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[PODCAST] EU Open Rundown 25th September 2019

  • Asian equity markets tracked the losses seen across global peers amid headwinds from the US
  • UK government source expects a quick push for an election again perhaps even as early as this week, Cabinet source sees this being tabled on Thursday
  • China’s Foreign Minister says US-China relations have come to a crossroad, and trade negotiations cannot happen under threats
  • US House Speaker Pelosi says the House is to open a formal impeachment inquiry into US President Trump
  • RBNZ left rates unchanged at 1.0%, added that new information did not warrant significant change to policy outlook
  • Looking ahead highlights include US New Home Sales, SNB Quarterly Bulletin, BoJ’s Masai, ECB’s Coeure, Lautenschlager, Fed’s Evans, George, Brainard, Kaplan, BoE’s Carney, Riksbank’s Floden. Supply from Germany & US

ASIA-PAC

Asian equity markets tracked the losses seen across global peers amid headwinds from the US where sentiment was dragged by weak Consumer Confidence data, increasing impeachment concerns and after President Trump kept a hardline tone on China and Iran. ASX 200 (-0.3%) and Nikkei 225 (-0.4%) were lower with Australia pressured by losses in the mining-related sectors and after optimistic comments on the economy from Governor Lowe placed some doubts regarding a rate cut next week, while Japan trade was dampened by recent flows into its currency and ongoing uncertainty regarding a trade deal with the US. Hang Seng (-0.5%) and Shanghai Comp. (-0.6%) were also negative after US President Trump kept a hawkish tone on China during his UN speech in which he alleged China has not adopted promised reforms, uses heavy state subsidies, steals intellectual property and manipulates its currency. This was later followed by comments from China’s Foreign Minister Wang who responded with a more conciliatory tone in which he suggested the sides need to take their bilateral relationship forward with wisdom as well as conviction and that neither countries can move ahead without the other, although he also added the US should not try to change China and that trade negotiations cannot happen under threats. Finally, 10yr JGBs were higher amid the negative risk tone and as the pressure on yields resumed with the 10yr yield below -0.25% and the 5yr yield touched a record low which has spurred speculation BoJ may be forced to reduce is regular purchases, while weaker results at the 40yr JGB auction did little to dent the rally in Japanese bonds.

PBoC injected CNY 20bln via 14-day reverse repo for a net daily drain of CNY 10bln. (Newswires) PBoC set CNY mid-point at 7.0724 vs. Exp. 7.0748 (Prev. 7.0729)

China Foreign Minister Wang Yi said US and China need to take their bilateral relationship forward with wisdom and conviction, while he added that the relations have come to a crossroads and the trade war has inflicted losses on both sides. Wang further commented that neither US nor China can move ahead without the other and that opening up, as well as integration represent the way forward. However, Wang also stated US reverting to containment policy on China is a wrong idea which cannot possibly work, and that China will remain on its own path, while he added US should not try to change China and that trade negotiations cannot happen under threats. (Newswires)

China is reportedly to keep supporting pork and soybean purchases from the US and is said to have made enquiries regarding buying more US pork as trade talks revive. (Newswires/Xinhua) China Q3 Beige Book said China's economic performance during Q3 is the weakest so far for 2019. (Newswires)

BoJ minutes from July 29th-30th meeting stated it is appropriate to continue easing persistently and that it would take time to reach 2% inflation goal. BoJ also reiterated that Japan's economy had been on a moderate expanding trend although exports had shown some weakness and industrial production had been more or less flat, while one member said should respond quickly if risks impact prices and that they need to act pre-emptively to downside risks. (Newswires)

UK/EU

UK government source expects a quick push for an election again perhaps even as early as this week, although the source added that it won’t fly until UK PM Johnson agrees an extension; Cabinet sources believe the PM will present an election vote on Thursday. (Twitter/Sky/Telegraph)

Irish PM Varadkar said following meeting with UK PM Johnson that there were no Brexit agreements by any means however they did get into further details. (Newswires)

US President Trump said the US can quadruple its trade with Britain and UK PM Johnson reiterated he hopes to make quick progress with the US regarding trade. (Newswires)

FX

DXY was firmer overnight around the 98.50 level as it recovered some of the prior day’s lost ground against its major counterparts, in which EUR/USD reclaimed the 1.1000 handle to the upside but then struggled to hold on to it during Asia trade, while GBP/USD gave back some of the gains seen from the Supreme Court ruling, as resistance at 1.2500 stalled the advances in the pair. Elsewhere, USD/JPY was initially subdued by the risk averse tone but eventually rebounded from support at 107.00 and antipodeans were mixed as AUD/USD retraced the gains from RBA Governor Lowe’s optimistic comments on the economy, while NZD/USD outperformed after the RBNZ kept rates unchanged as expected and provided a neutral tone in which they kept the door open for future action but also noted that a steady OCR is needed to ensure inflation increases to mid-point of target range.

