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[PODCAST] EU Open Rundown 21.05.18

  • Asian equity markets traded mostly positive with sentiment underpinned following the conclusion of the 2nd round of US-China trade talks
  • China agreed to purchase more goods to avoid a trade war. Mnuchin announced that tariffs on China would be placed on hold as discussions progress
  • Looking ahead, highlights include ECB’s Nowotny, Fed’s Bostic, Harker and Kashkari
  • Due to Whit Monday, markets in Austria, Denmark, Germany, Hungary, Iceland, Norway, and Switzerland are closed

TRADE

US Treasury Secretary Mnuchin stated that US and China are putting the trade war on hold, while he added that previously announced tariffs on Chinese steel and aluminium, as well as USD 150bln of tariffs on other Chinese imports, would be placed on hold as discussions with China progress. US Treasury Secretary Mnuchin also stated that President Trump is more interested in obtaining a good deal with NAFTA partners rather than quickly concluding talks in time to be voted by Congress this year. (Newswires)

China agreed to buy more US goods as an effort to avert a trade war, although it refused to commit to US demand to reduce the trade surplus by USD 200bln and did not place a figure for narrowing the trade gap. (Newswires)

US will send a delegation to China for talks regarding agricultural and energy exports, according to a joint statement following the conclusion of the trade talks in Washington. (China Daily)

US Trade Representative Lighthizer stated that US may still resort to tariffs and other measures such as restrictions on investment and export regulations unless China makes real structural adjustments to its economy. (Newswires)

EU and India filed a list of US imports on Friday which may be subject to additional tariffs in retaliation to US steel and aluminium tariffs. (Newswires)

Russian Economy Minister said the US refused to discuss tariffs with Russia within WTO framework and that Russia is considering a response. (Newswires)

ASIA

Asian equity markets traded mostly positive with sentiment underpinned following the conclusion of the 2nd round of US-China trade talks in which China agreed to purchase more goods to avoid a trade war but stopped short of indicating an actual amount it plans to reduce the deficit by. More importantly, US Treasury Secretary Mnuchin announced that tariffs on China would be placed on hold as discussions progress, which eased trade concerns and saw the E-mini S&P gap higher by 0.6% while DJIA futures gained over 200 points. Nikkei 225 (+0.4%) benefitted from a weaker currency, while ASX 200 (-0.1%) lagged behind its regional peers with upside capped by weakness in its largest weighted financials sector as the Royal Banking Commission shifts its attention to Westpac’s business lending practices. Shanghai Comp. (+0.8%) and Hang Seng (+1.3%) outperformed with Chinese bourses the main benefactor of the reduced trade tensions following the postponement of US trade war. Finally, 10yr JGBs were subdued amid gains in stocks and early pressure in T-notes at the open as participants reacted to the trade-related developments, although the latter has since recovered amid reports of block buying from intraday lows.

PBoC skipped open market operations today for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.3852 (Prev. 6.3763)

Japanese Trade Balance Total Yen (Apr) 626.0B vs. Exp. 440.0B (Prev. 797.3B). (Newswires)
Japanese Exports YY (Apr) 7.8% vs. Exp. 8.7% (Prev. 2.1%)
Japanese Imports YY (Apr) 5.9% vs. Exp. 9.8% (Prev. -0.6%)

UK/EU

Some UK Conservative MPs are said to preparing for the possibility of a snap election in autumn amid Brexit stalemate. Some MPs have spoken to their local party associations asking to be readopted as prospective parliamentary candidates in readiness for an autumn election. (Times)

UK Foreign Minister Johnson has delivered a thinly-veiled warning to PM May that himself and his fellow Brexiters still expect her to deliver a deal that avoids triggering the “backstop” that would keep Britain aligned to the customs union beyond 2020. (Guardian) The Guardian also reports that a new Commons rebellion to keep Britain in the EU’s customs union for years after Brexit is being prepared by a former Tory minister. Nick Boles, an ex-business minister, said he wanted Britain to remain in the customs union until early 2022, allowing more time to come up with a viable long-term plan. (Guardian)

Arlene Foster of The Democratic Unionist Party leader has reached out to nationalists in Northern Ireland as research revealed that most Catholics find customs checks on the border with the Republic after Brexit “almost impossible to accept”. (Times)

Italy’s League leader Salvini stated that he agreed with 5-Star Movement Leader Di Maio on choice of Premier and the cabinet for a coalition government, in which neither of the party leaders will become Prime Minister while they will reveal their choice to Italian President Mattarella who is expected to summon them this Monday. (ABC News)

S&P affirmed Switzerland at ‘AAA/A-1+’; Outlook Stable and affirmed Netherlands at ‘AAA/A-1+’; Outlook Stable. (Newswires)

UK Rightmove House Prices (May) M/M 0.8% (Prev. 0.4%). (Newswires)
UK Rightmove House Prices (May) Y/Y 1.1% (Prev. 1.6%)

FX

The greenback began the week firmer and at fresh YTD highs amid the improved tone regarding US trade policy, which effectively helps ease one of the uncertainties for the US economy that the Fed previously highlighted. The USD strength saw EUR/USD print fresh 6-month lows, while pressure in GBP/USD was exacerbated after it broke below its weakest levels for 2018, as Brexit-disarray also weighs with some Conservative MPs said to prepare for the possibility of a snap election in autumn amid Brexit stalemate. Elsewhere, antipodeans were mixed with AUD slightly firmer on cross-related flows and with NZD dampened by disappointing Retail Sales, while USD/JPY reclaimed the 111.00 handle amid the broad positive risk tone and after Exports and Imports added to the recent slew of weaker than expected data for Japan.

New Zealand Retail Sales (Q1) Q/Q 0.1% vs. Exp. 1.0% (Prev. 1.7%). (Newswires)
New Zealand Retail Sales (Q1) Y/Y 3.0% (Prev. 5.4%)

Venezuela election board chief stated there was a 46.1% turnout for Sunday’s election which was won by President Maduro. However, Venezuela presidential candidate Falcon said he will not recognize the results of the election because of irregularities, as the government violated the constitution after it placed almost 13,000 pro-government stands near to polling stations. (Newswires)

COMMODITIES

Commodities were mixed overnight with WTI crude futures supported at the open alongside the heightened risk appetite after the implied trade truce between US and China. Elsewhere, gold was pressured with the DXY at fresh YTD highs and with demand for the safe-haven dampened by the risk tone which was also the key factor that propped up copper prices, especially considering the outperformance in its largest consumer China.

US Baker Hughes Total Rig Count (11 May) 1046 (Prev. 1045). (Newswires)

London Metal Exchange is reported to be planning CNY-denominated futures contracts. (Newswires)

GEOPOLITICS

US President Trump spoke with South Korean President Moon regarding North Korea in which they agreed to work together for a successful summit, while Moon will be visiting the White House on Tuesday to coordinate on the summit. (newswires)

Iran pledged to adhere to the nuclear agreement if EU helps it offset US sanctions. (Newswires)

US

Treasuries climbed higher on Friday and found buyers after a relatively bearish week for the complex. On the week, the 10yr yields posted its biggest rise in a month. The yield curve saw some modest flattening on Friday, with 2yr yields lower by c.2bps, 10yr and 30yr yields by c.4bps. 2s5s and 2s10s narrowed by c.3bps in the session. US 10yr T-Notes futures settled 10+ ticks higher at 118-27.

Trump legal advisor Giuliani said Special Counsel Mueller will conclude Trump obstruction probe by September 1st. (Russia Today)

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