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[PODCAST] EU Open Rundown 20th November 2018

  • Asian stock markets were lower across the board as the risk averse tone rolled over from Wall St, where the tech sector led the sell-off
  • Brexiteers reportedly still lack the sufficient number of signatures required to trigger a no-confidence vote against UK PM May
  • UK PM May is reportedly drawing up secret plans to drop the Irish border backstop and win support from angry Brexiteers
  • Looking ahead, highlights include US building permits & housing starts, BoE’s Carney, Haldane, Cunliffe and Saunders to appear before the TSC, ECB’s Nowotny, BoC’s Wilkins & Lane

ASIA

Asian stock markets were lower across the board as the risk averse tone rolled over from Wall St, where the tech sector led the sell-off as Apple shares dropped nearly 4% on reports it had reduced production orders and with all FAANG stocks now in bear market territory. As such, the tech sector underperformed in the ASX 200 (-0.4%) and Nikkei 225 (-1.1%) was also pressured with Mitsubishi Motors and Nissan among the worst hit after their Chairman Ghosn was arrested on financial misconduct allegations. Shanghai Comp. (-1.6%) and Hang Seng (-2.2%) were heavily pressured after the PBoC continued to snub liquidity operations and as China’s blue-chip tech names conformed to the global rout in the sector, while JD.com earnings added to the glum as China’s 2nd largest e-commerce firm posted its weakest revenue growth since turning public. Finally, 10yr JGBs were weaker amid profit taking after futures recently hit their highest in around a year and following mixed results at today’s 20yr auction.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.9280 (Prev. 6.9245)

BoJ Governor Kuroda said there is currently no need to ease further, while he added that there was a need for bold monetary policy in 2013 and now we need to persistently continue with policy. Furthermore, Kuroda suggested that the chance of reaching the 2% inflation target during FY2020 is low. (Newswires)


UK/EU

UK PM May is reportedly drawing up secret plans to drop the Irish border backstop and win support from angry Brexiteers, while reports added PM May has received agreement from the EU to drop the backstop plan if both sides can agree on alternative arrangements to keep the border open. (The Sun)

Brexiteers reportedly still lack the sufficient number of signatures required to trigger a no-confidence vote against UK PM May. (FT) In related news, Brexit rebels reportedly admitted attempts to oust PM May has stalled as Eurosceptic MPs turned on each other. (Telegraph) The Telegraph reports that the confidence vote now appears to be on hold until after Parliament votes in December on Mrs May's Brexit deal. (Telegraph)

A Brexiteer delegation went to No10 carrying a print out of an email from EU Deputy Negotiator Sabine Weyand to Owen Paterson apparently approving of some of their ideas for keeping the Irish border open, according to ITV political editor. (Twitter) However, there were also reports that UK PM May appeared to have talked down Owen Paterson and Iain Duncan Smith from brink in the meeting, while the 'gang of 5' were said to have struggled finding a united front and increasingly accepted that the withdrawal agreement can't be changed. (Twitter/The Telegraph)

The UK government are to publish new analysis before the MPs’ meaningful vote on the Withdrawal Agreement comparing the “costs and benefits” of Brexit. The impact of three scenarios will be measured; no Brexit, no deal, and leaving with the government's draft deal and a free trade agreement. (Sky News)

DUP’s 10 MPs abstained on finance bill voting which ITV’s Peston suggested was to put the government on warning that the party is close to ripping up the “confidence and supply” agreement", while DUP sources said their abstention was a warning and that Tory MPs need to realise that their jobs, their majorities, their careers depend on a good working relationship with the DUP and PM May doesn’t appear to be listening’. (Twitter/BBC)

EU is reportedly thinking about a banking addendum to the Brexit Summit conclusions. (Newswires)

EU Austrian Presidency said no deal on EU budget can be announced at this time and EU Budget Commissioner Oettinger said they plan to deliver a new EU budget proposal in a few days. (Newswires)


FX

FX markets were mostly quiet due to another sparse overnight calendar, in which the DXY consolidated after the prior day’s continued weakness and as EUR/USD held on to most its recent gains. GBP/USD was flat after having pared the initial upside which was spurred by reports PM May is drawing up secret plans to drop the Irish border backstop and win over angry Brexiteers, while reports also noted that Brexiteers still lacked the signatures required to trigger a no-confidence vote. Elsewhere, USD/JPY’s attempts to nurse losses were thwarted by the risk averse tone and although AUD/USD was unreactive to a rehashed RBA Minutes, the pair eventually continued to pull-back from resistance at the 0.7300 handle.

RBA minutes from November 6th meeting reiterated the board saw no strong case for near-term rate move and that the next move is likely to be up than down. The minutes added that employment is stronger than forecast and that there could be more pronounced drop in the unemployment rate during the near-term, although members noted average real earnings have not grown for 6 years and remains a key uncertainty. (Newswires)


COMMODITIES

Commodities were uneventful with WTI crude futures relatively flat as prices found support at the recently reclaimed USD 57.00/bbl level, while oil-related news flow was light overnight and reports regarding Saudi were centred on the repercussions from the Khashoggi death with Germany announcing a halt in arms sales to the kingdom and travel ban on the suspects involved. Gold and copper also traded lacklustre amid a steady greenback and the subdued global risk appetite.

CME raised nat gas futures margin to USD 4700 per contract from USD 3700. (Newswires)
 

GEOPOLITICS

In separate news, some members of the Saudi royal family were said to be planning to prevent Crown Prince Mohammed bin Salman from becoming King although the Saudi Foreign Minister commented that any attempt against King and Crown Prince is a red line (Newswires)

North Korea is reportedly pressuring Japan to break from US-led sanctions. (Newswires)


US
 

The treasury complex climbed higher as falling equities boosted demand for safe-haven fixed income. The yield curve saw some modest bull-steepening with short dated yields lower by c.3bps and long end yields lower by less than 1bps at settlement. The 10yr yield hit 3.054% the lowest since October. 2s30s were wider by c.2bps, 5s30s and 2s10s were also wider by c.1bps. US T-note futures (z8) settle 4+ ticks higher at 119-09+.

Fed's Williams (voter, neutral) expects the FOMC to continue gradual tightening towards more normal rates in December and says the Fed will keep raising rates along gradual path, while he added US economy is doing very well and unemployment is low. (Newswires)

US President Trump reportedly sent a letter to Commerce Secretary Ross asking him to stay. (Fox)

Sources stated that Ivanka Trump used her personal email to send government business emails last year with many said to be in violation of federal records rules. (Washington Post)

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