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[PODCAST] EU Open Rundown 21st October 2019

  • Asian equity markets began the week with a cautious tone following last Friday’s lacklustre close on Wall St and amid continued Brexit uncertainty
  • Parliament vote on the Brexit deal was postponed on Saturday after lawmakers voted (322-306) in favour of passing the Letwin amendment
  • PM Johnson stated that legislation will be tabled in the upcoming week and sent a letter to the EU requesting a Brexit extension which he did not sign
  • Looking ahead highlights include, German PPI, BoE’s Haldane, Fed’s Bowman, ECB VP de Guindos, Canadian Elections

ASIA-PAC

Asian equity markets began the week with a cautious tone following last Friday’s lacklustre close on Wall St and amid continued Brexit uncertainty. ASX 200 (-0.1%) and Nikkei 225 (+0.3%) were mixed with Australia dragged by underperformance in the tech sector. However, resilience in the property and mining sectors has limited the losses in Sydney, while Tokyo sentiment was kept afloat by mild JPY weakness as a larger than expected contraction in exports ata added to the pressure for the BoJ to act. Hang Seng (+0.3%) and Shanghai Comp. (Unch.) conformed to the indecision after the PBoC injected liquidity via open market operations but refrained from anticipated cuts to its Loan Prime Rates, with Hong Kong also mildly underpinned after China revised rules to permit mainland investors to trade Hong Kong-listed dual class shares through the Stock Connect. Finally, 10yr JGBs are lower in which prices retested prior support around the 154.00 level and with demand subdued as Japanese stocks remained afloat, although downside was stemmed amid the BoJ presence in the market for JPY 1.16tln of JGBs in up to 10yr maturities.

PBoC injected CNY 50bln via 7-day reverse repos. (Newswires) PBoC set CNY mid-point at 7.0680 vs. Exp. 7.0681 (Prev. 7.0690)

PBoC 1yr Loan Prime Rate 4.20% vs. Exp. 4.15% (Prev. 4.20%). (Newswires) PBoC 5yr Loan Prime Rate 4.85% vs. Exp. 4.83% (Prev. 4.85%)

Chinese House Prices (Sep) Y/Y 8.4% (Prev. 8.8%). (Newswires)

Japanese Trade Balance Total (JPY)(Sep) -123.0B vs. Exp. 54.0B (Prev. -143.5B). (Newswires) Japanese Exports (Sep) Y/Y -5.2% vs. Exp. -4.0% (Prev. -8.2%) Japanese Imports (Sep) Y/Y -1.5% vs. Exp. -2.8% (Prev. -11.9%)

UK/EU

Parliament vote on the Brexit deal was postponed on Saturday after lawmakers voted (322-306) in favour of passing the Letwin amendment which withholds approval of the Brexit deal until legislation to ratify it is passed and which effectively forced PM Johnson to request a Brexit extension to January 31st under the Benn Act. Following this, PM Johnson stated that the legislation will be tabled in the upcoming week and sent a letter to the EU requesting a Brexit extension which he did not sign, while he sent 2 other letters where he stated that the extension request was from Parliament and urged the EU not to grant the extension. (Newswires) UK PM Johnson could be held in contempt by Scottish Court for urging EU leaders to ignore a letter asking for an extension to Brexit. Scotland's most senior judge, Carloway, alongside two other judges will hear the allegations today. (Guardian) UK de facto Deputy Gove has triggered official contingency plans for a no-deal Brexit in an attempt to pressure MPs into backing PM Johnson's Brexit deal. (Guardian) Elsewhere, the UK Government are reportedly drawing up plans for an election as soon as November 28th. (Telegraph)

UK Foreign Secretary Raab suggested that the government has the numbers to pass the deal in Commons and is confident the UK will leave on October 31st. Cabinet Minister Gove also stated that the UK will still leave on October 31st and that Parliament cannot change the government’s policy or determination, while there were separate comments from MPs Amber Rudd and Sir Oliver Letwin that suggested they will back PM Johnson’s Brexit deal. (Newswires)

Daily Telegraph’s Political Correspondent Yorke tweeted that a senior DUP figure said the party could back a customs union amendment to the WAB in order to ensure whole of the UK leaves EU under the same customs arrangements and that the party will discuss issue over next 24-48 hours, while he added that another DUP figure said they’ll unleash guerrilla warfare in Parliament to block the Brexit deal unless Boris Johnson goes back to Brussels and addresses their concerns with the party said to be looking at multiple options this week. (Twitter/Daily Telegraph)

