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[PODCAST] EU Open Rundown 9th October 2019

  • Asian stocks tracked losses on Wall Street but drifted off lows, South Korea was closed due to a public holiday
  • US imposed Visa bans against Chinese individuals related to abuse of China's Uighur community, China said the move interferes in China's internal affairs and undermines China's interests
  • US and Kurdish officials expect Turkey to launch an attack on Northeast Syria within the next 24 hours, Turkish attack appears coordinated with Russians according to sources
  • Fed Chair Powell said Fed is to expand balance sheet to maintain appropriate level of reserves, but it should not be confused with QE
  • In FX, DXY was contained, EUR and GBP were flat, JPY marginally softer and Antipodeans outperformed
  • Looking ahead, highlights include US JOLTS, EIA Weekly Crude Inventories/Production, FOMC Minutes, Fed’s Powell, Eurogroup meeting and supply from US

TRADE

US imposed Visa bans against Chinese individuals related to abuse of China's Uighur community. The Chinese Embassy said the imposition of Visa restrictions "seriously violates the basic norms governing international relations, interferes in China's internal affairs and undermines China's interests" (Newswires)

China wishes to reach an agreement, but has not made an urgent timetable for itself, Global Times reported. The article added that neither Chinese nor US society has high expectations for the two countries to reach an agreement soon, since the two countries still have trade conflicts and their strategic mistrust continues to rise. To reach an agreement, the Chinese and the US governments need to show political determination and make major efforts. Meanwhile, China Global Times Editor Huxijin said he can feel that the Chinese society has low expectations for a real breakthrough in the new round of trade talks. (Global Times/Twitter)

White House Trade Adviser Navarro said the blacklisting of Chinese companies is unrelated to the trade talks, reiterated the US wants a big deal with China. (Newswires)

ASIA-PAC

Asian stocks tracked losses on Wall Street, where the DJIA decline over 300 points as optimism surrounding US-China trade talks diminished further after the US imposed Visa bans on Chinese individuals related to the abuse of China's Uighur community, which the Chinese Embassy said undermines China’s interests. Stocks in Asia then showed a mild recovery amid an indecisive risk tone ahead of this week’s key risk events. ASX 200 (-0.8%) was pressured by losses in large-cap miners, whilst Nikkei 225 (-0.8%) was dragged lower by chipmakers following downside in US peers, although the index pared some losses amid favourable JPY action. Elsewhere, Hang Seng (-0.8%) and Shanghai Comp (-0.1%) were choppy with gains in the Hong Kong capped by Real Estate stocks as the ongoing anti-government protests continue to impact the domestic housing market, whilst Mainland China was cushioned by industrial and machinery names on the back of favourable base metal prices. As a reminder, South Korean markets are closed due to a public holiday.

PBoC set CNY mid-point at 7.0728 vs. Exp. 7.0929 (Prev. 7.0726) (Newswires) PBoC skipped open market operations for a net daily drain of CNY 20bln

UK/EU

The EU is set to extend Brexit talks into as late as next summer, with EU leaders poised to consider a range of dates at next week’s EU summit but sources noted the natural cut-off date would be June. (Guardian)

UK PM Johnson has had a "constructive" call with Irish PM Varadkar, pair to meet in Dublin, Ireland on Thursday or Friday, according to sources cited by The Sun. (Sun) Separate reports noted that UK PM Johnson will make a last-ditch effort to convince Irish PM Varadkar to engage with his plans for a customs border in a face-to-face meeting would could take place today. (Times) Meanwhile, the Irish PM said that “big gaps” remained between the two sides. (BBC)

EU Parliament President Sassoli said UK PM Johnson would not request a Brexit extension from the EU and if there is a will and a proposal from the UK, there is a possibility of a deal. (Newswires)

UK PM Johnson is said to be facing a cabinet rebellion over a no-deal Brexit, "many Tory MPs" are reportedly to quit if there is a no deal Brexit. (Times) This also comes in the context of an FT reports suggesting that at least 50 MPs from the party would revolt against any manifesto in a general election that pledged to pursue a no-deal Brexit. (FT)

UK Parliament has been suspended in order to hold a Queen's Speech next Monday and set out its domestic agenda. (Sky News) UK PM Johnson is planning to tell the Queen she cannot sack him even if he loses a no confidence vote and MPs pick a caretaker replacement. Senior No10 aides are preparing legal advice for the Queen to ensure PM Johnson can stay on to try to deliver Brexit on Oct 31st. (Sun)

GEOPOLITICS 

US and Kurdish officials expect Turkey to launch an attack on Northeast Syria within the next 24 hours, according to Foreign Policy's Pentagon Correspondent. Separate reports noted that US officials have informed Syrian Kurds that Turkey is likely to attack on air and ground in the next 24 hours, Turkish attack appears coordinated with Russians, according to Washington Post's Ignatius citing sources. (Twitter) Turkish President Erdogan’s aid said the Turkish military together with the Free Syrian army will cross the Turkish-Syrian border shortly. (Newswires) US Senator Lindsey Graham warned the Turkish government that it did not receive the green light to enter Northern Syria, and added that "there is massive bipartisan opposition in Congress, which you should see as a red line you should not cross." (Twitter)

FX

 