RBNZ maintained the Official Cash Rate at 1.00% as expected, while it stated the committee agreed new information did not warrant significant change to the policy outlook and that a steady OCR is needed to ensure inflation increases to the mid-point of its target range. RBNZ added there remains scope for fiscal and monetary stimulus, that domestic rates can be expected to remain low for longer but also noted that low rates and government spending is expected to support demand in the coming years. (Newswires)

COMMODITIES

Commodities were subdued overnight in which crude prices extended on yesterday’s declines to below the USD 57.00/bbl level amid demand-side factors after weak US Consumer Confidence data and with losses exacerbated by the broad risk-averse tone, as well as a surprise build in the latest API headline crude stock inventories. Elsewhere, gold took a breather from the prior day’s rally as the greenback gradually recovered, while copper prices were lacklustre as they conformed to the overall picture in the complex and global downbeat sentiment. 

API Crude Inventories: +1.4mln vs. Exp. -0.2mln (Prev. +0.6mln). (Newswires)

GEOPOLITICS

US Secretary of State Pompeo tweeted that Iran must not be allowed to continue its destructive behaviour and suggested for the sake of the Iranian people and the world, the UNSC has a vital role to play in ensuring the UN arms embargo on the world’s top sponsor of terrorism. (Twitter)

Saudi Foreign Minister said they will consider all options including military, after the completion of the probe into the attack on Saudi oil facilities. (Newswires)

French President Macron said he believes conditions are there for a rapid return to negotiations between Iran, US and other, while he added the lifting of US sanctions is possible if there are commitments from Iran on nuclear and regional activities. (Newswires)

Japanese PM Abe said he is determined to meet with North Korea leader Kim without attaching any conditions and that Japan aims to normalize ties with North Korea by resolving issues such as abductions, nuclear and missiles. (Newswires)

US

The curve was mixed at settlement; although yields are lower across the curve, 2s5s, 2s10s and 2s30s spreads are slightly narrower, while 5s10s, 5s30s and 10s30s were modestly wider. Today’s bid was inspired by weak consumer confidence data, while the slide in risk assets also contributed Trump stuck to the script at the UN, but revealed no signs of thawing on China or Iran, while the NY Fed’s repo operations – both the 14-day and the overnight operation – were oversubscribed, hinting that liquidity conditions in money markets might not be a temporary phenomenon, and possibly reflects some other underlying tensions other than the temporary factors cited last week (last week, the crunch in money markets was attributed to corporate tax paying and digesting Treasury issuance). The Treasury’s sale of 2-year notes was solid, stopping through the screens by 1bps. Cover was above recent averages, and the bidder breakdown was also encouraging, seeing primary dealers participation lower, and indirect bidder participation above recent averages. US T-note futures (Z9) settled 20+ higher ticks at 130-23.

US House Speaker Pelosi said the House is to open formal impeachment inquiry on President Trump, while she added that Trump’s actions have seriously violated the constitution and that he must be held accountable. Pelosi also commented that Trump's call with the Ukraine President marked breach of constitutional responsibilities and that the administration's effort to block release of whistle blower report was a violation of law.  Furthermore, the House will vote on Wednesday on Trump condemnation motion and there were also reports the US Senate approved resolution for whistle blower complaint to be submitted to Senate and House Intel Committees. (Newswires)

US President Trump said he will release the 'fully declassified and unredacted transcript' of his phone conversation with the Ukrainian President, while he also suggested the Democrats purposely had to ruin and demean an important and successful day at the United Nations with a witch hunt and called it presidential harassment. (Newswires/Twitter) 

Fed's Kashkari (non-voter, dove) said he pushed for a larger rate cut at the September FOMC and commented that the job market has slowed markedly. (Newswires)

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Asia equity markets begin the week on the front-foot as the region reacts to the US-China "Phase 1" trade deal, wit… https://t.co/lJVaKJy53Z