EU leaders held a brief meeting on Sunday regarding the Brexit in which they said they will play for time rather than rush to decide on PM Johnson’s “extension request”, while other reports suggested the EU is poised to grant the extension in which diplomatic sources stated the UK could leave sooner if the deal is ratified prior to the end of the extension. (Newswires/Sunday Times) France’s European Affairs Minister Amelie de Montchalin urged UK MPs to deliver a "yes or no" verdict so that EU leaders can gather to discuss whether to grant a delay. (Telegraph)

BoE Governor Carney sees many different monetary policy paths post-Brexit, while he responded that he will not be pre-committing and cited lingering global trade concerns when asked about the potential for post-Brexit hikes. (Newswires)

ECB’s Holzmann (Hawk) said ECB should lower its inflation target in the upcoming review, would support a target of 1.5% or even lower, while he sees indications that EZ economic improvement is on its way and that an orderly Brexit would help. (Newswires)

Incoming ECB Chief Lagarde said everybody will be a little bit less well-off due to Brexit and that US-China trade war will certainly give a big haircut to the global economy. (Newswires)

Fitch affirmed UK sovereign rating at AA; Outlook maintained at Watch Negative. (Newswires)

UK Rightmove House Prices (Oct) M/M 0.6% (Prev. -0.2%). (Newswires) UK Rightmove House Prices (Oct) Y/Y -0.2% (Prev. 0.2%)

FX 

The greenback is relatively stable with minimal gains seen amid weakness in its transatlantic counterparts in which EUR/USD was pressured near 1.1150 and GBP/USD briefly gave back the 1.2900 handle after ‘Super Saturday’ failed to live up to the hype and the Brexit deal vote was postponed as lawmakers passed the Letwin amendment. This effectively withheld approval of the Brexit deal and therefore forced PM Johnson to request a Brexit extension to January 31st. USD/JPY and JPY-crosses mirrored the mixed trade in their base currencies with gradual pressure observed in Japan’s currency following a 10th consecutive contraction of its exports, while antipodeans shrugged off early downside after a relatively stable CNY reference rate and with NZD/USD the outperformer as it eyed the 0.6400 handle to the upside.

Switzerland conducted its federal election over the weekend in which the anti-immigrant right-wing Swiss People’s Party is set to remain the biggest party with 25.6% of the votes, while the Green Party made historic gains with 13.2% of the votes which saw them overtake the Christian Democrats and become the 4th strongest party. (Guardian/Irish Times) 

COMMODITIES

Commodities were uneventful amid the indecisive risk tone brought about by continued Brexit uncertainty which saw WTI crude futures stuck to within a tight range as the USD 53.50/bbl level provided a base for prices. Elsewhere, gold was also kept flat by a non-committal risk tone as well as a stable greenback, while copper somewhat outperformed and marginally extended on recent gains with prices hovering around 1-month highs.

 

Baker Hughes Rig Count: oil rigs +1 at 713, Nat-gas rigs -6 at 137, Total US rigs -5 at 851. (Newswires)

 

China Iron and Steel Association said iron ore oversupply trend will dominate and prices will keep declining amid increase in imported iron ore and steel scrap supply. (Newswires)

 

GEOPOLITICS

US President Trump said he spoke to Turkish President Erdogan who very much wants the ceasefire or pause to work and so do the Kurds, while he later commented that the US is in a very powerful position to put sanctions on Turkey and other nations if needed. US President Trump was reportedly mulling leaving a small number of US troops in Syria. (Newswires/WSJ)

US Defense Secretary Esper travelled to Afghanistan on Sunday to help get talks with the Taliban back on track. (Newswires)

 

NK Vice Defence Minister Ryong said North Korea has exerted endless efforts to build lasting peace and that the US has anachronistic policy against US, adding those that pursue hostile policy will bring about serious consequences. (Newswires) 

US

The Treasury curve bull-steepened on Friday, with yields falling across the curve after softer than expected China GDP, while equity downside also contributed to the upside. Remarks from Fed officials did not deliver any explicit signal ahead of the blackout period, though none leaned too heavily on market pricing, which is pricing a 25bps rate cut with a very high degree of certainty; and this is in keeping with recent commentary (Evans sees no further cuts this year, Kaplan is agnostic, Williams is yet to decide, Powell last week said he was taking it meeting-by-meeting, and Clarida today provided two-way arguments); amid Clarida’s remarks, the TPLEX was stable though equities came under pressure. US T-notes (Z9) settled 4 ticks higher at 130-01.

Fed’s Clarida (Voter, Neutral) said policy is not a pre-set course and decisions will be made "meeting by meeting", while he added the US economy in good place with no evidence of strong labour market putting pressure on inflation. However, Clarida also noted that growth in H2 will be slower than H1, that global manufacturing is slipping and that they have seen a downshift in overall growth relative to the July meeting. (Newswires)

US President Trump’s allies are reportedly compiling a list of potential candidates to replace Acting White House Chief of Staff Mulvaney. (Newswires)

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