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[PODCAST] EU Open Rundown 8th October 2019

  • Asian equities traded higher across the board despite a lacklustre handover from Wall Street, HKEX dropped its bid for LSE and Samsung Electronics released its Q3 guidance
  • China is ready to do a deal on the parts of the negotiations both sides agree upon and are prepared to set out a timetable for the harder issues to be worked out next year, according to Fox
  • US Commerce Department confirmed it has blacklisted 28 Chinese firms over treatment of the Muslim Uighur community
  • In FX, DXY remained within a narrow band, JPY was modestly softer, Antipodeans outperformed, TRY held onto losses
  • Looking ahead, highlights include Swiss unemployment Rate, German Industrial Output, French Trade, US PPI and EIA STEO, BoE’s Tenreyro, Norges Bank’s Olsen, ECB’s Lane and de Cos, Fed’s Powell, Evans and Kashkari, supply from UK, Germany and US

TRADE

China is ready to do a deal on the parts of the negotiations both sides agree upon and are prepared to set out a timetable for the harder issues to be worked out next year, according to Fox citing the Chinese Commerce Ministry. The Chinese Commerce Ministry said what is not on the table and never will be is changes to their laws to protect intellectual property, adding the Chinese will deal with IP theft through administrative regulations, according to FBN's Edward Lawrence. (Twitter) US President Trump said if anything bad happened in HK, it would be bad for US/China trade talks, whilst he reiterated the US is shooting for a big deal with China and there is a good possibility of a deal. Further, the Chinese trade delegation, including Vice Premier Liu He will be in Washington on October 10/11th for trade talks. (Newswires)

US Commerce Department confirmed it is naming 28 Chinese governmental and commercial organisations - including Hikvision - to the entity list over treatment of the Muslim Uighur community, effective Monday. (Newswires)

ASIA-PAC

Asian equities traded higher across the board despite a lacklustre handover from Wall Street where stocks were choppy but ultimately closed in the red amid trade war jitters after the US blacklisted Chinese governmental and commercial organisations over treatment of the Muslim minority community. ASX 200 (+0.4%) was kept afloat by miners amid favourable price action in base metals, whilst Nikkei 225 (+1.0%) was bolstered on the back of a weaker Yen and after US and Japan signed a limited trade deal on agricultural and digital trade. Hang Seng (+0.8%) and Shanghai Comp (+0.8%) returned from a long weekend and played catchup to the NFP-induced upside in the prior session. The former was buoyed by heavyweights Geely Auto after dealers noted a pickup in sales during Golden Week, whilst HKEX shares rose in excess of 2% after it dropped its GBP 32bln bid for LSE, as the boards of the two companies were “unable to engage”. Meanwhile, Mainland China saw upside despite the Caixin Services metric falling short of forecasts, as an improvement in the Composite metric signalled the strongest rate of growth since April. Furthermore, South Korea’s KOSPI (+0.8%) showed a strong performance as the index was supported by tech giant Samsung Electronics, who’s shares spiked higher by 1% after its Q3 guidance topped analyst expectations, albeit it still noted that its profits will likely plunge 56% Y/Y. Finally, core fixed-income futures drifted lower and tracked the risk sentiment around the market with UST and Bund futures poised to close Asia trade near session lows.

Hong Kong Chief Executive Lam said she has no plans to introduce other laws using the emergency regulation ordnance, it's too early to say the anti-mask law is ineffective. (Newswires) Reports, citing the Chief Executive, noted that the Chinese military could step in if the ongoing protests in the city get worse. (Sputnik) The Hong Kong leader also noted that during Golden week, the number of visitors declined 50% Y/Y. (Newswires)

PBoC set CNY mid-point at 7.0726 vs. Exp. 7.0799 (Prev. 7.0729) (Newswires) PBoC skipped open market operations for a net daily drain of CNY 250bln

Chinese Caixin Services PMI (Sep) 51.3 vs. Exp. 52.1 (Prev. 52.1) - Seven month low (Newswires) Chinese Caixin Composite PMI (Sep) 51.9 (Prev. 51.6) - signals the strongest rate of growth since April (Markit)

UK/EU

UK Downing Street contact believes that negotiations will probably end this week, and added Irish PM Varadkar does not want to talk anymore, and German Chancellor Merkel and French President Macron will not push EU’s Chief Brexit Negotiator Barnier unless Ireland says it wants to negotiate, according to The Spectator’s James Forsyth. Furthermore, UK and EU negotiators will be meeting this morning, according to Buzzfeed's Nardelli, who added that EU diplomats were also told that there haven't been significant developments on the declaration outlining the future relationship. (Twitter) A leaked document details the EU's point-by-point rejection of PM Johnson's Brexit proposals, the Guardian reports. (Guardian) UK Downing Street said the EU governments which oppose a Brexit delay will be rewarded by UK PM Johnson, and that if the EU approves a delay Johnson will do his best to sabotage the functioning of the EU, pending Brexit, ITV's Peston. (Twitter)

