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[PODCAST] EU Open Rundown 30th November 2018

  • Asian stocks traded mixed amid a cautious global risk tone ahead of the US-China showdown at the G20 and as participants digested disappointing Chinese PMI data
  • FOMC Minutes stated almost all policy makers said rate hikes likely warranted "fairly soon" and it could be appropriate at future meetings to emphasise more greatly on data
  • UK PM May is turning to Eurosceptics in her cabinet to launch a last gasp effort to sell her compromise Brexit deal, according to the FT
  • Looking ahead, highlights include, EZ CPI & Unemployment Rate, Canadian GDP, Chicago PMI, ECB's Draghi, Mersch & Coeure, Fed's Williams Speaking

FOMC MINUTES

  • FOMC Minutes stated almost all policy makers said rate hikes likely warranted "fairly soon" if the US job and inflation data were in line with or stronger than the Fed's current expectations, while a few expressed uncertainty over the timing of the hikes.
  • The minutes also noted that many said it could be appropriate at future meetings to emphasise more greatly on data and that statement in upcoming meetings might need changes, particularly in language relating to "further gradual increases" in rates.
  • Furthermore, a couple of members said policy could be near the neutral level and further hikes could unduly slow the economy, while it added that policy was not on pre-set course.
  • Analysts said that the minutes were consistent with an upcoming hike in December, though by talking-up data-dependence as well as no pre-set policy course, the central bank might be giving itself optionality to narrow the rate trajectory in 2019 (the Fed will update economic projections at the December meeting)
  • The market reaction was muted, with the implied probability of a December rate hike moderating ever so slightly (79% vs 83% before the release of the minutes); Fed funds futures continued to price just under two hikes by the end of 2019 (implied rate 2.70% - little changed from the aftermath of Powell’s Tuesday comments), short of the FOMC’s September projections which expect rates to be between 3.00-3.25% at the end of next year.

ASIA

Asian stocks traded mixed amid a cautious global risk tone ahead of the US-China showdown at the G20 and as participants digested disappointing Chinese PMI data. ASX 200 (-1.6%) and Nikkei 225 (+0.4%) initially followed suit to the lacklustre lead from their counterparts stateside with Australia the underperformer on broad weakness in which nearly all sectors declined, while Japanese exporters were hampered by recent flows into the JPY before staging a late recovery. Elsewhere, Hang Seng (+0.4%) and Shanghai Comp. (+0.1%) were indecisive due to trade uncertainty amid a ‘hot and cold’ stance by US President Trump who stated he is close to doing something on trade with China but is unsure if he wants to, while reports noted that White House Trade Adviser and ‘China hawk’ Navarro is back on the guest list for the Trump-Xi dinner tomorrow evening. Furthermore, the latest Chinese PMI data left much to be desired as both Official Manufacturing and Non-Manufacturing PMIs missed expectations with the former at its lowest since June 2016. Finally, 10yr JGB traded lacklustre after having failed to benefit from the risk averse tone in Japan and BoJ’s presence in the bond market, as prices marginally pulled back from recent gains which had seen long-term yields hit their lowest levels since the beginning of August.

PBoC skipped open market operations. (Newswires)
PBoC set CNY mid-point at 6.9357 (Prev. 6.9353)

Chinese Manufacturing PMI (Nov) 50.0 vs. Exp. 50.2 (Prev. 50.2). (Newswires)
Chinese Non-Manufacturing PMI (Nov) 53.4 vs. Exp. 53.8 (Prev. 53.9)
Chinese Composite PMI (Nov) 52.8 (Prev. 53.1)

Japanese Tokyo CPI (Nov) Y/Y 0.8% vs. Exp. 1.1% (Prev. 1.5%). (Newswires)
Japanese Tokyo CPI Ex. Fresh Food (Nov) Y/Y 1.0% vs. Exp. 1.0% (Prev. 1.0%)
Japanese Industrial Production (Oct P) M/M 2.9% vs. Exp. 1.2% (Prev. -0.4%)
Japanese Industrial Production (Oct P) Y/Y 4.2% vs. Exp. 2.5% (Prev. -2.5%)

Bank of Korea hiked the &-Day Repo Rate by 25bps to 1.75% as expected, while it stated that sluggish employment eased somewhat and that exports will sustain favourable movements, but that it sees investments slowing. BoK Governor Lee said the rate decision was not unanimous as 2 board members voted to maintain rates, while Lee also commented that the policy rate is still not at neutral and that he is not worried much about capital outflows due to further Fed rate hikes.


