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[PODCAST] EU Open Rundown 28th November 2018

  • Asian equity markets traded mostly positive following a similar lead from Wall St. but with the session initially mired by lingering trade uncertainty
  • White House Economic Advisor Kudlow said President Trump could hike tariffs if no constructive talks occur at G20, however, Trump remains open to a deal
  • UK PM May is said to have backed down regarding attempts to stop lawmakers from making changes to her Brexit plan
  • EU Commission will begin disciplinary action on Italy regarding its debt before Christmas
  • Looking ahead, highlights include US GDP, PCE Prices and Advanced Goods Trade Balance, Fed Financial Stability Report, ECB's Lautenschlarger, Rehn, Coeure, Praet and de Guindos, Fed Chair Powell Speaking, BoE's Annual Bank Stress Tests, Brexit Assessment and Withdrawal Scenarios

ASIA

Asian equity markets traded mostly positive following a similar lead from Wall St. but with the session initially mired by lingering uncertainty regarding US-China trade relations. Nikkei 225 (+1.1%) outperformed as the index coat-tailed on the recent advances in USD/JPY, while ASX 200 (-0.1%) was subdued by weakness in miners after the metals complex felt the brunt of the recent USD strength and with financials subdued by AMP Capital amid risk of further mischarging cases and provisions. Elsewhere, Hang Seng (+1.0%) and Shanghai Comp. (+0.7%) were higher but with price action choppy in early trade amid tentativeness heading into the Trump-Xi showdown at this week’s G20 and as participants mulled over various comments from officials including White House Economic Adviser Kudlow who affirmed that Trump could hike tariffs if no constructive talks occur at G20 and that the White House is disappointed in China's response to the trade issue. However, Kudlow also noted that Trump is open to a deal with China and there were recent comments from China’s Vice Premier Liu that China wants a negotiated solution on trade based on mutual respect. Finally, 10yr JGBs weakened amid a lacklustre tone in T-note futures and with the BoJ’s presence in the bond market overshadowed by the outperformance of Japanese stocks.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.9500 (Prev. 6.9463)

China's US envoy said selling or reducing purchases of US Treasuries would be very dangerous like playing with fire, while the envoy doesn't think anybody in Beijing is seriously thinking about pulling back from US Treasury debt market should tensions worsen. Furthermore, there were reports that China’s Ambassador to the US warned of dire consequences if the trade war leads to economic separation and that China prefers a negotiated solution, while the Ambassador warned that China will retaliate in proportion to any US sanctions regarding Muslim Uighurs in Xinjiang. (Newswires)


UK/EU

UK PM May is said to have backed down regarding attempts to stop lawmakers from making changes to her Brexit plan which would mean that MPs will be able to vote on potential changes to her plans, while there were separate reports that UK PM May is to block publication of full Brexit legal advice. (Straits Times/ Telegraph)

The Sun reports that UK PM May could suffer a 200 vote defeat in Parliament, while a cabinet minister is said to see zero chance of the deal passing. (Sun)

UK GDP is expected to be 7.6% lower in the event of a no-deal Brexit, while it is expected to be 1%-2% lower under PM May's Chequers draft EU divorce agreement over 15 years, according to cross-government analysis. (Telegraph)

EU Chief Brexit Negotiator Barnier reportedly told MEPs that the Brexit deal will be referred back to the European Council if it is voted against on December 11th. (Yahoo)

Negotiators for UK and US are meeting on Wednesday in Washington for what they expect to be the final round of talks over services agreement. Elsewhere, there were reports that US President Trump made a trade offer to UK PM May in July which was rejected. (FT/Telegraph)

UK BRC Shop Price Index (Nov) Y/Y 0.1% (Prev. -0.2%). (Newswires)

Italy Deputy PM Salvini said we will do all we can to avoid any EU disciplinary action and hopes for reciprocal openness from EU. (Newswires) However, it was later reported that that EU Commission will begin disciplinary action on Italy regarding its debt before Christmas. Furthermore, EU's Dombrovskis says Italy needs to significantly correct 2019 fiscal budget, adding that a cut of 0.2% is not enough. (Newswires)

