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[PODCAST] EU Open Rundown 30th August 2018

  • Asian equity markets traded mixed as the initial impetus from Wall St was eventually clouded by weakness in China
  • In FX, EUR/USD is testing the 1.1700 handle and with GBP/USD at a 3-week high above 1.3000
  • Looking ahead, highlights include German state and national CPIs, German unemployment rate, US PCE price index, Canadian GDP, ECB’s Weidmann to speak and supply from Italy

ASIA

Asian equity markets traded mixed as the initial impetus from Wall St where the S&P 500 and Nasdaq posted a 4th consecutive day of records and where sentiment was underpinned by better than expected US GDP data as well as NAFTA optimism, was eventually clouded by weakness in China. ASX 200 (+0.2%) was led by outperformance in telecoms on confirmation of the TPG Telecom-Vodafone Hutchison M&A deal although upside in the index was capped by weakness in financials and following disappointing capex data, while Nikkei 225 (+0.2%) gapped above the 23k level at the open which it then failed to sustain. Elsewhere, Shanghai Comp. (-0.8%) and Hang Seng (-0.7%) were subdued amid continued PBoC liquidity inaction and the ongoing US-China trade dispute, while President Trump also blamed China for the difficulties related to North Korea. Finally, 10yr JGBs were lower amid the mild gains in Japan and after the 2yr JGB auction failed to spur demand despite stronger results.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.8113 (Prev. 6.8072)


UK/EU

German Foreign Ministry stated there will be no special rules for a post-Brexit UK, although German Finance Minister Scholz later stated a no-deal Brexit is no solution as economies are too linked and French Finance Minister Le Maire also commented that avoiding a hard Brexit in the UK is in the EU’s interest. (Newswires)

EU is seen mulling a full summit in November to discuss Brexit (Politico)

French President Macron is prepared to push EU leaders to make a post-Brexit deal with Britain at the upcoming EU summit next month. (Times)

EU's Chief Negotiator Barnier said he cannot speak about success regarding Brexit, while he added a no-deal Brexit is part of the EU’s planning. (German radio)


FX

In FX markets, the DXY was lacklustre and consolidated near the 94.50 level, while its major counterparts held on to the prior day’s gains in which EUR/USD initially just about stayed afloat at the 1.1700 handle before testing the level to the downside and with GBP/USD at a 3-week high above 1.3000 after EU Brexit Negotiator Barnier suggested the EU was prepared to offer an unprecedented partnership with the UK. Elsewhere, antipodeans lagged on weak data releases with NZD/USD dragged below 0.6700 after Business Confidence declined to its lowest in a decade and with AUD/USD hampered by a miss on Private Capex and Building Approval data.

Australian Capital Expenditure (Q2) Q/Q -2.5% vs. Exp. 0.6% (Prev. 0.4%). (Newswires)
Australian Private Capital Expenditure Est. 3 (2018-2019) 102.0B (Prev. 87.7B)
Australian Building Approvals (Jul) M/M -5.2% vs. Exp. -2.5% (Prev. 6.4%)
Australian Building Approvals (Jul) Y/Y -5.6% vs. Exp. -3.0% (Prev. 1.6%)

New Zealand ANZ Business Confidence (Aug) -50.3 (Prev. -44.9); 10-year low. (Newswires)
New Zealand ANZ Activity Outlook (Aug) 3.8 (Prev. 3.8)


COMMODITIES

Commodities were mixed overnight in which WTI crude futures plateaued at the prior day’s highs after having gained nearly 2% in the wake of a larger than expected draw in DoE crude inventories and amid expectations of tightening supply heading into year-end. Elsewhere, gold mirrored the lacklustre tone across the metals complex in which the precious metal continues to eye the USD 1200/oz level to the downside, while copper also weakened amid underperformance in its largest consumer China. 

Senior Iraqi oil official stated that OPEC should discuss how to make up for a drop in Iranian oil supply and commented that the oil market will face big supply shortage post-Iran sanctions. (Newswires)

US President Trump stated that maintaining aluminium tariffs levels is necessary, although he signed a proclamation permitting targeted relief from steel quotas for Argentina, Brazil & South Korea, as well as relief for Argentina on aluminium quotas. (Newswires)

National Union of Metalworkers of South Africa signs wage deal with Eskom. (Newswires)
 

GEOPOLITICAL

US President Trump tweeted a statement that he feels strongly North Korea is under tremendous pressure from China due to US-China trade dispute but believes his relationship with North Korea leader Kim is very good and warm. Trump was also said to currently see no reason to spend large amounts of money on joint war games with South Korea which can instantly be resumed if he chooses to do so and would be far larger than previous, while he also noted that US-China trade dispute will be resolved in time between Trump and China's great President Xi Jinping. However, there were also reports that US and South Korea are said to plan Air force drills in December. (Twitter/Newswires)


US

The Treasury complex was pretty much unchanged at settlement with yields higher by less than 1bps across the curve. Volume picked up as European traders got to their desks following reports that Italy would ask the ECB to extend the QE programme though action remained muted for the rest of the session as the 2nd GDP reading as well as weaker pending home sales had minimal impact. 2s30s and 5s30s were wider by c.2bps at settlement. US 10-year T-notes settled unchanged at 120-03.

US President Trump said he is optimistic that Canada will join the US & Mexico trade deal and he believes the talks are on track for a Friday deadline. (Newswires)

Canada’s PM Trudeau stated Canada will defend the dairy supply management and he sees a possibility of a NAFTA deal by Friday. There were also comments from Canada’s Foreign Minister Freeland that the latest conversation with US Trade Representative Lighthizer was very productive although she will not discuss details publicly and sees a huge amount of work this week on specifics. Freeland later added that Canada is looking for compromises which are win-win for all sides and that the US is showing willingness to compromise regarding NAFTA. (Newswires)

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Essentially, both sides would likely spin the defeat of the no confidence motion as a victory? https://t.co/gBwMs9LGtC