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[PODCAST] EU Open Rundown 9th September 2019

  • European indices are little changed and lacking direction thus far this morning [Euro Stoxx 50 +0.1%] ahead of a quiet slate for the day
  • Sterling is strong ahead of today’s hectic UK Parliament schedule, which may well be the last until October 14th
  • Apple (AAPL) and Foxconn have reportedly violated a Chinese labour rule through the use of around 50% temporary workforce in a Chinese plant during August
  • Looking ahead, highlights include Norges Bank’s Matsen and UK Parliament

ASIA-PAC

Asian equity markets traded mostly positively but with gains relatively mild as the region digested the latest developments from the world’s 2 largest economies including the PBoC RRR cut announcement, mostly weaker than expected Chinese trade data and US NFP. ASX 200 (U/C) was choppy as upside in tech was counterbalanced by continued weakness in gold miners and after soft Chinese trade data which showed a surprise drop in Exports, while Nikkei 225 (+0.5%) remained afloat after Final GDP figures for Q2 printed inline with estimates. Hang Seng (Unch.) and Shanghai Comp. (+0.8%) were mixed as the mainland reacted to the PBoC’s 50bps RRR cut and further targeted 100bps reduction for qualified banks which is expected to release CNY 900bln of liquidity, although advances were limited by the weak trade figures and with Hong Kong dampened after further violent protests over the weekend. Finally, 10yr JGBs were higher despite the mostly positive risk tone and reclaimed the 155.00 level, although prices later stalled amid mixed results in the enhanced liquidity auction for 2yr-20yr JGBs.

PBoC injected CNY 120bln via 7-day reverse repos but skipped MLF operations vs. CNY 176.5bln of MLFs maturing. (Newswires) PBoC set CNY mid-point at 7.0851 vs. Exp. 7.0940 (Prev. 7.0855)

Heavy protests continued over the weekend in Hong Kong where police used tear gas to keep protesters from blocking the airport. (Newswires)

Chinese Trade Balance (USD)(Aug) 34.84B vs. Exp. 43.0B (Prev. 45.06B, Rev. 44.61B). (Newswires) Chinese Exports (USD)(Aug) Y/Y -1.0% vs. Exp. 2.0% (Prev. 3.3%) Chinese Imports (USD)(Aug) Y/Y -5.6% vs. Exp. -6.0% (Prev. -5.6%, Rev. -5.3%) Chinese FX Reserves (Aug) 3.107tln vs. Exp. 3.100tln (Prev. 3.104tln)

Japanese GDP (Q2 F) Q/Q 0.3% vs. Exp. 0.3% (Prev. 0.4%). (Newswires) Japanese GDP (Q2 F) Y/Y 1.3% vs. Exp. 1.3% (Prev. 1.8%)

GEOPOLITICS

China to invest USD 280bln into Iran with USD 120bln towards oil and industrial infrastructure. (Newswires)

UK/EU Summary outlining the schedule for Brexit today & points to note

UK Parliament is to be prorogued tonight and thereafter will not return until October 14th., Mirror's Bloom. (Twitter) Subsequently confirmed by a PM spokesperson. (Newswires)

Irish PM Varadkar says if there is a request for a Brexit extension from the UK, most countries would not want one, but if there is a good reason then we would consider this. (Newswires)

UK PM Johnson was reported to draw up a plan to legally sabotage Brexit extension if MPs vote against holding a general election, as such the government believes that today’s vote is the “last chance” for MPs to prevent a no-deal exit. (Telegraph) However, there were later reports that PM Johnson signalled to cabinet ministers the government would have to accept a 3-month Brexit delay if it is forced on him by the courts. (Times)

UK opposition lawmakers are to request emergency debate on Monday to try force government to publish a no-deal planning document and emergency debate regarding PM Johnson adhering to law on Brexit delay. (Newswires)

UK Work and Pensions Minister Amber Rudd quit the Cabinet and the Conservative Party on Saturday night in which she criticized the “short-sighted” ousting of pro-EU MPs and stated that she believed PM Johnson was aiming for a no-deal Brexit. (Newswires)