French Finance Minister Le Maire is reportedly calling for deeper tax cuts than originally planned. (Newswires)


FX

In FX markets, the greenback remained firm and above the 97.00 level following the recent strength against its major counterparts in which EUR/USD slipped below 1.1300 and GBP/USD collapsed through support at the 1.2800 level. Elsewhere, commodity-linked currencies were range-bound after having recovered from the prior day’s lows with the rebound mirroring similar price action in oil, while USD/JPY was steady and in closer proximity to the 114.00 handle after having benefitted from the USD strength.

S&P affirmed Canada at AAA/A-1+; outlook stable. (newswires)

RBNZ Financial Stability Report said it is to ease loan-to-value ratio restrictions and said that households remain exposed to financial shocks due to their large mortgage debt burden, while it added that mortgage credit growth and house price inflation have eased to more sustainable rates. However, RBNZ later commented said they are some way away from LVRS being fully removed. (Newswires)

Australian Construction Work Done Q3 -2.8% vs. Exp. 1.0% (Prev. 1.6%, Rev. 1.8%). (Newswires)


COMMODITIES

Commodities were mixed with WTI crude higher after having recovered from near 1yr lows, while a larger than expected build in headline API crude stockpiles did little to stagger the rebound in oil. Elsewhere, gold remained near the prior day’s lows with the precious metal weighed by strength in the greenback, while copper nursed losses amid the mostly positive overnight risk tone.

US API Weekly Crude Stocks (23 Nov) +3.453mln vs. Exp. +0.8mln (Prev. -1.5mln). (Newswires)

US President Trump reportedly floated the possibility of removing troops from Middle-East and said oil prices are low now. US President Trump also said he called the Saudis when oil was at USD 82/bbl and 'let him have it' about oil. (Washington Post)

Goldman Sachs said iron ore price correction is mostly complete. (Newswires)


GEOPOLITICAL

US and North Korea special envoys failed to conduct their scheduled meeting. (Newswires)

US President Trump may cancel meeting with Russian President Putin at G20 due to Ukraine. (NY Post)

Ukraine President Poroshenko said his nation is under the threat of a full-scale confrontation with Russia and that the government was considering restricting access to Ukraine during martial law. (CNN)

US

The Treasury complex ended Tuesday’s session pretty much unchanged, trading in a 7-tick range, holding on to the gains just after Monday’s market close after US President Trump announced his intention to go ahead with raising tariffs on China imports. Very limited reaction was seen on Fed’s Vice Chair Clarida reiterated the importance of data dependency in the Fed’s policy approach. Most of the action was concentrated in the belly of the curve, where yields were lower by around 1bps at settlement. US T-note futures (Z8) settled 3+ ticks higher at 119-08.

US President Trump said Fed rate policies are hurting the economy and that he is not even a little happy with Fed Chair Powell, while Trump also commented that the Fed is a much greater problem than China. (Washington Post)

White House Economic Advisor Kudlow said President Trump means what he says in which he could hike tariffs if no constructive talks occur at G20 and that the White House is disappointed in China's response to trade issues. However, Kudlow also commented that Trump is open to a deal with China and China must deal with IP theft as well as tariff barriers, while he added the raising of tariffs to 25% is not a "certainty" but described it as "scheduled". (Newswires)

Canada and US are said to prepare to sign trade pact this week although reports added that dairy remains a sticking point, according to sources familiar with the matter. In related news, the White House said US President Trump and Canadian PM Trudeau spoke regarding General Motors (GM) and G20, while a senior Canadian government official said that Canadian PM Trudeau reinforced to US President Trump the importance of both nations lifting their tariffs on steel and aluminium. (Newswires)

US Commerce Department spokesperson said they have not submitted final findings on the 232 automotive tariffs investigation to the President. (Newswires)

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