DXY climbed off lows but remained choppy within a narrow parameter (99.08-14) after the Buck was little changed by Fed Chair Powell largely sticking to the script, which comes ahead of the Fed Chair’s final appearance for the week and the FOMC minutes later today. EUR/USD and GBP/USD traded sideways above 1.0950 and 1.2200 respectively, with the latest reports note of further potential Tory resignations over a no-deal Brexit, although this failed to influence the latter. Elsewhere, JPY was initially firmer after the aforementioned US Visa ban on China soured sentiment, albeit USD/JPY recovered off worst levels as sentiment was indecisive overnight with the pair now above the 107.00 mark where over USD 2bln in options are to expire at today’s NY cut. Antipodeans were modestly firmer after initially seeing downside as the Westpac Aussie Consumer Confidence fell to the lowest level since July 2015. AUD/USD remained sub 0.6750 ahead of its 50 DMA at 0.6778, whilst NZD/USD reclaimed 0.6300 to the upside and eyes its 50 DMA at 0.6372. Finally, USD/CNH saw upside throughout yesterday’s session amid the seemingly deteriorating relationship between US and China heading into tomorrow’s trade discussions. USD/CNH reached a high of 7.1672 before drifting lower due to a stable PBoC CNY fix.

Australian Consumer Sentiment (Oct) -5.5% (Prev. -1.7%) to 92.8 (Prev. 98.2) - Lowest since July 2015. (Newswires)

COMMODITIES 

WTI and Brent futures traded choppy overnight as the complex mirrored the risk sentiment in the market. The benchmarks were little moved by the EIA’s latest world oil demand forecast cut, whilst this week’s API’s initially spurred upside in futures despite a larger-than-expected headline crude build as participants paid more attention to the internals, albeit prices pared a bulk of the move in early APAC trade. WTI futures traded around 52.50/bbl throughout the session whilst Brent futures fluctuated on either side of 58/bbl with participants eyeing geopolitical and trade developments ahead of the weekly DoE crude stock data. Elsewhere gold remained flat above 1500/oz whilst copper traded choppy after the red metal fell back below its 50 DMA (2.5850/lb) amid trade jitters.

EIA cuts its forecasts for 2019 world oil demand growth by 50k BPD to 840k BPD y/y increase, cuts 2020 by 100k BPD and now sees 1.3mln BPD y/y increase. US crude output to rise 1.27mln BPD to 12.26mln BPD in 2019 (Prev. month forecast: +1.25mln BPD). US crude output to rise 910k BPD to 13.17mln BPD in 2020 (Prev. month forecasted a rise to: +13.23mln BPD). (Newswires)

API Energy Inventories: Crude +4.1mln (exp. +1.4mln, Prev. -5.9mln) (Newswires) API Cushing Inventories +1.2mln (exp. +0.348mln, Prev. +0.37mln) API Distillate Inventories -4.0mln (exp. -2.1mln, Prev. -1.7mln) API Gasoline Inventories -5.9mln (exp. -0.3mln, Prev. +2.1mln)

Saudi Aramco IPO prospectus to be published before the end of October, according to sources cited by WSJ. (WSJ)

FED

Fed Chair Powell said Fed will soon announce measure to add to reserves supply over time, time is now upon us to expand balance sheet to maintain appropriate level of reserves, should not be confused with QE. Purchases of treasury bills to resolve the recent technical issues will not materially affect monetary policy stance. Powell also noted that jobs and inflation picture is favourable, sees continued economic expansion, a strong labour market and inflation near 2% goal as most likely outlook, reiterates global development pose risks to a favourable outlook in the US. The Fed Chair said the economy feels sustainable, no aspect is booming, and economy is not hot. Powell reaffirmed recent comments from Fed members, stating that the Fed will assess outlook on a meeting by meeting basis, policy is never on a pre-set course and it will change as appropriate. (Newswires)

Fed's Evans (Voter, Dove) said he would not mind another interest rate cut. He believes downside risks to the economy are stronger than the upside risks; consumer is benefiting from a strong labour market; he is looking for 2% growth in 2020 and is still optimistic on the US outlook, economy is good. Evans added that the repo-market pressures have now subsided and that the extension of operations to November 4th are helpful. (Newswires) Reminder, the latest Fed dot plots saw 7/17 members see 1 more rate cut this year.

Fed's Kashkari (2020 Voter, Dove) said he is generally in favour of lower interest rates but does not know how much lower, policy rate may be near neutral now or slightly contractionary. (Newswires)

US

* US T-NOTE FUTURES (Z9) SETTLED 6 TICKS HIGHER AT 131.22+: The TPLEX was pretty much unchanged going into remarks by Fed Chair Powell, and then steepened in wake of his comments, where he said that the Fed soon announce measures to add to reserves supply over time, and that the time was now upon us to expand balance sheet in order to maintain an appropriate level of reserves, warning that such moves should not be framed as ‘QE’. In wake of Powell’s comments, the implied probability of a 25bps rate cut rose to around 80% from around 75% at the close of business on Monday.  The US Treasury kicked-off the week’s Treasury supply with a lacklustre sale of 3s, which tailed by 0.4bps, while cover came in below recent averages; the paper was sold at the lowest 3s auction yield since November 2016. There was little impact on the curve after the auction.

White House told the House Democratic leaders that it will not partake in US President Trump's impeachment inquiry due to the lack of precedent of an impeachment inquiry proceeding without a vote of the full house. US House Speaker Pelosi responded by stating "The White House should be warned that continued efforts to hide the truth...will be regarded as further evidence of obstruction". Meanwhile, US House Democrats subpoena US Ambassador to the EU Sondland after stated department told him not to appear before committees in the impeachment probe (Newswires)

A majority of Americans back US President Trump's impeachment probe but a plurality say that based on what they know, President Trump should not be removed from office, according to a WSJ/NBC poll. (WSJ)

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