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[PODCAST] EU Open Rundown 31.05.18

  • Asian equities higher after following suit from the rebound seen in their global counterparts as Italian fears subside (for now) and encouraging Chinese data
  • Italy's Five Star Movement have called for Savona to withdraw candidacy for Economy Minister to allow a government to be formed
  • Looking ahead, highlights include Eurozone CPI, US personal consumption and PCE price index, Chicago PMI, Canadian GDP and DoEs

ASIA

Asian markets traded positive across the board as the regional bourses follow suit from the rebound seen in their global counterparts after political fears surrounding Italy subsided, while participants also digested strong Chinese PMI data. ASX 200 (+0.4%) was led higher by the energy sector following similar outperformance on Wall St after source reports suggested OPEC and Non-OPEC are not yet ready to fully lift controls and that any adjustment in oil output will be gradual, while Nikkei 225 (+0.8%) was also positive but with gains initially contained after a pullback in USD/JPY and miss on Industrial Production data. Elsewhere, Hang Seng (+0.8%) and Shanghai Comp. (+1.4%) conformed to the positivity with outperformance in mainland China after better than expected Chinese Official Manufacturing and Non-Manufacturing PMIs in which the former data release printed an 8-month high. In addition, officials also did their part to help out with China to further cut import tariffs for consumer goods and will announce a new negative list which would ease investment restrictions on certain sectors, while the PBoC conducted a substantial daily net liquidity injection of CNY 180bln. Finally, 10yr JGBs were lacklustre amid a similar subdued performance in T-Notes, due to a broad recovery in risk sentiment and after weaker demand in today’s 2yr JGB auction.

China Mofcom said China is not willing to see an escalation in trade tensions with US, while it added that the measures against China are against WTO rules and that China reserves the right to respond with countermeasures. In other news, China Mofcom said that China will release a new negative list on foreign investment by June 30th at the latest, which will include measures to relax or drop restrictions on sectors including energy, resources and transportation. (Newswires)

Chinese Manufacturing PMI (May) 51.9 vs. Exp. 51.4 (Prev. 51.4); highest since September. (Newswires)
Chinese Non-Manufacturing PMI (May) 54.9 vs. Exp. 54.8 (Prev. 54.8)
Chinese Composite PMI (May) 54.6 (Prev. 54.1)

PBoC injected CNY 90bln via 7-day reverse repos, CNY 60bln via 14-day reverse repos and CNY 70bln via 28-day reverse repos, for a net daily injection of CNY 180bln. (Newswires)
PBoC set CNY mid-point at 6.4144 (Prev. 6.4207)

UK/EU

UK PM May has been told by the leaders of some of Europe's biggest companies that "clarity and certainty" is needed over Brexit because "time is running out". (Sky News)

Former UK cabinet members Amber Rudd, Damian Green and Justine Greening held a private meeting with PM May yesterday at which they informed her that there was a large majority in the parliamentary party in favour of a compromise with the EU.

France is reported to be blocking UK plan for a post-Brexit security agreement. (The Sun)

UK GfK Consumer Confidence (May) -7 vs. Exp. -8 (Prev. -9). (Newswires)
UK Lloyds Business Barometer (May) 35 (Prev. 32)

Italy's President Mattarella and PM-designate Cottarelli agreed not to rush the situation to see if a political government can be formed, according to a source close to the President. (Newswires)

Italy's Five Star Movement have called for Savona to withdraw candidacy for Economy Minister to allow a government to be formed, while party leader Di Maio said Savona should be part of M5S-League government but not as Economy Minister. Di Maio also noted that an alternative Economy Minister should try to renegotiate treaties in the EU if the League agrees and that the choice is either a snap election or a political government. (Newswires)

The Spanish opposition is seen close to securing votes necessary to remove current PM Rajoy. while his PP party is said to most likely see a defeat in the no confidence vote on Friday. (Newswires)

FX

In FX markets, USD remained softer following the prior day’s declines with the DXY-index in close proximity of the 94.00 level to the benefit of its major counterparts. As such, EUR/USD held on to the majority of its recent advances and GBP/USD reclaimed the 1.3300 handle, while AUD/USD and NZD/USD pared some of the gains as weaker than expected Australian private capex data and softer New Zealand business surveys slightly dampened. Elsewhere, the greenback’s NAFTA peers were mixed with CAD firm following the more hawkish tilt by the BoC in its policy statement and with MXN weighed by reports that US President Trump is to proceed on metal tariffs on Canada, Mexico and EU which could be announced later today.

