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[PODCAST] EU Open Rundown 27th November 2018

  • Asian equity markets were mostly positive as the region took impetus from the performance on Wall St, where all majors finished with firm gains
  • US President Trump suggested an intention to proceed with raising tariffs on China imports from 10% to 25% and warned over tariffs on the remaining USD 267bln of Chinese imports if talks fail
  • US President Trump said it sounds like the Brexit deal is a good deal for the EU and that the UK may not be able to trade with the US
  • Looking ahead, highlights include US API Weekly Data, Fed's Powell, Clarida, Bostic, George & Evans, ECB's Mersch, Stournaras & Costa, Riksbank's Skingsley and Ohlsson

ASIA

Asian equity markets were mostly positive as the region took impetus from the performance on Wall St, where all majors finished with firm gains on return from the Thanksgiving weekend and with retailers buoyed on the back of Black Friday and Cyber Monday sales. ASX 200 (+1.0%) and Nikkei 225 (+0.9%) were lifted from the open with Australia led higher by tech and financials, while a pullback in USD/JPY limited the upside for the Japanese benchmark. Elsewhere, Hang Seng (-0.2%) and Shanghai Comp. (+0.2%) were mixed with China somewhat dampened by Trump’s hardball tactics ahead of the meeting with Chinese President Xi at this week’s G20, in which he suggested an intention to proceed with raising tariffs on China imports from 10% to 25% and also warned to place tariffs on the remaining USD 267bln of Chinese imports if they fail to reach a favourable outcome for the US. Furthermore, a slowdown of Chinese Industrial Profit growth and concerns in the Hong Kong property sector also contributed the cautiousness in Chinese markets. Finally, 10yr JGBs were uneventful as prices took a breather from its extended but gradual uptrend and with today’s 40yr auction largely ignored despite increases in the b/c and accepted prices.

PBoC skipped open market operations for the 23rd consecutive occasion. (Newswires)
PBoC set CNY mid-point at 6.9463 (Prev. 6.9453)

Chinese Industrial Profits (Oct) Y/Y 3.6% (Prev. 4.1%). (Newswires)


UK/EU

UK PM May's spokesman said PM May still believes she can win the meaningful vote on Brexit and is focused on winning first time round, while the meaningful vote is expected on Tuesday 11th December and an official confirmed five days of debate between December 4th to December 11th. (Newswires)

US President Trump said it sounds like the Brexit deal is a good deal for the EU and that the UK may not be able to trade with the US. However, a UK No. 10 spokesperson later said declaration signed with EU is clear that UK can sign trade deals with the US and that UK has already been laying the groundwork for an ambitious trade deal with the US. (Newswires)

EU's Nowotny said a well communicated exit from QE may benefit financial health and poses little risk to financial stability, while he added very low rates for a long time may impair stability. (Newswires)

Italian PM Conte, following a meeting with Deputy PMs Salvini and Di Maio stated that the government will stick to its high-spending budget plans. (BBC) Later it was reported Italy’s 2019 deficit/GDP target is almost certain to be 2.2%, while PM Conte reportedly anticipates EUR 3.6bln of budget cuts according to reports in Messagerro. (Messagerro)
 

FX


FX markets were quiet in which the major pairs consolidated after the prior day’s price swings. Nonetheless, the DXY struggled to hold above the 97.00 level as EUR/USD and GBP/USD rebounded near Monday’s lows at the 1.1300 and 1.2800 handles respectively. Elsewhere, AUD and NZD attempted to nurse partial losses with the latter only briefly pressured after the latest New Zealand trade data showed a wider than expected deficit and slight miss on exports, while USD/JPY and JPY-crosses pulled-back as Trump’s renewed tariff threats spurred some flows into the safe-haven JPY.

New Zealand Trade Balance Oct -1295M vs. Exp. -850M (Prev. -1560.0M, Rev. -1596M). (Newswires)
New Zealand Exports Oct 4.86B vs. Exp. 4.88B (Prev. 4.33B, Rev. 4.25B)
New Zealand Imports Oct 6.15B vs. Exp. 5.84B (Prev. 5.89B, Rev. 5.84B)


COMMODITIES

Commodities saw tepid trade with WTI crude futures marginally weaker as prices remain pressured by Saudi Arabia’s record high production this month and although there were reports the kingdom was said to be keen on output cut agreement, this did little to spur oil prices which have slumped over 20% so far this month. Elsewhere, gold flatlined overnight amid an uneventful greenback, while copper was also subdued in-line with the lacklustre tone across the commodities complex and amid tariff concerns.

Saudi Arabia is said to be "keen" for an agreement to cut output despite the US wanting otherwise, while there were separate reports that Ecuador would support an OPEC production cut at meeting next week according to its Energy Minister. (FT/Newswires)

CME raised January 2019 crude oil futures NYMEX margins by 12.3% to USD 4,100 per contract and raised December RBOB gasoline futures margins by 7% to USD 4600 per contract. (Newswires)


GEOPOLITICAL

US Secretary of State Pompeo said Russia actions in the Kersch Strait is a dangerous escalation and in violation of international law. (Newswires)

US


The risk-on mood saw modest selling in the Treasury complex, where yields were higher by between 1-2bps at settlement; major curve spreads were generally little changed, with 2s5s and 2s10s slightly steeper, while 2s30s and 5s30s were narrower. The attention this week will be on Fed speak (with Powell set to speak twice, while VC Clarida is also on the slate) as well as the FOMC meeting minutes on Thursday, and the G20 meeting towards the end of the week. US T-note futures (Z8) settled 4+ ticks lower at 119-04+.

US President Trump said he still intends to go ahead with raising tariffs on China imports from 10% to 25% and that it was highly unlikely he would accept China’s request to refrain from the increase. Trump also suggested he would place tariffs on the rest of Chinese imports that are currently not subject to tariffs if the US doesn’t make a deal with China, while he added tariffs could be placed on Apple iPhones from China and that consumers could stand a 10% tariff on iPhones. (WSJ)

US Special Counsel Mueller's office said former Trump campaign manager Manafort lied to FBI and Special Counsel in violation of plea agreement. (Newswires)

Michelle Bowman was sworn into the Fed's Board of Governors. (Newswires)

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