UK borrowing could rise to GBP 100bln in the case of a no-deal Brexit, accordion to think tank IFS. Furthermore, the body notes that the nation cannot afford the tax cuts that PM Johnson has pledged during the Conservative leadership campaign. (BBC/Times)

US Secretary of State Pompeo tweeted that he had a great discussion with UK Foreign Secretary Raab, "We discussed our intentions to negotiate an ambitious future free trade agreement, ways to counter Iran’s influence in the Middle East, and Turkey"

GEOPOLITICS 

US President Trump warns Turkey that if it does anything "off limits" he will destroy and obliterate their economy. Meanwhile, there were reports of a Turkish airstrike on Kurdish forces on the border of Syria and Iraq, according to ELINT news. Kurdish town Al-Malikiyah in northern Syria is under Turkish artillery shelling, according to ELINT News. Turkish Defence Ministry says all preparations are complete for the military operation into Syria, whilst reports stated that US does not endorse any Turkish operations in northern Syria, according to a senior administration official cited by VOA News’ Steve Herman, who added that US troops will be withdrawn from the Turkey-Syria border, not out of Syria entirely. (Twitter)

FX

In FX markets, DXY remained within a narrow band between 98.93-99.00, but the index traded mostly towards the bottom of the range throughout the session, ahead of today’s appearance from Fed Chair Powell and with working level US-Sino trade talks in Washington set to take place between October 10th and 11th. EUR/USD and GBP/USD initially saw some mild upside but the former hovered around 1.0975 throughout the session (ahead of 1.1bln in options expiring at strike 1.1005), whilst Cable failed to breach 1.2300 to the upside. Elsewhere, USD/JPY meandered below the 107.50 as the pair remains on standby ahead of key risk events, whilst option expiries see 1.4bln at strike 107.80 at today’s NY cut. Antipodeans outperformed as the region looks forward to working level talks between US and China later this week. NZD/USD regained 0.63+ status after the NZ Treasurer noted that the country’s final budget surplus is over NZD 4bln above original forecasts, whilst AUD/USD was little dented from disappointed data overnight and eyes 0.6750 to the upside. Finally, the Turkish Lira held onto a bulk of its losses after US President Trump warned that the US will “obliterate” Turkey’s economy if it does anything “off limits” in regards to Turkey’s long-awaited invasion of Northern Syria, although a Senior Admin Official noted that the US did not endorse Turkish operations in the region. USD/TRY remains north of 5.8000 vs. a sub-5.7000 low yesterday. 

Mexican Central Bank Governor says adjustments have been required to the real exchange range for shocks to be absorbed by the Mexican economy, mild economic recovery is expected for the remainder of the year. (Newswires)

COMMODITIES

WTI and Brent futures consolidated following yesterday’s losses amid the back-and-forth China trade sentiment. The benchmarks edged higher during Asia-Pac trade, mostly on the back of risk appetite. WTI futures managed to reclaim 53/bbl to the upside ahead of its 200 WMA (53.63/bbl) whilst its Brent counterpart moved back above its respective 200 WMA (58.42/bbl) with the benchmark eyeing 59.00/bbl as the next level to the upside. Next up, traders will be paying attention to any global oil demand forecast revisions in the EIA Short Term Energy Outlook ahead of the weekly API crude inventories. Elsewhere, gold was choppy but remained below 1500/oz ahead of the upcoming risk events, whilst copper outperformed on the risk environment and as prices saw a substantial leg higher ahead of the China cash open and now resides a whisker away from 2.6/lb.

US

* US T-NOTE FUTURES (Z9) SETTLED 12+ TICKS LOWER AT 131-16+: Treasuries, alongside EGBs, began treading lower in the European session as participants became cautiously optimistic in anticipation of US-China trade talks (reflective in major equity bourses, too), although some ominous updates ahead of the meetings failed to reverse the sell-off (it reversed the gains in equities), desks also noted dealer book squaring ahead of a heavy supply schedule at auctions later in the week. There was a pare back of last week’s bull steepening in anticipation of further Fed easing post the poor ISM data, with the overhang of Friday’s relatively decent payrolls report cooling some of the October cut pricing. Looking ahead, Fed Chair Powell is scheduled to provide remarks on monetary policy on Tuesday, too, where the market will be looking for some confirmation on whether the Fed is onboard with an October rate cut. At Treasury settlement yields were higher, seeing the curve bear flatten – 2s10s narrowed by 3.5bps, taking the spread back beneath 10bps.

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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