UK/EU

UK PM May said Britain will be a more divided country if Parliament votes against her Brexit deal, while she also urged MPs to think about delivering on Brexit vote and answered that she is focused on December 11th vote when asked if she has a plan B if her deal is not approved by Parliament. (Newswires)

UK PM May is turning to Eurosceptics in her cabinet to launch a last gasp effort to sell her compromise Brexit deal, according to the FT. The report added PM May is placing faith in Environmental Secretary Michael Gove and Attorney General Geoffrey Cox to convince other Eurosceptics that 'a contentious Irish backstop in the much-criticized plan will not lead to Britain being tied to the EU in perpetuity'. (FT)

The number of Conservative MPs who have spoken out against Theresa May's Brexit deal hit 100 as critics said her two-week charm offensive is failing. (Telegraph)

UK lawmakers have proposed amendments to block UK PM May’s Brexit deal. (The Guardian)

UK GfK Consumer Confidence (Nov) -13 vs. Exp. -11 (Prev. -10). (Newswires)
UK Lloyds Business Barometer (Nov) 24 (Prev. 19)

ECB's Villeroy (Dovish) said global economic crisis risks have become very dangerous, while he also commented Italy needs to be committed to the Euro to build a more solidarity-based bloc and that a bigger deficit won't necessarily positively impact growth.

Italian Deputy PM Salvini said it is "not written in the Bible" that the 2019 deficit/GDP target should be 2.4% and is sure an accord will be found with Brussels, while there were separate source reports that EU governments endorsed the next step in disciplinary procedure over Italian debt. (Newswires)

FX

In FX markets, the DXY traded rangebound following an uneventful FOMC minutes. The reaction was muted as analysts viewed the minutes to be consistent with an upcoming hike in December, but suggested a potential flexible approach moving forward. Elsewhere, most major pairs consolidated with EUR/USD eyeing the 1.1400 handle to the upside and with GBP/USD little changed below 1.2800, while antipodeans are flat with AUD/USD only momentarily pressured by the Chinese data miss and with AUD/NZD having fully recovered from early turbulence in which the cross dropped over 30 pips in less than a minute as NZD/USD tested the 200DMA at 0.6870.


COMMODITIES

Commodities were mostly uneventful with WTI crude futures taking breather from the prior day’s volatility in which prices briefly broke below the USD 50/bbl level to print its lowest level in more than a year, before aggressively rebounding on reports Russia may be prepared to trim oil output in cooperation with OPEC. Elsewhere, gold and copper traded sideways amid similar price action in the greenback and an indecisive risk tone, while palladium outperformed the metals complex in an extension of its multi-month uptrend to hit a fresh record high.

OPEC delegates said oil at USD 60 is hurting US shale and strengthening OPEC's hand to introduce higher quotas, while delegates added production cut is increasingly necessary although volumes are undecided. (Platts)

Venezuela President Maduro said Venezuela will take oil cut proposal to OPEC meeting. (Newswires)

India Foreign Secretary said PM Modi and the Saudi Crown Prince discussed how Saudi can help stabilize oil prices particularly for India. (Newswires)

Libya's oil exports to China more than double in 2018 up from USD 1.7bln in 2017 according to Libya National Oil Corporation, while it later stated that Libyan oil output has declined 100k bpd due to adverse weather. (Newswires)

Chile's Codelco produced 1.2mln tons of copper of its own in first 9-months of 2018; CEO says trade war is not hitting copper demand. (Newswires)


GEOPOLITICAL

US President Trump said he is cancelling his meeting with Russia's Putin over the Ukraine crisis but looks forward to a meaningful summit once the crisis is over. (Newswires)

US


The Treasury complex traded within a thin range and ended Thursday’s session mostly flat. The release of the FOMC minutes did little to the complex with yields back around levels seen pre-Powell dovish comments on Wednesday. Most MPC members agreed that rate hikes are likely warranted “fairly soon” subject to inflation and US jobs. Most of the action was in the belly of the curve where yields were lower by c.1bps at settlement; mixed data also contributed to depressed yields.  2s10s narrowed by c.3bps while 2s30s and 2s5s were narrower by c.2bps. US T-note futures (Z8) settled 1 tick higher at 119-13+.

Canadian PM Spokesman said leaders will sign new NAFTA agreement today. (Newswires)

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