpectedly resigned just a couple of months out from the UK’s formal resignation from the EU and prior to the end of his official tenure in October. Various reports suggested that Rogers was one of most experienced EU negotiators and was heavily criticized last year by Conservative eurosceptics. His resignation letter – obtained by the FT – stated that ‘serious multilateral negotiating experience is in short supply’ and that ‘we do not yet know what the government will set as negotiating objectives for the UK’s relationship with the EU after exit’. No obvious reason was provided for his early resignation although Rogers did confirm that it would make more sense to have a team in place which see’s Britain through the entire Brexit process. The news could come as a bit of a blow to the ‘Soft’ Brexit camp though and clearly comes at a crucial time in talks so it’ll be interesting to see if there is any further fallout following this announcement.

Looking at the day ahead, this morning in Europe we’ll get the remaining December PMI’s (services and composite prints) including the final revisions for the Euro area, Germany and France as well as a first look at the data for the periphery. Also due out this morning is the CPI report for the Euro area where headline inflation is expected to have ticked up to +1.0% yoy from +0.6%. The UK will also release the November money and credit aggregates data while in France we’ll get the latest consumer confidence print. Over in the US this afternoon the lone data release is the December vehicle sales data while later on this evening we’ll get the FOMC minutes from the December meeting.