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[PODCAST] EU Open Rundown 04.06.18

  • Asian equity markets began the week higher across the board as the region reacted to Friday’s US jobs report and the US-NK summit being back on the cards
  • In FX markets, safe-havens were under strain in which JPY took the brunt of the heightened risk appetite which saw USD/JPY and JPY-crosses extend on Friday’s gains
  • Looking ahead, highlights include UK construction PMI, US factory orders and BoE’s Tenreyro

TRADE

US Commerce Secretary Ross travelled to Beijing the past weekend for the 3rd round of trade talks with China which ended without a deal. However, there were comments by Ross that meetings were friendly and frank, while China commented that they have made concrete progress but warned any action by US to impose punitive tariffs would derail the negotiations. (Newswires)

US President Trump said on Friday that he would be open to having separate trade deals with Canada and Mexico. (Newswires)

White House Economic Advisor Kudlow stated that Canadian PM Trudeau’s response to the US tariffs on steel and aluminium was an overreaction, while he added the tariffs may last a while or not which is subject to negotiations and that he views the issue as more of a family quarrel. (Newswires)

Canada launched WTO and NAFTA cases on US metal tariffs. (Newswires)

ASIA

Asian equity markets began the week higher across the board as the region got a double-dose of optimism from stronger than expected US NFP jobs data and after US President Trump confirmed the summit with North Korea will go ahead as initially planned in Singapore on June 12th. ASX 200 (+0.5%) and Nikkei 225 (+1.4%) were both positive from the get-go with CYBG shares leading the advances in Australia after the Co. sweetened its merger bid for Virgin Money, while the Japanese benchmark was among the outperformers as it coat-tails on a weaker currency. Hang Seng (+1.3%) and Shanghai Comp. (+0.2%) also conformed to the broad upbeat sentiment following a net liquidity injection by the PBoC and amid reports that China widened the collateral for its Medium-term Lending Facility which will include qualified credit bonds. Finally, 10yr JGBs were lacklustre amid a similar performance in T-notes and with demand subdued by risk appetite, while the BoJ’s Rinban announcement also failed to support as the central bank maintained its purchase amounts across the curve.

PBoC injected CNY 20bln via 7-day and CNY 20bln via 28-day reverse repos for a net daily injection of CNY 20bln. (Newswires)
PBoC set CNY mid-point at 6.4208 (Prev. 6.4078)

UK/EU

Britain will have only weeks to negotiate deals with dozens of countries after the European Union denied help to extend any existing trade agreements before the legally binding signing of a Brexit withdrawal treaty. (Times) Open Europe, a think tank with close ties to prominent Brexiteers, says today that the UK should in effect become a “rule-taker” on regulations over goods while building its own rules on services. (Times)

DUP’s Foster has threatened to withdraw from the alliance pact with the Conservatives if UK PM May takes up a Brexit deal that treats Northern Ireland differently to the rest of the UK. (Belfast Telegraph) Internally for May, the UK PM faces a rebellion by Foreign Minister Johnson and other leading Tory MPs amid reports that she is considering a potential vote for a third runway at Heathrow later this month. (Telegraph)

UK government is said to be taking an active role in determining VAT regulations for the 2020s according to a minister, which reports state suggests UK could be seeking to remain inside the EU 'VAT area' post-Brexit. (FT)

German Chancellor Merkel said stabilizing stabilising euro requires banking and capital markets union, while she added instruments at disposal are not sufficient to sustainably stabilize euro. (Newswires)

ECB's Weidmann (Hawk) said direct impact on US tariffs on the EU economy are limited but noted that trade wars are a large risk for economic development. (Newswires)

The new Catalan government took office which automatically lifted Madrid direct rule for the region, while the new Catalan government head Quim Torra stated they are committed to independence. (Newswires)

S&P affirmed Ireland at 'A+/A-1'; outlook stable, while Fitch Affirmed Belgium at 'AA-'; Outlook Stable and affirmed Portugal at 'BBB'; Outlook Stable. (Newswires)

FX

In FX markets, safe-havens were under strain in which JPY took the brunt of the heightened risk appetite which saw USD/JPY and JPY-crosses extend on Friday’s gains, while the greenback was also softer overnight to the benefit of its major counterparts across the pond with EUR/USD and GBP/USD taking advantage of the DXY’s retreat towards the 94.00 level. Elsewhere, antipodeans also took their swipe at the USD in which NZD/USD reclaimed the 0.7000 handle to the upside and with AUD underpinned by better than expected Retail Sales data as it kicks-start an eventful week which includes the RBA policy meeting tomorrow and GDP data on Wednesday. Furthermore, some also suggested strong Australian Company profits and Business Inventories could be viewed as encouraging for the upcoming GDP release.

Australian Retail Sales MM (Apr) 0.4% vs. Exp. 0.3% (Prev. 0.0%). (Newswires)
Australian Gross Operating Company Profits (Q1) 5.9% vs. Exp. 3.0% (Prev. 2.2%)
Australian Business Inventories (Q1) 0.7% vs. Exp. 0.0% (Prev. 0.2%)

COMMODITIES

WTI crude futures languished overnight following the pullback observed in the past 2 weeks with prices rapidly approaching correction territory other shedding more than 9.9% from the multi-year high levels seen in last month, while the unofficial OPEC+ meeting during the weekend also continued to signal an unwillingness to ease restrictions. Elsewhere, gold was uneventful and copper was marginally higher as the heightened risk appetite sapped safe-haven demand, but underpinned prices in the latter.

US Baker Hughes Total Rig Count (25 May) 1060 (Prev. 1059). (Newswires)

OPEC and non-OPEC ministers met in Kuwait in an unofficial meeting on Saturday in which they stressed the need to maintain the current cooperation and continue with successful efforts carried out by the participating countries. (Newswires)

Motiva have ruled out doubling capacity at their US refinery amid hurricane fears. (Newswires) Note, this refinery is the largest in the US with an output capacity of 600,000bpd

GEOPOLITICS

US President Trump said the meeting with North Korean Leader Kim Jong Un is back on which is to take place in Singapore on June 12th and noted the North Koreans want to denuclearise, while there were also reports that US President trump does not want to use the term ‘Maximum pressure’ as they are getting along with North Korea. (Newswires)

Reports suggested North Korea could have faked detonation of its nuclear test site last month, as it cited dust from explosions and journalists being 500 metres from the explosion which indicates small blasts. (Axios)

US officials reported that North Korea’s top three military officials have been replaced. (CNBC)

Syrian President Assad plans to visit North Korea to meet with Kim Jong Un. (KCNA)

US

The Treasury complex was under pressure for most of Friday, along with decent volume, as political tensions in Europe eased, a decent NFP report, and news that the summit with North Korea is back on. However, although yields were higher across the curve by between 6-8bps, major curves continued to narrow, with 2s30s over 2bps narrower, and 5s30s flatter by around the same margin; 2s5s was relatively unchanged. US 10yr T-Notes futures (Sep 2018) settled 19 ticks lower at 119-27.

Fed’s Williams (Voter, Hawkish) said Fed should continue with gradual hikes over the upcoming two years and that he expects US rates to be neutral after three more hikes. Furthermore, Williams also stated the Fed should not necessarily pause once it reaches neutral if economy remains firm. (Newswires)

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