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[PODCAST] EU Open Rundown 21st November 2018

  • Asian stocks mostly weakened as the global stock rout continued into the region following the losses in US
  • US Trade Representative Lighthizer released a report regarding China intellectual property and tech transfers which stated that China has not altered its unfair practices
  • UK PM May will discuss the text in Brussels today and will push for parts of her Chequers plan to be recognisable in the document, according to the BBC
  • Looking ahead, highlights include US Durable Goods, Weekly Jobs, Existing Home Sales, Uni. of Michigan, DoEs, Japanese CPI, BoE’s Carney, UK PM May to meet with EC’s Juncker

ASIA

Asian stocks mostly weakened as the global stock rout continued into the region following the losses in US, where the DJIA dropped over 500 points to turn negative YTD and in which energy names were pressured as oil slumped nearly 7%. ASX 200 (-0.5%) and Nikkei 225 (-0.2%) were led lower by spill-over selling seen across the commodity-related sectors, while Wesfarmers shares plummeted nearly 30% after the spin-off of its Coles unit which had its stock market debut today. Hang Seng (-0.1%) and Shanghai Comp. (-0.1%) opened with firm losses but then rebounded off their lows with price action choppy amid ongoing trade uncertainty and after criticism from USTR Lighthizer’s report that China has not altered its unfair practices and appears to have conducted further unreasonable actions in recent months. Finally, 10yr JGBs failed to benefit from the widespread risk averse tone with price action subdued amid a lack of BoJ presence in the bond market and after the weakness in T-notes as US investors closed positions heading in to Thanksgiving.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.9499 (Prev. 6.9280)

US Trade Representative Lighthizer released a report regarding China intellectual property and tech transfers which stated that China has not altered its unfair practices, while it added that it appears that China has conducted further unreasonable actions in recent months and that China has made it clear it will not change its policies in response to initial Section 301 action. (Newswires)

Chinese President Xi is expected to visit Madrid next week where infrastructure investment is expected to be a topic for discussions. (Newswires)


UK/EU

UK PM May will discuss the text in Brussels today and will push for parts of her Chequers plan to be recognisable in the document, according to BBC Europe Editor Adler. (Twitter)

In a column in the Telegraph, Former Brexit Secretary Raab states that “there is still time to stand up to the bullying tactics from Brussels. But we must change course, or the flame of optimism and opportunity that sparked Brexit will be snuffed out”. (Telegraph)

According to the latest YouGov polling, Brexiteer attempts to remove PM May has backfired. Last week 33% of voters backed Mrs May staying in her post and 47% wanted her to go, however, the latest polling shows that 46% say that she should stay and 34 per cent want her to stand down. (Times)

Scotland's First Minister Nicola Sturgeon said she made it clear to PM May why she couldn’t support the deal and predicts deal will not get through Commons, while she added it is then up to opposition parties to find an alternative. In related news, there were separate reports that UK PM May explained to Sturgeon that UK is negotiating a deal that works for all parts of the UK, delivering the result of the referendum (BBC/Twitter)

Spanish Foreign Minister Borrell said Spain would not block an independent Scotland from re-entering the EU and that he is worried about unity of the UK. (Telegraph)


FX

FX markets consolidated overnight as the major pairs took a breather from the prior day’s heavy moves in which the greenback advanced on safe-haven demand and as its high-beta counterparts suffered amid the stock sell-off. As such, EUR/USD and GBP/USD languished below the 1.1400 and 1.2800 handles respectively, while commodity-linked currencies were also despondent following the extended declines in oil prices. Elsewhere, JPY-crosses attempted to nurse some of the losses from the risk-averse flows and USD/JPY remained firm with the pair propped up by the strength in the greenback.

BoC's Wilkins said bank will review monetary policy framework in run up to late 2021 and indicated it is open to major changes, while she added it is time to review inflation targeting alternatives. Furthermore, Wilkins added the review will take into account the fact that neutral interest rate is lower than before and that raising inflation level to 3% or 4% would hit people living on fixed incomes. (Newswires)


COMMODITIES

WTI crude futures found some reprieve during Asia trade with oil underpinned on short-covering and after the latest API inventory report showed a surprise drawdown in headline crude stockpiles, although prices still have far to go to claw back the prior day’s near-7% drop that was attributed to supply concerns, the negative risk sentiment and Trump’s protective approach towards Saudi relations. Elsewhere, gold languished with price action contained as the greenback held on to recent gains, while copper was also subdued and only managed a minimal recovery overnight.

US API Weekly Crude Stocks (16 Nov) -1.5mln vs. Exp. +2.9mln (Prev. +8.79mln). (Newswires)

US President Trump said he would like to see oil prices lower and that Saudi Arabia has helped keep oil prices down. (Newswires)

Goldman Sachs said slump in oil reflects over supply concerns for 2019 and that technical position factors have exacerbated the volatility, while it also cited low liquidity heading into Thanksgiving as well as broader selling in commodities and cross-assets amid rising growth concerns. (Newswires)

Twitter source noted that a monster storm had shut all of Eastern Canada's crude output but added that one field has now resumed service. (Twitter)


GEOPOLITICAL

US President Trump said US will remain a steadfast partner of Saudi Arabia, ensuring interest of US, Israel and regional partners, according to statement. Furthermore, Trump stated that Russia and China are set to benefit if US cancels defence contracts with Saudi, while he added that Congress is free to "go in a different direction" on Saudi and that he will only mull ideas "consistent" with US security. Elsewhere, there were later comments from US Senator Graham that there will be strong bipartisan support for serious sanctions against Saudi Arabia and outgoing US Senator Corker demanded that US President Trump makes a determination on Saudi Crown Prince and said Congress will consider law to push the President regarding Saudi Arabia, (Newswires)

North Korea and US in discussions regarding a high-level meeting which could potentially take place on November 27th. (Newswires)
 

US


The treasury complex ended Tuesday’s session mixed; the complex remained bid once again for most of the trading day on a fly to safety as equities extended their sell-off. Some of those gains were pared back as investors closed their positions ahead of Thanksgiving on Thursday when the bond market will remain close. Most of the action was in the front end of the curve were yields were higher by c.2bps at settlement. 2s10 and 2s30s were narrower by c.2bps. US T-note futures (Z8) settled 1+ ticks higher at 119-11.

Fed's Kashkari (Dove, Non-voter) says Fed should pause rate hikes to see how the economy evolves. (Newswires)

US President Trump submitted written responses to Special Counsel Mueller, according to his lawyers. (Newswires)

House Democrats are to investigate Ivanka Trump's emails. (Washington Post)

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