Australian Capital Expenditure (Q1) 0.4% vs. Exp. 1.0% (Prev. -0.2%, Rev. 0.2%). (Newswires)
Australian Private Capital Expenditure Est. 2 (2018-2019) 87.7B vs. Exp. 90.7B (Prev. 84.0B)
Australian Private Capital Expenditure Est. 6 (2017-2018) 117.5B vs Exp. 115.1B (Prev.114.6B)

New Zealand NBNZ Business Confidence (May) -27.2% (Prev. -23.4%). (Newswires)
New Zealand NBNZ Activity Outlook (May) 13.6% (Prev. 17.8%)

COMMODITIES

Commodities were quiet overnight in which WTI crude futures traded relatively sideways as prices took a breather from the prior days advances after source reports dampened prospects of a significant lift in output by OPEC+, while the latest API crude inventory data also failed to spur any significant market reaction despite a surprise build in headline crude stockpiles. Elsewhere, gold was relatively flat as the opposing forces from the risk-sentiment and dollar-dynamics continue to counterbalance, while copper conformed to the uneventful overnight trade observed across the complex. 

US API Weekly Crude Stocks (25 May) 1.001M vs. Exp. -0.500M (Prev. -1.300M). (Newswires)

Iran Oil Minister Zanganeh called for OPEC to support Iran in its coming struggle with the US sanctions defining them 'illegal, unilateral, extraterritorial', while he demanded to place the US sanctions topic on the agenda at its next meeting on June 22nd. (Newswires)

GEOPOLITICS

White House Press Secretary Sanders said the US continues to prepare for the 12th June North Korea summit and that preparations have been positive so far. In related news, North Korea's Yongbyon nuclear research complex is said to still be active, while there were also reports that Russian Foreign Minister Lavrov arrived in North Korea. (Newswires/KCNA)

North Korean leader’s right-hand man Kim Yong-chol met with US Secretary of State Mike Pompeo in New York to discuss next steps of summit. Pompeo then tweeted he had a “good working dinner” with the North Korean official. He is the most senior North Korean to visit the US in almost two decades. (BBC)

US

Treasuries edged lower on Wednesday as equities steadied and oil rebounded amid easing political concerns over in Europe, yet no government has been formed in Italy. Some analysts were noting that volume was elevated across the curve as attention shifted to the September contracts (June contracts expires on 20th June). Most of the action was concentrated on the front end of the curve where 2yr and 5yr yields were higher by c.1bps. Although yields were higher, modest flattening was seen across the yield curve. However, 2s30s and 5s30s narrowed by c.5bps and 2s10s and 5s10s narrowed by c.5bps. US 10yr T-Notes futures settled 20 ticks lower at 120-19+.

US President Trump is to impose metal tariffs on Canada, Mexico and EU, with an announcement expected as soon as today. (Washington Post) Such a move is likely to bring retaliatory actions from EU trade regulators. (WSJ)

Fed Beige Book stated the US economy expanded moderately in late April and beginning of May with few shifts in growth pattern and that manufacturing moved into 'higher gear' with more than half of Fed districts reporting a pickup in industrial activity. Furthermore, it added that employment increased at modest/moderate rate and that price and wage increases were modest. (Newswires)

US Federal Reserve and financial regulators have revealed proposals to ease the Volcker Rule which bans banks from prop trading. (Newswires)

Trump Lawyer Giuliani said the President is working on Q&A preparation for the Mueller investigation. (Newswires)

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