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[PODCAST] EU Open Rundown 30th August 2019

  • Asian equity markets headed into month-end higher across the board after the tumultuous US-China trade saga took a positive turn
  • UK House of Commons Speaker Bercow has reportedly been in contact with Tory rebels whilst on holiday this week regarding plans to stop PM Johnson from suspending Parliament
  • In FX, DXY traded steady around 98.50, EUR/USD remains subdued, GBP/USD languished below 1.2200
  • Looking ahead, highlights include German Retail Sales, EZ CPI (Flash) & Unemployment Rate, US Core PCE & Chicago PMI, Canadian GDP

ASIA-PAC

Asian equity markets headed into month-end higher across the board after the tumultuous US-China trade saga took a positive turn following comments from Mofcom spurred that hopes regarding talks in September and indicated that China doesn't plan to immediately retaliate against President Trump’s latest tariff hikes. ASX 200 (+1.5%) and Nikkei 225 (+1.1%) advanced from the open with notable strength seen in Australia’s trade-sensitive sectors and as earnings continued to trickle in, while Tokyo trade was buoyant with focus on a slew of mixed data in which Industrial Production significantly topped estimates and amid reports that Japan permitted the first exports of hydrogen fluoride to South Korea since curbs were enacted. Hang Seng (+0.6%) and Shanghai Comp. (+0.2%) were underpinned by the trade hopes after Mofcom stated that both sides are discussing the September talks and that the sides have been in touch, while it also suggested that China wants to settle the dispute calmly and avoid further escalation. Furthermore, earnings have also been a driving force with firm gains in China’s largest bank ICBC, as well as oil majors CNOOC and PetroChina following their results, although upside in the broader market was contained given the looming additional tariffs and after continued PBoC inaction resulted to a consecutive weekly net liquidity drain. Finally, 10yr JGBs were lower with safe-haven demand sapped by the positive risk tone and after the BoJ reduced its purchases in 5yr-10yr JGBs to JPY 400bln from JPY 450bln for today’s Rinban operation.

PBoC skipped open market operations for a net weekly drain of CNY 130bln vs. Prev. drain of CNY 30bln last week. (Newswires) PBoC set CNY mid-point at 7.0879 vs. Exp. 7.1197 (Prev. 7.0835)

Global Times tweeted China is unswervingly tethered to its non-stop opening-up drive and reforming its economic system, even when the country is forced into a battle of tit-for-tat tariffs with the US on a massive, unprecedented magnitude. (Twitter)

 

US prosecutors are probing Huawei on new allegations of technology theft and are potentially expanding beyond existing criminal cases against the Chinese telecommunications giant. The report noted that among the situations being examined are episodes in which Huawei was accused of stealing intellectual property from multiple people and companies over several years, as well as how the company went about recruiting employees from competitors. (WSJ)

 

China reportedly clamped down on capital flight risk amid yuan weakness with financial authorities have rolling out measures to stem capital outflows from the mainland with banks and real estate developers pressed to keep funds within the borders. (Nikkei)

Hong Kong rejected the appeal against the protest ban on Saturday, while it was also reported that Hong Kong arrested prominent activists Joshua Wong, Andy Chan and Agnes Chow. (Newswires)

 

BoK kept the 7-day Repo Rate unchanged at 1.50% as expected. BoK noted the decision was not unanimous with BoK’s Cho and Shin the dissenters who voted for a cut, while it stated it will maintain its accommodative policy stance and Governor Lee also commented the BoK still has a certain amount of policy room. (Newswires)

 

Japanese Industrial Production (Jul P) 1.3% vs. Exp. 0.3% (Prev. -3.3%). (Newswires)

Japanese Industrial Production (Jul P) Y/Y 0.7% vs. Exp. -0.5% (Prev. -3.8%)

Japanese Retail Sales (Jul) M/M -2.3% vs. Exp. -0.9% (Prev. 0.0%)

Japanese Retail Sales (Jul) Y/Y Jul -2.0% vs. Exp. -0.8% (Prev. 0.5%)

Japanese Tokyo CPI (Aug) Y/Y 0.6% vs. Exp. 0.6% (Prev. 0.9%)

Japanese Tokyo CPI Ex. Fresh Food (Aug) Y/Y 0.7% vs. Exp. 0.7% (Prev. 0.9%)

Japanese Tokyo CPI Ex. Fresh Food & Energy (Aug) Y/Y 0.7% vs. Exp. 0.7% (Prev. 0.8%)

 