French Foreign Minister said that Brussels will not grant the UK an extension to A50 if the current circumstances remain the same. (Politico)

Plaid Cymru reportedly wish to use cross party discussions to consider the idea of impeaching UK PM Johnson in the event that he attempts to stop a Brexit extension. (Sky News)

ECB’s De Guindos said policy can play a greater countercyclical and stabilizing role, while he added that fiscal space should be used wisely in countries where it exists. (Newswires)

ECB are reportedly examining whether and how the ECB could purchase shares on stock exchanges in the event of an emergency (the article does not specify what would qualify as an emergency)., SuedDeutsche

UK GDP Estimate MM (Jul) 0.3% vs. Exp. 0.1% (Prev. 0.0%)

- UK GDP Est 3M/3M (Jul) 0.0% vs. Exp. -0.1% (Prev. -0.2%)

- UK GDP Estimate YY (Jul) 1.0% vs. Exp. 0.8% (Prev. 1.0%)

EQUITIES

Major European indices are mixed this morning but overall little changed [Euro Stoxx 50 +0.1%], as markets struggle for clear direction amidst a relatively quiet schedule and no further updates to the US-China trade situation. Unsurprisingly, sectors are painting a similar picture this morning though the energy sector outperforms amidst strength in the broader complex. In terms of individual movers, ProSiebensat (+5.5%) lead the Stoxx 600 after being upgraded to buy at UBS and the Co. stating they are to remain focused on their free-to-air business. At the other end of the spectrum are ThyssenKrupp (-2.3%) after the Co’s CEO states he would prefer a minority stake sale in their elevator division which has the potential to be valued at over EUR 15bln. Elsewhere, Lloyds (-0.4%) are slightly subdued after suspending their GBP 1.75bln share buyback scheme due to a substantial inflow of PPI claims, as such the Co. need to make an incremental charge of GBP 1.2-1.8bln on top of their prior Q3 provisions.

AAPLE (AAPL) & Foxconn (2354 TT) – Apple and Foxconn have reportedly violated a Chinese labour rule through the use of around 50% temporary workforce in a Chinese plant in August, which is in violation of Chinese Labour law which sets a maximum limit of 10%. (Newswires/China Labour Watch)

FX

GBP - Sterling survived and bout of selling pressure that pushed Cable down through 1.2250 and Eur/Gbp up above 0.9000, but was already recouping and reversing gains before a raft of UK releases that beat expectations across the board. This raised eyebrows and speculation about some being privy to the numbers or nature of the data beforehand, but others also pointed to the fact that the bill ensuring another Brexit extension rather than now deal is due to receive Royal Assent later today and reports that PM Johnson may have conceded that he may have to accept another 3 months if he fails to strike an accord with the EU before October 31. Meanwhile, opening remarks from his meeting with Irish PM Varadkar were largely upbeat and confident on the subject of resolving the Irish border backstop, including alternatives to the current WA proposal as he claimed there are many prospective options, but not for public consumption. In response and/or follow-through from the aforementioned encouraging data, Cable cleared 1.2300 more convincingly on its way over the 55 DMA (1.2328) and above last Friday’s post-NFP high (1.2338) to circa 1.2360, while Eur/Gbp reversed through the big figure and 0.8950, eyeing 0.8900 next.

AUD/NZD/NOK/CAD - The Antipodean Dollars have extended recovery gains vs their US counterpart in wake of the latest PBoC RRR cuts, a sub-forecast rise in US payrolls and despite Chinese trade data revealing an unexpected decline in exports. Aud/Usd has now advanced towards 0.6870 and Nzd/Usd is approaching 0.6450 as the Aud/Nzd cross pivots 1.0650. Elsewhere, strong Norwegian GDP for the month of July and firm oil prices are underpinning the Nok as it rebounds through 9.9000 vs a steady Eur overall, while the Cad is inching closer to resistance ahead of 1.3150 against its US rival on the back of Canada’s labour report and a bumper jump in the jobs tally.

