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[PODCAST] EU Open Rundown 31st August 2018

  • Asian equities broadly lower with Trump on the warpath amid reports he is to back additional Chinese tariffs, reject the EU’s auto proposals and once again threatens WTO membership
  • Losses in most the Asia-Pac region have been stemmed as participants also digested a trifecta of encouraging China PMI data
  • Looking ahead, highlights include EZ CPI, unemployment rate, Chicago PMI, ECB’s Nowotny and de Guindos


Asian equity markets traded mostly lower with sentiment weighed as trade war fears were reignited by reports US President Trump is said to back tariffs on an additional USD 200bln of Chinese goods as early as next week. This subsequently saw all US majors close in the red and both the S&P 500 and Nasdaq Comp. snap their streak of record highs, although losses in most the Asia-Pac region have been stemmed as participants also digested a trifecta of encouraging China PMI data. Nonetheless, ASX 200 (-0.4%) was lower as weakness in miners and profit taking in telecoms led the downside in Australia, while the Nikkei 225 (-0.1%) was initially pressured by a firmer currency but then showed resilience and gradually rebounded throughout the session. Shanghai Comp. (-0.1%) was also weighed by the fresh tariff fears although data helped plug losses including Chinese Official Manufacturing and Non-Manufacturing PMI which topped estimates and with Composite PMI higher than previous, while Hang Seng (-0.9%) was the worst performer as its largest weighted stock Tencent slumped over 5% at the open on government plans to control the amount of new online game releases. Finally, 10yr JGBs were marginally higher with demand supported by early safe-haven flows and with the BoJ also present in the market for nearly JPY 1tln of JGBs ranging from 1yr-10yr maturities. 

US President Trump is said to back USD 200bln in China tariffs as early as next week although the final decision is still pending while reports noted the US can impose tariffs after the comments period has ended on 6th September. In related news, US President Trump later stated that China is trying to devalue its currency and the US is studying whether to label China as a currency manipulator. (Newswires)

Chinese Manufacturing PMI (Jul) 51.3 vs. Exp. 51.0 (Prev. 51.2). (Newswires)
Chinese Non-Manufacturing PMI (Jul) 54.2 vs. Exp. 53.7 (Prev. 54.0)
Chinese Composite PMI (Aug) 53.8 (Prev. 53.6)

PBoC skipped open market operations for a net weekly drain of CNY 170bln vs. last week's CNY 40bln net injection. (Newswires)
PBoC set CNY mid-point at 6.8246 (Prev. 6.8113)

Tokyo CPI (Aug) Y/Y 1.2% vs. Exp. 1.0% (Prev. 0.9%). (Newswires)
Tokyo CPI Ex. Fresh Food (Aug) Y/Y 0.9% vs. Exp. 0.8% (Prev. 0.8%)
Tokyo CPI Ex. Fresh Food & Energy (Aug) Y/Y 0.6% vs. Exp. 0.5% (Prev. 0.5%)

BoK kept the 7-day repo rate unchanged at 1.50% as expected, with the decision not unanimous as board member Lee dissented. BoK stated the economy is to maintain growth momentum and rebound in consumption will continue but also commented that pace of investment will slow. (Newswires)


UK GfK Consumer Confidence (Aug) -7.0 vs. Exp. -10.0 (Prev. -10.0)
UK Lloyds Business Barometer (Aug) 23 (Prev. 29)

US President Trump has rejected the EU’s proposal to remove car tariffs, stating that the offer is not good enough, while he added the EU is almost as bad as China, just smaller. (Newswires)


In FX markets, the DXY was relatively flat after the greenback’s recent mixed performance against its major counterparts in which EUR/USD languished below 1.1700 and GBP/USD flatlined near 3-week highs at the 1.3000 handle. Elsewhere, USD/JPY slipped under 111.00 to the downside on safe-haven flows, CAD weakened past 1.3000 against the greenback amid a lack of progress in trade discussions and AUD was slightly weighed by a cautious tone from the RBA which noted high debt levels could make future policy decisions difficult. EM currencies were the biggest movers and saw renewed selling pressure triggered by the ARS after the Argentinian Central Bank’s rate hike to 60% from 45% and FX market intervention did little to halt the collapse of the currency, while TRY also depreciated as much as 2% in early trade before paring the move amid new stabilisaiton measures and IDR fell to its lowest in 2 decades which prompted further intervention.

RBA said high debt levels could make future policy decisions difficult and could also make the economy less resilient to shocks. (Newswires)

Turkey prolonged its tax exemption on wealth repatriation by 6 months, while Turkey also increased the withholding tax level on up to 1yr foreign currency deposits and set the withholding tax on TRY deposits of up to 1yr at 0%. (Newswires)

Argentina Treasury Minister Dujovne is planning to travel to Washington DC on Monday to meet with the IMF and the Treasury Ministry is to announce a set of measures to combat financial crisis on Monday, while Argentina's Central Bank was also said to push for further FX intervention. (Newswires)


Commodities were mixed with initial softness in WTI crude futures pared as prices found support at the recently reclaimed USD 70/bbl level. Elsewhere, gold prices rose back above USD 1200/oz with the precious metal underpinned by its safe-haven status, while copper lagged but with downside limited as the encouraging Chinese PMI data attempted to counterbalance the fresh tariff concerns.


The bid in Treasuries in the pre-market was attributed to worries around the looming deadline for the US and Canada to reach a trade deal by COB on Friday; with that said, the bid was modest, with Treasury yields down by between 1-2bps, amid constructive commentary from the Canadian foreign minister. In later trade, the TPLEX found further buyers on reports that Trump could announce $200bln of tariffs on China early next week, though the decision was not final. Even so, yields were only lower by 2-3bps by settlement. As is the norm, curve spreads narrowed, with 2s10s falling to 20.1bps. US 10-year T-notes settled 5+ ticks higher at 120-08+.

US President Trump said he has no regrets appointing Powell as Fed chair and stated he is not being accommodated by the Fed in trade disputes but he is not sure the currency should be controlled by a politician. In addition, Trump stated that AG Sessions job is safe until at least the November elections and declared there will be no pay rises for public sector workers in 2019, while Trump also threatened to withdraw from WTO if it does not "shape up". (Newswires)

US President Trump has once again threatened to withdraw from the WTO unless the organisation treats the US better. (Newswires)

US President Trump stated that a trade agreement with Canada may come by Friday or within a period of time but it will occur, while Canada’s Foreign Minister Freeland was said to be optimistic about NAFTA talks and commented that the both sides are showing constructive attitudes and have a lot of work to do in a short time. However, reports later noted that US & Canada have not made progress yet on Chapter 9 issue in trade discussions and that Canadian Foreign Minister Freeland left talks with USTR after only minutes which will reconvene on Friday morning. (Newswires)

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