UK/EU

UK PM Johnson has ordered Brexit Advisor Frost to "step up the tempo" in talks over a new deal with Brussels. Frost will meet his counterparts twice a week in Brussels, starting next week. (Telegraph)

UK House of Commons Speaker Bercow has reportedly been in contact with Tory rebels whilst on holiday this week regarding plans to stop PM Johnson from suspending Parliament. (Telegraph)

Tory grandee and former Chancellor Clarke said he would be prepared to back opposition Labour party leader Corbyn as caretaker PM to avert a no-deal Brexit as long as he could be kept under control. (Sky News)

Opposition Leader Corbyn has put his support behind a plot by his hard-left supporters to “shut down the streets” by whipping up the biggest act of civil disobedience in decades to protest at PM Johnson’s Brexit plans. (Telegraph)

UK GfK Consumer Confidence (Aug) -14 vs. Exp. -12.0 (Prev. -11.0); matches lowest since mid-2013. (Newswires) UK Lloyds Business Barometer (Aug) 1 (Prev. 13); lowest since December 2011

FX

 

DXY traded steady around 98.50 as it took a breather from the prior day’s gains in which it benefitted from the improving climate for US-China trade talks, and as a function of the weakness of its major counterparts. EUR/USDwas subdued in the wake of comments from incoming ECB President Lagarde. In addition, markets fully pricing in a 10bps cut at next month’s meeting and soft German inflation data ahead of today’s Eurozone equivalent did no favours for the single currency, while GBP/USD languished below 1.2200 after Remainers were left in a prorogation panic. USD/JPY was indecisive following mixed data releases including inline Tokyo Inflation, disappointing Retail Sales and a stellar Industrial Production report, while antipodeans were lacklustre with AUD weighed by heavy declines in Building Approvals.

Australian Building Approvals (Jul) M/M -9.7% vs. Exp. 0.0% (Prev. -1.2%). (Newswires) Australian Building Approvals (Jul) Y/Y -28.5% vs. Exp. -22.2% (Prev. -25.6%) Australian Private Sector Credit (Jul) M/M 0.2% vs. Exp. 0.2% (Prev. 0.1%) Australian Private Sector Credit (Jul) Y/Y 3.1% vs. Exp. 3.2% (Prev. 3.3%)

 

S&P downgrades Argentina rating to selective default from B-. (Newswires)

COMMODITIES

 

Commodities were flat overnight in which WTI crude futures plateaued around the prior session’s highs after having been boosted by the heightened risk appetite. Nonetheless, the oil rally has since petered out with some noting book squaring ahead of today’s Brent (V9) contract expiry, while the Trump administration’s proposal to relax restrictions on methane emissions at oil and gas operations is seen to lower costs especially for the smaller producers. Elsewhere, gold prices were lacklustre due to the improved risk appetite as well as the steady greenback, and copper failed to take advantage of the heightened risk appetite and instead conformed to the sideways trade across the complex.

 

US Envoy for Venezuela Abrams said he is hopeful the EU will impose sanctions against Venezuela in the coming months and believes Venezuelan production has fallen to 800k BPD from 1.1mln BPD. Furthermore. He added the US believes Russia's Rosneft's purchases of Venezuelan oil does not violate sanctions at this time and that Venezuelan oil continues to flow to China largely in the form of "pay-back" oil. (Newswires)

 

GEOPOLITICS

UAE carried out air strikes in Yemen's Aden against "terrorist organisations" which attacked the Saudi coalition forces and airports. (Newswires)

 

US

Yields are higher across the curve, but major curve spreads are mixed at settlement, with 2s5s, 2s10s and 5s10s wider, by around 1bps, though 2s30s, 5s30s and 10s30s are narrower by 1.5-2bps. The curve began steepening overnight after Treasury Secretary Mnuchin said 50-year and 100-year issues were being mulled, and separately ruled out FX intervention in the USD for now. However, hawkish comments from White House advisor Navarro saw initial steepening reverse. In the European morning, China made constructive comments, which saw yields march upwards. There was some sympathy with EGBs after dovish remarks from incoming ECB President Lagarde, though hawkish comments from the ECB's Knot countered some of that. In the US afternoon, a soft 7-year auction (tailed by 2.1bps on very weak cover, while internals were not great) so yields tick higher. US T-note (U9) futures settled 13 ticks lower at 130-30+.

US President Trump’s administration is reportedly considering cutting taxes to offset tariff hit on consumers, while the report noted that according to the latest evidence, the White House does believe Americans are hurt by tariffs. (Newswires)

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