EUR/JPY - Both narrowly mixed vs the Greenback around 1.1025 and 107.00 respectively, and well flanked by heavy option expiry interest as 1.8 bn rolls off at 1.1000 and 1 bn at 1.1050 in Eur/Usd, while 1.5 bn, 1.3 bn and 1.3 bn are layered in Usd/Jpy from 106.50-60, through 106.85-95 to 107.25-30. Note also, the Euro and Yen are not deriving much from the Buck indirectly as the DXY trades within a tight 98.512-309 band.

CHF - The G10 laggard as the Franc retreats from its post-NFP peaks towards 0.9900 again and Eur/Chf climbs towards the top of a 1.0930-1.0890 range amidst firmer risk sentiment overall and expectations that the SNB will respond to likely stimulus from the ECB this week and Fed next week at its September Quarterly Policy review.

EM - The Lira continues to underperform or hand back recovery gains following more dovish prompting from Turkish President Erdogan ahead of this month’s CBRT policy convene where forecasts range from 225-275 bp worth of easing after the significantly bigger than anticipated -425 bp in July. Usd/Try is back above 5.7300 in contrast to Usd/Zar that is now under 14.7500 irrespective of more warnings from the ratings agencies about aid for SA’s power company Eskom and S&P advising caution when restructuring the firm’s bonds.

Notable Option Expiries:

- EUR/USD: 1.1000 (1.8BLN), 1.1025 (730M), 1.1050 (1BLN)

- USD/JPY: 106.50-60 (1.5BLN), 106.85-95 (1.3BLN), 107.25-30 (1.3BLN)

FIXED

Bonds have broken lower again, albeit not in a straight line or perhaps due to more post-data/survey selling in a belated fashion, despite the UK beats and a bigger than forecast bounce in the Eurozone Sentix index. Instead, it appears that rising Brexit deal prospects/declining cliff edge risk have weighed heavier on Gilts and propelled Sterling to fresh recent peaks, with the 10 year benchmark just off a fresh 133.29 Liffe low, Bunds down to 174.59 at worst and US Treasuries crossing 131-00/1.60% in benchmark yield terms. Ahead, the next instalments from Westminster and a pretty barren US slate with only consumer credit scheduled.

COMMODITIES

Brent and WTI prices are firmer this morning, with both WTI and Brent having successfully surpassed the USD 57.00/bbl and USD 62.00/bbl marks at best thus far. Nothing too fresh in the way of fundamental news flow this morning, but weekend reports showed that Saudi Energy Minister Al Falih has been replaced by Prince Abdulaziz; PVM indicate that no changed is to be expected in the current strategy of OPEC and if anything this may strengthen their resolve to balance markets. Other energy minister comments from Secretary General Barkindo that the JMMC could debate potential new production targets, meeting is scheduled for September 12th. The complex may have derived some support this morning from renewed geopolitical tensions via Iran, who have told the IAEA that they intend to produce enriched uranium with advanced centrifuges and as such would breach the nuclear deals imposed ban. Although, gold has failed to generate too much in the way of support from these comments with the yellow metal little changed on the day and still holding above the USD 1500/oz mark going into a critical week for markets courtesy of the ECB on Thursday. Separately, China’s Iron imports increased 6% YY to their highest since January 2018, which ING note is due to increasing shipments from Australia and amidst a recovery in Brazilian exports.

Saudi Arabia removed Energy Minister Al-Falih from position and replaced him with Prince Abdulaziz bin Salman bin Abdulaziz al-Saud. (Newswires)

US Deputy Energy Secretary Brouillette says US is working very hard to pump more oil and forecasts 13mln bpd US oil output by year-end. (Newswires)

Oman's Oil Minister says it is currently too early to say if deeper oil cuts will be required in 2020. (Newswires)

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Asia begins cautious as oil surges and geopolitical concerns heighten following attacks on Saudi refineries, while… https://t.co/0pwRyT8UWv