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[PODCAST] EU Open Rundown 25th October 2019

  • Asian equities traded mixed with a lack of conviction amid the absence of any firm macro drivers and as earnings releases remained centre stage
  • US Vice President Pence suggested the US will continue to seek better relations with China
  • UK PM Johnson is calling for an election on December 12th under the Fixed Term Parliament Act
  • UK opposition party Labour is to reject PM Johnson’s offer until a no-deal Brexit is taken off the table
  • Looking ahead, highlights include German Consumer Sentiment and Ifo, US Baker Hughes, Norges Bank’s Olsen, Riksbank’s Ohlsson and Floden
  • Earnings: Verizon Communications, Phillips 66, Charter Communications, Royal Caribbean, Aon, Dow, Ab InBev, Phillips, MTU Aero Engines, Unilever, Barclays

ASIA-PAC

Asian equities traded mixed with a lack of conviction amid the absence of any firm macro drivers and as earnings releases remained centre stage. ASX 200 (+0.7%) outperformed led by gold miners after the precious metal reclaimed the psychological USD 1500/oz level and with broad gains seen across sectors amid recent currency weakness, while Nikkei 225 (+0.1%) was choppy and stalled after reaching its highest level in over a year with continued losses in SoftBank amid speculation of a USD 5bln write down to its Vision Fund. Hang Seng (-0.4%) and Shanghai Comp. (Unch.) were subdued despite the PBoC’s liquidity efforts that resulted to a net injection of CNY 560bln this week, with weakness seen in financials and participants cautious as earnings season in the region began to pick up. There were also recent mixed comments from US Vice President Pence who suggested the US will continue to seek better relations with China and that if the sides can get an economic relationship right, they can make progress on other issues, although he noted the curtailing of rights and liberties in Hong Kong and criticized US businesses for kowtowing to Beijing. Finally, 10yr JGBs were choppy as they mirrored the indecisiveness in Japan and with demand subdued by a lack of BoJ buying in the market today.

PBoC injected CNY 30bln via 7-day reverse repos for a net weekly injection of CNY 560bln vs. Prev. CNY 30bln W/W. (Newswires) PBoC set CNY mid-point at 7.0749 vs. Exp. 7.0764 (Prev. 7.0727)

US VP Pence said President Trump is determined to build China relationship based on candor, fairness and mutual respect, while he added US is not seeking confrontation with China and is seeking a level playing field. Pence also said President Trump remains optimistic that structural reforms in China can be reached and that the US will continue to seek better relations with China, while he added if US and China can get an economic relationship right, they can make progress on other issues. Furthermore, Pence commented that Hong Kong is an example of what can happen when China embraces liberty and said Beijing has increased interventions in HK, curtailing rights and liberties guaranteed in its international agreement. (Newswires)

China Global Times Editor Hu tweeted that he believes Pence spoke mainly positive on improving relations, although the Global Times later suggested the delayed speech reflected White House chaos and mentioned few new topics. (Twitter/Global Times)

UK/EU

MPs have approved the Queen's Speech, which sets out Boris Johnson's priorities for the parliamentary session, by 310 votes to 294. (BBC)

UK PM Johnson is calling for an election on December 12th under the fixed term parliament act which would need 2/3 of MPs (434) to vote in favour, while it was also reported the government is to table motion for GE on Monday and that Parliament can still study and pass the WAB, as long as they agree to the proposed election. The government was said to have threatened to go on strike if the opposition refuses the election on Monday and it also officially pulled the November 6th budget. (Twitter/The Sun) UK opposition party Labour is to reject PM Johnson’s offer for an early election and is said to have told Labour MPs to abstain on Monday's election vote but later stated they will back a general election if a no-deal Brexit is taken off the table. Scotland First Minister Sturgeon is also said to have asked Labour leader Corbyn to back a snap winter election in a secret meeting. (The Sun/Sky)

EU is considering UK PM Johnson’s call to get Parliament onboard for 12 December election and might wait to announce its decision on length of new Brexit extension on Monday, while a separate report also noted that EU27 envoys are unlikely to decide on Brexit delay today and may decide on Monday or Tuesday but are seeking more clarity. (Newswires/BBC)

FX

DXY remained firm and sat near this week’s best levels following recent encouraging US data in which Manufacturing PMI topped estimates and Services PMI printed inline. The greenback had also benefitted from weakness across its major counterparts including EUR/USD which briefly gave up the 1.1100 handle. GBP/USD was lacklustre amid ongoing political stalemate with UK PM Johnson now calling for an election on 12th December and warned the government will go on a strike if the opposition Labour Party refuses, although its leader Corbyn remained unwilling to back an election until a no-deal Brexit is taken off the table. Elsewhere, USD/JPY was uneventful amid a light calendar and mixed risk-tone, while antipodeans traded lacklustre and were restricted by a firm greenback.

COMMODITIES

Commodities were uneventful overnight with trade hampered by the lacklustre risk appetite which saw WTI crude futures pullback from resistance at the USD 56.50/bbl level to trade slightly below 56.00/bbl, with a lack of fresh supply or demand factors also contributing to its loss of steam. Gold held on to most the prior day’s above the USD 1500/oz level despite recent strength in the greenback with the precious metal benefitting from some touted positioning ahead of next week’s FOMC where markets are pricing an over 90% probability the Fed will lower rates again, while copper traded sideways due to the mixed sentiment.

 

US

The T-Note again traded sideways in the lacklustre session, at least from a risk appetite perspective. The much feared/anticipated VP Pence speech on China took a rather balanced stance and provided no further indication for participants on how the trade war will pan out. The ECB was also a non-event given the last meeting’s fireworks. Earnings were mixed too, seeing equity bourses edge slightly higher, again little to sway participants either in or out of the debt complex. The US 7-year auction was fairly solid, stopping through by 0.7bps, covering above the 6-auction average, with a strong takedown, too – although the TPLEX didn’t blink. US T-note (Z9) settled half a tick lower at 129.27.

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