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[PODCAST] EU Open Rundown 10th September 2018

  • Asian equity markets began the week mostly subdued following the lacklustre performance on Wall St last Friday after Trump doubled-down on his tariff threats against China
  • In FX, EUR/USD and GBP/USD contained, while AUD/USD and NZD/USD eye a test on the 0.7100 and 0.6500 levels to the downside respectively
  • EU are reportedly preparing to give instructions to EU Chief Brexit Negotiator Barnier to help achieve a Brexit deal. Meanwhile, Eurosceptic proposals have been leaked to UK press
  • SEK indecisive amid political uncertainty after the governing Social Democrats and its centre-left coalition were at a deadlock with the opposition centre-right alliance
  • Looking ahead, highlights include, UK GDP & production figures, Fed’s Bostic

ASIA

Asian equity markets began the week mostly subdued following the lacklustre performance on Wall St last Friday where sentiment was dampened after Trump doubled-down on his tariff threats against China, while participants also digested a slew of key data including US NFP, Chinese Trade Data and Japanese GDP. ASX 200 (Unch.) was flat as strength in tech and healthcare was counterbalanced by weakness in financials heading into a fresh round of grilling by the banking royal commission, while Nikkei 225 (+0.2%) was choppy amid similar indecision in the local currency and with mild support seen following a stronger than expected upward revision in the Final Annualized Q2 GDP data. Elsewhere, Hang Seng (-0.9%) and Shanghai Comp. (-0.6%) underperformed after further tariff threats from US President Trump and as participants digested mixed trade data in which Trade Balance and Exports missed expectations. Finally, 10yr JGBs were flat with price action subdued despite the indecisive risk tone and BoJ’s presence in the market for JPY 1.1tln in 1yr-10yr JGBs.

US President Trump said on Friday that another USD 276bln China tariffs are ready to go added to the USD 200bln and that the fresh tariffs could be available on short notice, while he also commented that the USD 200bln in tariffs could be announced soon, depending on what happens. In addition, Trump stated the US is starting trade negotiations with Japan and that Japan knows it's a big deal if they don't make a deal. (Newswires)

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.8389 (Prev. 6.8212)


Chinese Trade Balance (USD)(Aug) 27.91B vs. Exp. 31.79B (Prev. 28.05B). (Newswires)
Chinese Exports (Aug) Y/Y 9.8% vs. Exp. 10.1% (Prev. 12.2%)

Chinese Imports (Aug) Y/Y 20% vs. Exp. 18.7% (Prev. 27.3%)

Chinese Foreign Reserves (USD)(Aug) 3.110T vs. Exp. 3.115T (Prev. 3.118T)

Chinese CPI (Jul) Y/Y 2.3% vs. Exp. 2.2% (Prev. 2.1%). (Newswires)

Chinese PPI (Jul) Y/Y 4.1% vs. Exp. 4.0% (Prev. 4.6%)

Japanese GDP (Q2 F) Q/Q 0.7% vs. Exp. 0.7% (Prev. 0.5%). (Newswires)

Japanese GDP Annualised (Q2 F) 3.0% vs. Exp. 2.6% (Prev. 1.9%)


UK/EU

EU are reportedly preparing to give instructions to EU Chief Brexit Negotiator Barnier to help achieve a Brexit deal. (FT)

A draft Brexit plan proposed by Eurosceptics in the Conservative party includes significant tax cuts, a new military expeditionary and a domestic-built missile defence system, according to leaked documents, thus confirming expectations for the proposal of a Canada-style trade deal. This would go against the proposals made in the Chequer’s agreement, with the article suggesting that if the new proposals were rejected, Eurosecptics would prefer to leave with EU without a deal, on WTO terms. As a guide, JacobRees-Mogg is due to speak on Tuesday. (Guardian)

Former UK Foreign Secretary Johnson attacked UK PM May's Chequers plan, which he described as the PM "wrapped a suicide vest" around the British constitution and "handed the detonator" to Brussels. (BBC) Allies of Johnson have accused Downing Street of a smear campaign to discredit him. (Times)

In its first quarterly economic outlook report, KPMG forecasts that UK GDP will grow by 1.4 per cent next year in the event of a good deal, but by only 0.6 per cent in a no-deal scenario. (Times)

