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[PODCAST] EU Open Rundown 6th December 2018

  • Asian stocks were lower across the board for a 3rd consecutive day with sentiment dampened after the US market closure and reports that Canada arrested Huawei’s CFO at the request of US authorities
  • The potential ramifications for US-China trade discussions weighed heavily on US equity futures and forced the CME to intervene to prevent a harder drop
  • UK PM May is being pushed by cabinet members to postpone next week's Parliament vote on Brexit amid worries she is facing a loss so disastrous it could collapse the government
  • Looking ahead, highlights include ADP Employment, Initial Jobless Claims, ISM Non-Manufacturing Data, Durable Goods (R), Factory Orders and DoEs, Canadian Trade Balance, BoJ's Kuroda, Fed's Powell, Quarles, Bostic, Williams BoE's Broadbent, Ramsden, BoC's Poloz, ECB's de Guindos and Coeure

ASIA

Asian stocks were lower across the board for a 3rd consecutive day with sentiment dampened after the US market closure and reports that Canada arrested Huawei’s CFO at the request of US authorities for alleged violations of sanctions against Iran. This prompted demands by China’s Embassy for an immediate release of the executive and led to concerns of the potential ramifications to trade discussions which weighed heavily on US equity futures. As such, Emini S&P declined by over 60 points and DJIA futures were down by more than 500 points shortly after the reopen which forced the CME to intervene to prevent a harder drop, while ASX 200 (-0.2%) and Nikkei 225 (-2.1%) were also weaker with the latter pressured by detrimental currency flows.  Hang Seng (-2.9%) and Shanghai Comp. (-1.6%) conformed to the negativity with the Hong Kong benchmark underperforming amid losses across all its components and as local money markets rates edged higher again, while the PBoC announcement of a 1-yr Medium-term Lending Facility failed to support China with the operation at a reduced amount of CNY 187.5bln vs. Prev. CNY 403.5bln. Finally, 10yr JGBs were higher amid a continuation of the declines across yields and with safe-haven demand also underpinned by the weakness across equities.

PBoC skipped repo operations again but announced CNY 187.5bln of lending through 1yr MLF. (Newswires)
PBoC set CNY mid-point at 6.8599 (Prev. 6.8476)

Canada arrested Huawei CFO Meng at the request of US authorities, with the CFO facing extradition to the US on allegations she violated US sanctions against Iran. Following the arrest, the China Embassy in Canada demanded the immediate release of the CFO and said it resolutely opposes the arrest. (Globe and Mail/Newswires)

S&P/Dow Jones are to include certain China A-shares to its global indices. (Newswires)


UK/EU

UK PM May is being pushed by cabinet members to postpone next week's Parliament vote on Brexit amid worries she is facing a loss so disastrous it could collapse the government. Instead, cabinet members believe that the PM should devote more time to selling the deal. (Times) Furthermore, reports have suggested that PM May has sent her Chief Whip to try find a way forward with the ERG by offering a potential Parliamentary ‘lock’ which would require lawmakers to give their consent before some of the more controversial parts of the UK’s exit from the EU came into effect. (Newswires)

EU is ready to offer PM May a lifeline of extending Article 50 if her deal is rejected by Parliament next week, according to sources. (Newswires)

DUP's Brexit spokesperson Wilson said we had an arrangement to keep the government in power and the government broke its promises. Elsewhere, an ITV political correspondent tweeted that an ERG source said the DUP has pledged to back the government in a confidence motion if the withdrawal agreement is voted down and are likely to withdraw their support if the withdrawal agreement is voted through. (Newswires/Twitter)

UK's Unite union leader warned opposition Labour party against backing a second EU referendum. (Guardian)

Italy's PM Conte said he is to meet EU's Juncker next Tuesday with the new proposal on the 2019 budget and added that it will include boosting investments. (Newswires)

FX


In FX markets, the DXY lacked firm direction following the US market closure and was stuck near the 97.00 level as its counterparts across the pond were uneventful with EUR/USD and GBP/USD range-bound throughout the session. Elsewhere, USD/JPY and JPY-crosses were pressured as the risk averse tone spurred flows into safe-haven JPY, while antipodeans softened on the downbeat sentiment and pull back in oil prices. CAD also extended on the losses seen from the dovish tone at the BoC policy announcement, with Canada stuck between a rock and a hard place on its next actions regarding the Huawei CFO arrest.

Australian Retail Sales (Oct) M/M 0.3% vs. Exp. 0.2% (Prev. 0.2%). (Newswires)
Australian Trade Balance (AUD)(Oct) 2316M vs. Exp. 3200M (Prev. 3017M, Rev. 2940M)
Australian Exports (Oct) M/M 1.0% (Prev. 1.0%)
Australian Imports (Oct) M/M 3.0% (Prev. -1.0%)


COMMODITIES

Commodities were mostly lower with WTI crude futures continuing on from the prior day’s pull back ahead of today’s OPEC meeting, as reports noted that delegates discussed a potential cut of between 800k-900k bpd which is below the market consensus for a cut between 1mln-1.5mln bpd. Elsewhere, gold prices remained afloat amid an uneventful greenback and mild safe-haven support, while copper prices further deteriorated overnight with demand sapped by the risk averse tone. 

OPEC discussed a cut between 800k-900k BPD and will continue to discuss levels on Thursday, while delegates are said to be split on which month will be used for the baseline month. Furthermore, reports noted that Iraq is agreeable to joining the cuts, while the Oman OPEC official said Nigeria and Libya agreed not to be exempt from oil cut agreement. (Argus/Newswires)

OPEC delegate said some nations see a cut of under 1mln BPD as adequate and that today’s meeting may not agree specific numbers, while the delegate added that OPEC needs to factor in the impact of Canada’s supply reduction last week, as well as potential reductions from Venezuela and Iran. (Newswires)

Iran Oil Minister Zanganeh said Iran is seeking exemption from OPEC decision and that a suitable oil price for Iran is between USD 60-70/bbl. Furthermore, Zanganeh added that JMMC acted outside of mandate during past year and that Iran doesn't want to join JMMC, while there were separate reports that Russia calculates a return to 2016 oil quotas could result in a cut of 1.2mln bpd. (Newswires)

GEOPOLITICAL

North Korea has reportedly significantly expanded a long-range missile facility as denuclearization talks with US stalled, according to press reports citing satellite images. (Newswires)


US is reportedly making preparations to sail a warship into the Black Sea amid Russia-Ukraine tensions. (CNN)

US


Fed's Beige Book stated that most of the 12 districts reported that their economies expanded at a modest or moderate pace from mid-October through late November. It was also noted that tariffs remained a concern for manufacturers, but a majority of districts continued to report moderate growth in the sector. (Newswires)

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