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[PODCAST] EU Open Rundown 5th September 2018

  • Asian equity markets traded lower across the board after the Labor Day hangover on Wall St amid ongoing trade uncertainty
  • In FX markets, the greenback was relatively flat with price action subdued as its major counterparts attempted to nurse losses
  • EU's Barnier has deemed PM May's Chequers plan as unacceptable. Separate reports suggest the EU could adjust the Irish border backstop to win UK's approval in Brexit negotiations
  • Looking ahead, highlights include EZ, UK services & composite PMIs, US & Canadian trade, BoC rate decision, APIs, ECB’s Praet, Fed’s Bullard, Kashkari, Bostic and Williams

ASIA

Asian equity markets traded lower across the board after the Labor Day hangover on Wall St amid ongoing trade uncertainty and ahead of the looming risk events, although the US majors finished off worst levels and Amazon briefly entered the USD 1tln club. ASX 200 (-0.8%) declined from the open with broad weakness across its sectors and with firm Q2 GDP data failing to underpin sentiment as the damage had already been done, while Nikkei 225 (-0.3%) was subdued following a destructive and deadly Typhoon which was the strongest to hit Japan in 25 years. Hang Seng (-1.7%) and Shanghai Comp. (-0.9%) were also negative on trade-related jitters as the deadline regarding potential US tariffs on USD 200bln of Chinese goods approaches and following disappointing Chinese Caixin Services and Composite PMI data in which the former posted a 10-month low. Finally, 10yr JGBs saw mild gains amid the backdrop of the widespread risk-averse tone, although price action was relatively muted and stuck within a tight range despite stronger results at this month’s 10yr JGB auction.

Chinese Caixin Services PMI (Aug) 51.5 vs. Exp. 52.6 (Prev. 52.8); 10-month low. (Newswires)
Chinese Caixin Composite PMI (Aug) 52.0 (Prev. 52.3)

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.8266 (Prev. 6.8183)

UK/EU

EU's Barnier reportedly deemed PM May's Chequers plan as unacceptable in a meeting with the Brexit select committee. Instead the EU has urged PM May to adopt a Canada-style deal favoured by former Foreign Minister Johnson. (Telegraph)

UK Brexit Secretary Raab has stated that he will not ‘roll over’ and abandon the government’s plans to secure a future relationship between the UK and EU despite firm objections from Eurosceptic MPs. (FT)

Former-Brexit Secretary David Davis is set to throw his weight behind a fully-fledged alternative to the government’s Brexit strategy as part of a major intervention ahead of the Conservative party conference. (CityAM)

Germany Chancellor Merkel said the aim is to reach an agreement with the UK on Brexit but added that the UK cannot enjoy the same rights as EU members post-Brexit. In addition, Merkel stated she will use all of her force and creativity to make sure a deal happens and that she does not want discussions with the UK to break down, while she also commented we cannot fully rule out a breakdown of Brexit talks as we still have no result. (Newswires)

EU could adjust Irish border backstop to win UK's approval in Brexit negotiations according to a press report citing a leading EU lawmaker. However, there were also reports from the same news agency that the German government is preparing for all possible Brexit outcomes, regulated or unregulated and urged EU and member states to prepare for a failure in Brexit negotiations. (Stuttgarter Zeitung)

BoE Carney is expected to extend his term until 2020 after support from PM May regarding plans to keep BoE stable amid Brexit. (FT)
 

FX

In FX markets, the greenback was relatively flat with price action subdued as its major counterparts attempted to nurse losses, which saw EUR/USD test 1.1600 to the upside and GBP/USD marginally extended on its rebound from the prior day’s lows amid the ongoing Brexit-related to and fro. Elsewhere, USD/JPY and JPY-crosses saw early upside which gained traction as the pair broke through resistance at the 111.50 level and with Gotobi demand observed heading into the Tokyo fix, while AUD/USD initially outperformed and briefly reclaimed the 0.7200 handle following the better than expected GDP data.

Australian Real GDP (Q2) Q/Q 0.9% vs. Exp. 0.7% (Prev. 1.0%). (Newswires)
Australian Real GDP (Q2) Y/Y 3.4% vs. Exp. 2.8% (Prev. 3.1%)
 

COMMODITIES

Commodities were subdued overnight in which WTI crude futures languished at post-settlement lows following Tuesday’s reversal in which prices initially rose to above USD 71.00/bbl before dropping towards USD 69.00/bbl after surveys hinted of higher OPEC production for August. Elsewhere, gold found mild reprieve overnight amid a lacklustre greenback although the precious metal remained below the USD 1200/oz level, while copper remained weak alongside the broad risk averse tone.

Industry sources stated that Saudi Arabia is seeking to keep oil prices between USD 70/bbl-80/bbl and that Trump intervention forced Saudi to moderate its price target, while non-Gulf OPEC members were also said to target oil at USD 60/bbl-80/bbl. (Newswires)

India is likely to tell US that it will not be able to reduce oil imports from Iran. (ET)

NHC said the centre of Tropical Storm Gordon made landfall just west of the Alabama-Mississippi border, while it had earlier commented that the storm strengthened a little as it approached the north-central Gulf Coast. NHC had also previously commented that Gordon was expected to be a hurricane once it made landfall but that rapid weakening is forecast after Gordon moves inland. In related news, reports had noted that 9% of daily crude production was shut in Gulf of Mexico due to Gordon. (Newswires)


US

The Treasury curve bear-steepened on Tuesday, as traders returned from the holiday weekend, with 2s30s up by around 2bps at settlement, while other curve spreads were slightly wider. The complex took its cue from BTPs in early European trade, with the Italian deputy PM Salvini again making soothing comments that Italy would stick to the EU’s budget rules. Informa reported that there was heavy corporate issuance and the associated rate locking weighed on the long-end of the curve, while central bank buying in the front and medium end contributed to the steepening. Yields were nudged further upwards after a decent ISM print. US T-note futures (z8) settled 3+ ticks higher at 120-08+.

Fed's Kashkari (non-voter, dove) stated the Fed are hiking rates too aggressively. In other news, a Fed study noted there was little evidence that major US firms were using benefits from the tax reduction on capex and instead many were increasing their share repurchases. (Newswires)

Special Counsel Mueller is said to accept written answers from US President Trump. (NYT)

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