Sweden election early results showed the governing Social Democrats and its centre-left bloc with 40.6% of votes vs. the centre-right alliance with 40.1% of votes, while the Sweden Democrats which are the nationalist anti-immigration party were seen to receive 17.8% of votes. Sweden Democrat leader Akesson commented he is prepared to talk with all other parties especially with centre-right leader Kristersson, while the leader of the Sweden Liberal Party (part of centre-right bloc) said they want an alliance government but it will not happen by cooperating with the Sweden Democrats. There were also comments from Swedish PM and Social Democrat party leader Lofven that nothing would be determined by the election night and that he will continue to work as PM until parliament vote, while he also stated this should be the end for bloc politics regardless of the final outcome. (Newswires)


Catalan leader Torra is said to call for a referendum ahead of protests planned by Catalan secessionists during September 11th regional holiday. (Newswires)


FX

In FX markets, the DXY remained above the 95.00 level and near Friday’s highs in the aftermath of the NFP jobs data. This kept price action in EUR/USD and GBP/USD contained, while AUD/USD and NZD/USD eye a test on the 0.7100 and 0.6500 levels to the downside respectively. Elsewhere, USD/JPY was indecisive around 111.00 as the impact from a firmer greenback was nullified by stronger than expected GDP as well as the predominantly risk-averse tone. SEK also traded indecisively amid political uncertainty after the governing Social Democrats and its centre-left coalition were at a deadlock with the opposition centre-right alliance, and with the nationalists, anti-immigration Sweden Democrats effectively the kingmaker.

COMMODITIES

Commodities traded mixed in which WTI crude futured traded higher to reclaim the USD 68.00/bbl amid early strength in energy led by gasoline prices due to the ongoing hurricane season as Florence continued to strengthen and Isaac became the 5th hurricane of the 2018 Atlantic season. Elsewhere, gold marginally extended on losses as the greenback retained its post-NFP gains, while copper was kept lacklustre by the ongoing trade concerns and underperformance in China.
 

Baker Hughes Rig Count (7 Sep): Oil rigs -2 to 860, gas rigs +2 to 186, total rigs unchanged at 1048. (Newswires)

IEA Director Birol said EM crisis may impact oil demand but added that the IEA still expects robust oil production growth and tighter supply. Birol also urged producers to pump more oil to avoid higher prices, while he stated Saudi Arabia still has scope to raise oil output and that he sees more US oil pipeline capacity next year. (Newswires)

US Energy Secretary Perry to meet with Saudi Arabia officials including Energy Minister Al-Falih on Monday. (Newswires)

GEOPOLITICAL

US officials stated Syrian President Assad has approved gas attack in Idlib, while reports added that Trump has not decided whether to target Iranian or Russian forces aiding Assad. (WSJ)

North Korea held a military parade for the 70th anniversary of its Foundation Day in which no ICBMs were displayed and North Korean Leader Kim refrained from delivering a speech. (Newswires)
 

US

The T-Note future was sold after a solid NFP print, where AHE rose more than expected, which pushed the future down from 120-04 down to 119-20; newswires reported that there was large put buying interest into the data in the TYZ8 contract. After the data, there was some stabilisation, with the Z8 contract trading between 119-20 to 119-23, though there was a bid after Trump threatened China with further tariffs, but even then, the move was faded as we approached the close. Despite yields higher across the curve, there was some narrowing between major curve spreads (5s30s -3bps, 2s30s -2bps, 2s10s -0.2bps). T-note futures (Z8) settled 17 ticks lower at 119-20+.

Fed's Kaplan (non-voter, neutral) is not worried that raising rates three further times would invert the yield curve but stated an inverted yield curve could be a worry since it may impede credit growth, while Kaplan also commented that the FOMC will not need to make a judgement on whether or not rates will become restrictive until the middle of next year.

Fed's Rosengren (non-voter, hawk) said strengthening economy will likely need mildly restrictive policy and that he would not be surprised if Fed forecasts for neutral rate and rate path shift upwards. Rosengren also commented there is no need to quicken pace of hikes but added that inflation justifies continued hikes. (Newswires)

US President Trump stated on Friday that the US are working on a deal with Canada and "will see if it is good", while he had also commented that Canada is moving along with NAFTA talks and we will see what happens. In related news, Canada's Foreign Minister Freeland said the US and Canada are both committed to work on NAFTA and that talks remain constructive but declined to say whether further NAFTA talks will be needed in the upcoming week. (Newswires)

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EU Mid-Session update: : Gove one of the loyal 5, but 48 remains the magic number https://t.co/xK5JqIoqbY