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[PODCAST] EU Open Rundown 26th November 2018

  • Asian equities and US index futures began the week mostly positive as stock markets picked themselves up from the Thanksgiving holiday lull
  • The European Council released its statement that endorsed UK PM May’s Brexit deal, as expected
  • EU officials were quick to warn that there is no plan B on offer for the UK and that voters are mistaken if they think that voting ‘no’ to the deal will get them a better offer
  • Looking ahead, highlights include German Ifo, ECB’s Praet, Coeure, BoE Governor Carney and US 2yr Note Auction

ASIA

Asian equities and US index futures began the week mostly positive as stock markets picked themselves up from the Thanksgiving holiday lull, but with upside capped amid the ongoing commodity rout. ASX 200 (-0.8%) and Nikkei 225 (+0.8%) were mixed with Australia dampened by losses in miners after the broad weakness across energy and metals in which crude slipped nearly 8% on Friday, while the Japanese benchmark was propped up by favourable currency moves. Elsewhere, Hang Seng (+1.8%) and Shanghai Comp. (+0.1%) conformed to the broad rebound in sentiment, but with the mainland less decisive as Chinese commodity prices followed suit to their global peers in which Dalian iron ore futures dropped around 6% at the open and China oil futures hit limit down. Finally, 10yr JGBs saw mild gains amid the BoJ’s presence in the market for JPY 680bln of JGBs in the belly to super-long end and which coincided with a decline in the Japanese 10yr and 20yr yields to their lowest in 3 months.

PBoC skipped liquidity operations, although weekend reports noted it may have conducted repos with some banks. (Newswires)
PBoC set CNY mid-point at 6.9453 (Prev. 6.9306)


UK/EU

The European Council released its statement that endorsed UK PM May’s Brexit deal as expected, while the EC restated determination to have a close as possible future partnership with the UK in line with the Political Declaration. This came after Spain struck an agreement with the UK and EU whereby Spain will have a veto over any future EU-UK agreement concerning Gibraltar. (FT). EU officials were quick to warn that there is no plan B on offer for the UK and that voters are mistaken if they think that voting ‘no’ to the deal will get them a better offer from the EU. (Telegraph)

EU officials were reportedly told that a meaningful vote could occur on 10th or 11th of December. (Newswires/Independent) Later reports suggested that the vote could also be held on the 12th December.

UK PM May was said to demand a Brexit TV debate with Labour Party leader Corbyn and a Labour spokesman later commented that Corbyn would relish a debate with PM May about her botched Brexit deal, while Scottish First Minister Sturgeon reportedly challenged the PM to a Brexit debate. (Newswires/Sky/Telegraph) UK PM May will now commence a two-week campaign to sell her deal to Parliament and the public with her central message being that if her deal is not supported, it will be “back to square one”. (Times)

UK Foreign Secretary Jeremy Hunt said it is going to be challenging for PM May to secure support for the Brexit deal as the DUP has vowed to oppose her. (Independent) Separately, there were comments on Friday from DUP Leader Foster that if UK PM May is successful in Parliament, we will have to review government leadership agreement and reiterated that the DUP cannot support the deal in its current form. (Newswires)

UK Cabinet ministers and EU diplomats are reportedly drawing up a “Plan B” proposal based on assumption PM May’s deal will fail to get through Parliament. (Telegraph)

UK PM May’s Brexit deal would leave UK GDP worse off by GBP 1000 per person by 2030 than if the country were to stay in the EU, according to an independent NIESR report that was commissioned by the People’s Vote campaign. (Times) 

Italy is to work closely with EU this week to find an agreement on the budget. In related news, there were conflicting reports over the weekend in which Italian Deputy PM Salvini was said to have threatened to bring down the government if coalition’s budget deficit target was changed, although a later report suggested Salvini hinted of some room for compromise in which he stated that nobody is fixated on 2.4% budget deficit and that if there's a budget that makes the country grow, it could be 2.2% or 2.6%. (Newswires)

Switzerland decisively voted to reject a referendum proposal regarding self-determination initiative which would have complicated relations with the EU. (FT)

FX


In FX markets, DXY tested 97.00 to the upside as it held on to Friday’s advances against its major counterparts in which EUR/USD slipped below 1.1400 on soft PMI readings and with GBP/USD weighed by Brexit uncertainty. In addition, European leaders unanimously endorsed the Brexit deal which paves the way for a UK Parliament vote, although there are widespread doubts whether PM May can get this passed amid opposition from all sides including alliance partner DUP. Elsewhere, USD/JPY broke above 113.00 on safe-haven outflows, while antipodeans were initially lacklustre amid the recent commodity slump and with NZD/USD also pressured following poor retail sales but were later spurred alongside the positive risk tone and cross-related flows.

New Zealand Retail Sales Volumes (Q3) Q/Q 0.0% vs. Exp. 1.0% (Prev. 1.1%). (Newswires)


COMMODITIES

The commodities complex was mixed overnight with WTI crude futures nursing losses after last Friday’s oil price collapse in which WTI declined nearly 8% to below USD 51.00/bbl and posted its worst weekly performance in nearly 3 years. As such, oil futures in China played catch up and dropped 5% to hit limit down and nat gas gapped lower by around 6% at the open in a continuation of the recent volatile price moves, while gold and copper were uneventful with prices near last week’s lows amid an early sell-off in Chinese commodity prices.

Saudi Arabia is said to be leaning towards a more discreet reduction in output, while OPEC are mulling plan to retain current output targets which were first set in 2016. Elsewhere, there were source reports on Friday that the Saudis and OPEC are reportedly considering a clandestine cut to oil output, while a senior source stated OPEC aren't discussing any extraordinary meeting due to oil price slides. (Newswires/WSJ/Platts)


GEOPOLITICAL

Ukraine accused Russia of an act of war after the latter fired at Ukrainian ships and seized 3 vessels off Crimea, while Russia said the Ukrainian ships entered its territorial waters near Crimea. Furthermore, Ukrainian President Poroshenko has reportedly asked Parliament to meet on Monday to discuss martial law. (Newswires)

Iran seized a Saudi Arabian fishing boat and arrested the crew. (Mizan)

North Korea is reportedly not responding to US offer for talks. (Newswires)

US Senator Graham said will push to sanction Saudi Crown Prince if CIA confirms he was behind the Khashoggi murder. (Axios)

US

Treasuries were mixed on Friday with the T-Note drifting slightly higher in thin-liquidity conditions. The upward momentum was inspired by pre-market risk off, as equity futures and, crucially, crude futures, were on the back foot. Moves were small, however, and as we leave for the weekend, the Z18 contract is knocking in the middle of the day's range (11904 to 119-15). T-notes (Z8) settled 1+ tick higher at 119-09.

US President Trump denied a report that expressed dissatisfaction regarding Treasury Secretary Mnuchin. (Newswires)

Mastercard projected Black Friday sales total rose 9% Y/Y to USD 23bln, and Adobe Analytics said Black Friday online sales rose 23.6% Y/Y to USD 6.2bln. (Newswires)

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