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[PODCAST] EU Open Rundown 15th November 2018

  • Asian equity markets were eventually mostly higher after the region gradually shrugged off the cautious lead from the losses stateside
  • UK PM May confirmed she has cabinet backing for her Brexit deal and stands ready to present the deal and a statement to Parliament
  • There were reports that a PM May no confidence vote would be submitted today. However, questions remain over whether or not rebels would have enough votes to be successful
  • Looking ahead, highlights include UK and US retail sales, US weekly jobs, NY Fed mfg, Philly Fed, DoEs, ECB’s Coeure, Praet and de Guindos, Fed’s Quarles, Powell and Bostic, earnings from Walmart

ASIA

Asian equity markets were eventually mostly higher after the region gradually shrugged off the cautious lead from the losses stateside, where weakness in tech and financials saw all US majors finish in the red. ASX 200 (+0.1%) and Nikkei 225 (-0.5%) were lower throughout most the session as financials lagged although the Australian benchmark staged a late rebound and just about turned positive at the close, while sentiment in Tokyo remained pressured by a firmer currency and as blue-chip banking stocks declined post-earnings. Elsewhere, Hang Seng (+0.7%) and Shanghai Comp. (+0.9%) weathered a choppy start as outperformance in tech kept Chinese markets afloat after a beat on earnings from Hong Kong index-giant and China’s largest tech firm Tencent Holdings. Finally, 10yr JGBs were flat with only minimal support seen despite the losses in Tokyo stocks and with price action also muted following mixed results in today’s 5yr JGB auction.

China's government is said to have sent a written response to the US concerning trade reforms, which reports noted offered insufficient concessions. (Newswires)

China House Prices YY Oct 8.6% (Prev. 7.9%). (Newswires)

PBoC skipped open market operations. (Newswires)
PBoC set CNY mid-point at 6.9392 (Prev. 6.9402)


UK/EU

UK PM May confirmed she has cabinet backing for her Brexit deal and stands ready to present the deal and a statement to Parliament, while a senior UK Eurosceptic Conservative Lawmaker said the Cabinet decision to back draft Brexit deal was a majority decision. In related news, the government summary of the draft withdrawal agreement suggested a role for parliament in deciding whether to extend the transition or to move in to the backstop, while the UK will guarantee avoiding a hard border including any physical infrastructure or related checks and controls with the EU and UK to establish a single customs territory in which Northern Ireland will be in the same customs territory as Great Britain. (Newswires) Recent reports suggest that the Parliamentary meaningful vote on Brexit could take place on December 18th

EU Chief Brexit Negotiator Barnier said Brexit deal is the determining step to conclude negotiations and commented that the transition period can be extended "for a limited period", while he also commented that the solution to avoid a hard border in Ireland has been found and that the future relationship will be on a basis of duty and quota-free trade. (Newswires)

ERG Head Jacob Rees-Mogg urged other conservative lawmakers not to vote for UK PM May's deal, while he earlier said PM May could face an 'accidental' confidence vote and it was suggested that a lot of people feel very let down and without any organisation might be writing letters. Furthermore, the ERG is said to be frustrated and angry but still hopes PM May will think again and views the deal she is proposing as unlikely to pass. (Twitter/Sky News)

There were reports that UK PM May no confidence vote would be submitted today, although a BBC reporter also stated that it does not look like there are enough letters to spark a challenge to UK PM May yet, though more could be on their way. A Times reporter suggested the ERG have now switched position and support letters of no confidence in UK PM May, although ERG Head Jacob Rees Mogg said he had not called for a confidence vote. (BBC/Twitter/Sky News)

BuzzFeed senior political correspondent tweeted that UK PM 'May requested meeting with Corbyn which the correspondent suggested was a bold move and openly shows that Labour support is needed to get the deal through. (Twitter)

DUP's Wilson said if UK PM May's deal fails to get Parliament support her 'neck would be on the line' but parliament vote to bring down government is unlikely, while Wilson later commented that people will be appalled by this deal and that no deal is better than a bad one. (Newswires/Twitter)

EU Trade Commissioner Malmstrom said there is no decision yet on auto tariffs and shares criticism that US voiced on China, while Malmstrom also commented the EU has a retaliation tariff list ready if the US imposes autos tariffs on EU. (Newswires)


FX

In FX markets, USD was relatively flat overnight as comments from Fed Chair Powell failed to provide any fresh insights, in which he noted that having a press conference after every meeting means all meetings are live and that the Fed is trying to avoid hiking too slowly or too fast. GBP/USD reclaimed the 1.3000 handle to the upside after UK PM May received Cabinet approval for her Brexit plan, but with gains capped due to uncertainty if the deal could be passed through Parliament and as some also touted a potential confidence vote. Elsewhere, the cautious risk tone saw JPY hold on to the prior day’s safe-haven flows and AUD/USD outperformed following better than expected job numbers from Australia.

Australian Employment Oct 32.8k vs. Exp. 20.0k (Prev. 5.6k, Rev. 7.8k). (Newswires)
Australian Unemployment Rate Oct 5.0% vs. Exp. 5.1% (Prev. 5.0%)
Australian Participation Rate Oct 65.6% vs. Exp. 65.5% (Prev. 65.4%, Rev. 65.5%)


COMMODITIES

Commodities were mixed with WTI crude futures lacklustre overnight despite having snapped its record losing streak the prior day. Oil prices were momentarily pressured after the latest API inventory report showed a larger than expected build in crude stockpiles, although the downside was only brief and WTI then flatlined around USD 56.00/bbl during the session. Elsewhere, gold was uneventful which largely reflected a muted greenback, while copper saw mild gains amid the China-led turnaround in sentiment.

US API Weekly Crude Stocks (9 Nov) +8.79mln vs. Exp. +3.2mln (Prev. +7.8mln). (Newswires)

CME raised December NYMEX crude oil futures margins by 14.5% to USD 3550/contract. (Newswires)

US

Treasuries ended the session only marginally higher, once again opposing the move in equities which ended in the red on Wednesday. The complex found some sellers ahead of the US CPI report which was broadly in line and traded just off highs after UK PM May received backing on her proposed Brexit deal. The curve was steeper at the close with yields lower by c.3bps at settlement. 5s30s and 2s30s were wider by c.2bps. US T-note futures (Z8) settled 7+ ticks higher at 118-24.


Fed Chair Powell (Neutral) said having a press conference after every meeting means all meetings are live, while he added he is very happy about the state of the economy and that there is good reason to think economy will continue in a positive way. Fed Chair Powell also commented that the Fed is trying to avoid hiking too slowly or too fast and that challenges include how much further to hike and at what pace, while he further stated that trade dispute could mean slower growth and a little higher inflation if more products face tariffs. (Newswires)

Fed's Quarles (Voter, Neutral) said the labour market sustainable and the economy very strong, while he added US can continue strong economy for some time. (Newswires)

White House has deliberately curtailed trade advisor Peter Navarro's public role amid tensions with top economic advisor Larry Kudlow according to sources, while there were separate reports that US National Security Adviser Bolton’s senior aide Mira Ricardel was moved out of White House amid feud with the First Lady’s office. (Newswires/CNBC)

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