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[PODCAST] EU Open Rundown 5th November 2019

  • Asian equity markets were higher as the region sustained the momentum from Wall St where all major US indices posted record highs on the continued US-China trade optimism
  • FT reports that the US is mulling rolling back the 15% tariffs on USD 112bln of Chinese imports that took effect from September 1st
  • However, doubts remain over whether or not US President Trump would be willing to support such a move
  • Looking ahead, highlights include UK Markit Services PMI, EZ PPI, US International Trade, Markit Services and Composite PMI, ISM Non-manufacturing PMI, JOLTS, ECB’s Villeroy, Fed’s Barkin, Kaplan, Kashkari, Riksbank’s Ingves, supply from the UK & US
  • Earnings: Allergan, Microchip Technology, Newmont Goldcorp, Regeneron, Associated British Foods, Imperial Brands, Telefonica, Pandora

ASIA-PAC

Asian equity markets were higher as the region sustained the momentum from Wall St where all major US indices posted record highs on the continued US-China trade optimism, which was further exacerbated by reports the US is mulling rolling back the 15% tariffs on USD 112bln of Chinese imports that took effect from September 1st. ASX 200 (+0.2%) and Nikkei 225 (+1.9%) were positive but with gains in Australia limited by weakness in gold miners and a lack of fireworks from the RBA rate decision where the central bank kept rates unchanged as expected and largely reiterated its past statement, while the Japanese benchmark outperformed as it played catch up on return from the extended weekend and was boosted by a weaker currency. Elsewhere, Hang Seng (+0.6%) and Shanghai Comp. (+0.7%) were initially choppy despite the improved trade optimism as some were said to be doubtful on whether US President will sign off on the additional concessions and as participants digested mixed Caixin Services and Composite PMI data. Nonetheless, the risk sentiment eventually gained traction after encouraging comments from Chinese President Xi on opening up China’s markets which would likely further appease the US, and the PBoC also announced a larger Medium-term Lending Facility operation at a reduced rate of 3.25% from 3.30%. Finally, 10yr JGBs were lower following the bear steepening seen in USTs and with prices pressured by the outperformance of Tokyo stocks, while the BoJ’s Rinban announcement also failed to provide support as the central bank reduced its purchase amounts in 10yr-25yr maturities.  

PBoC skipped reverse repo operation but conducted CNY 400bln 1yr Medium-term Lending Facility vs. Prev. CNY 200bln with rates lowered to 3.25% from 3.30%. (Newswires) PBoC set CNY mid-point at 7.0385 vs. Exp. 7.0392 (Prev. 7.0382)

US reportedly considers dropping some tariffs on China with the White House said to mull whether to roll back levies on USD 112bln of Chinese imports which were introduced at 15% on September 1st. However, reports added that a source cautioned that even though there was a growing consensus within the Trump admin that they have to make a concession on existing levies, it was unclear whether President Trump would sign off on this. (FT)

US National Security Adviser O’Brien stated that US President Trump invited Chinese President Xi to the US if the two sides are ready to sign the phase one agreement, while O’Brien added that he was cautiously optimistic about it. (Newswires)

Chinese President Xi said China will continue to lower tariffs and institutional transaction costs. President Xi added that China will speed up negotiations with EU on investment agreement and talks regarding a China-Japan-South Korea FTA, while China is to also adopt 5 measures to promote higher-level of opening up. (Newswires) Chinese Caixin Services PMI (Oct) 51.1 (Prev. 51.3); 8-month low. (Newswires) Chinese Caixin Composite PMI (Oct) 52.0 (Prev. 51.9)

UK/EU

Labour's Lindsay Hoyle has been elected as the new Speaker of the House of Commons; as expected. (Newswires)

Three pro-EU British political parties, the Liberal Democrats, Plaid Cymru and Green party along with some independent MPs, hope to unveil a Remain election pact as early as Thursday. There were also reports that Northern Ireland's pro-EU nationalist parties have agreed to stand back from three parliament seats to support the chance of anti-Brexit candidates. (FT)

FX

DXY remained firm after the prior day’s outperformance and extended above the 97.50 level with the recent rebound attributed to improving US-China sentiment, rising US yields and broad weakness across its counterparts including EUR/USD and GBP/USD in which the latter gave up the 1.2900 handle amid ongoing political uncertainty. Elsewhere, outflows from safe havens JPY and CHF further added to the greenback’s momentum, while antipodeans were also initially subdued by the broad USD strength but then later strengthened after the RBA rate decision which kept rates unchanged as expected and reiterated that a gentle turning point appears to have been reached.

RBA kept the Cash Rate unchanged at 0.75% as expected. RBA repeated its statement that rates are to remain low for an extended period and that it will ease policy if needed to support sustainable growth, while it also reiterated that a gentle turning point appears to have been reached. RBA added that its central scenario is for underlying inflation to be close to 2.00% in 2020 and 2021, while it sees economic growth at around 2.25% this year and to pick up gradually to around 3.00% in 2021. 

COMMODITIES

Commodities were mixed overnight with WTI crude futures flat as it took a breather from the prior day’s fluctuations in which prices were initially underpinned by the trade-related optimism and bullish comments from Iran’s Oil Minister Zanganeh who expects further cuts to be agreed at the 5th/6th December OPEC meeting, although profit taking eventually crept in heading into the settlement. Conversely, natgas futures outperformed overnight as they extended on advances after having recently taken out resistance at the September high around the USD 2.70 level. Gold traded lacklustre overnight due to the lack of safe-haven demand and as the greenback remained firm, while copper only eked minimal gains despite the broad appetite for risk.

PHMSA spokesperson updated on Keystone oil pipeline leak in which the source of the leak has not yet been identified, nor has the area been isolated and there is no estimated timeline for restart. (Newswires)

GEOPOLITICS

US senior official is said to feel an increase in Iranian motivation to attack Israel and other countries in the region due to the Iranian will to break the circle of sanctions by creating a threat that may lead to their removal. (Kann/Twitter)

US

The TPLEX bear steepened on Monday following the positive risk sentiment, in addition to a stronger dollar and a large slate of issuance seeing investors pare back their debt holdings. US Commerce Secretary Ross gave promising comments on the US-China and EU auto-tariff fronts, reducing haven demand. Additionally, participants are facing a large amount of debt issuance, both from corporates and sovereigns, with the Treasury refunding auctions in the 3-year, 10-year and 30-year scheduled this week, and the ramp-up in corporate supply, where ten IG issuers came to the dollar market on Monday. Treasuries headed lower throughout the day, catching steam from some block sales - 20k in the TYZ9 and 8k in the USZ9 – and by settlement yields were about 6bps higher at the long end, with the 2-year higher by just half of that. T-note futures (Z9) settled 14 ticks lower at 129-18+.

Fed's Daly (non-voter, dove) said the economy is in a good place and the Fed would adjust monetary policy if there is a substantial change in outlook. Daly also stated that tools for addressing next recession include Fed Funds Rate, forward guidance and balance sheet policy, while her view is that the Fed as very far from going to negative rates and noted a strong labour market. (Newswires)

Trump lawyer Giuliani’s associate Lev Pernas, who was indicted on finance campaign charges, is now willing to cooperate in the House impeachment inquiry. (Axios)

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