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[PODCAST] EU Open Rundown 11th December 2018

  • Asian equity markets were mixed as sentiment in the region only found mild solace from the tech-led recovery on Wall St.
  • A source said Brexit vote could take place in early January, although a spokesman for UK PM May said doesn't think PM May established a new Brexit deal vote date
  • Reports suggest Italian PM Conte is targeting a 2.1% deficit, whilst Deputy PMs Salvini and Di Maio refuse a deficit of below 2.2% and the EU demand a target of 1.95%
  • Looking ahead, highlights include UK Employment Data, German ZEW, US PPI, US 3yr Note Auction, German 2020 Schatz Auction

ASIA

Asian equity markets were mixed as sentiment in the region only found mild solace from the tech-led recovery on Wall St. ASX 200 (+0.4%) was firmer at the open in which outperformance in the tech sector helped the index pick itself up from around 2-year lows although this later stalled amid weakness in energy and financials, while Nikkei 225 (-0.2%) swung between gains and losses due to a lack of fresh drivers and an indecisive currency. Shanghai Comp. (Unch.) and Hang Seng (-0.2%) were also choppy on trade uncertainty amid lingering concerns the Huawei situation could spill-over to US-China trade talks, although there were reports that Vice Premier Liu spoke with US Treasury Secretary Mnuchin and US Trade Representative Lighthizer in which they exchanged views on pushing forward the timetable and road map for the next stages of trade discussions. Meanwhile, India markets were initially pressured following the shock resignation by RBI Governor Patel which many viewed to be in protest for government meddling, while the state assembly elections added to the woes for the government with the ruling BJP party on track to lose some states to the main opposition ahead of next year’s general election. Finally, 10yr JGBs were uneventful amid the indecisive risk tone and with participants following mixed results at the 30yr JGB auction.

PBoC skipped repos although are expected to resume operations soon to fill year-end short-term liquidity gaps. (Newswires/CSJ)
PBoC set CNY mid-point at 6.8996 (Prev. 6.8693)

China Mofcom said Vice Premier Liu He spoke by phone with US Treasury Secretary Mnuchin and Trade Representative Lighthizer in which both sides exchanged views on implementing consensus reached by their leaders, while they also exchanged views on pushing forward timetable and road map for next stage of trade discussions. (Newswires)

China is to announce details of fist purchase of US soybeans, in which most will be added to state reserves. (Newswires)

Huawei CFO bail hearing ended without a decision and will resume today. Reports also noted that Canada Crown commented on the defence’s proposal of CAD 15mln for bail of Huawei CFO in which it stated that bail should be half cash and half home equity, while the judge was said to want a house arrest for Huawei CFO. (Newswires)


UK/EU

UK PM May said she doesn't believe the scenario where the government delays the Brexit vote until March is correct and that the the EU hasn't been engaging with the UK in regard to mitigating a no deal on both sides of the border.  (Newswires)


A source said Brexit vote could take place in early January, although a spokesman for UK PM May said doesn't think PM May established a new Brexit deal vote date which will depend on her getting reassurance on the backstop. (Newswires)

European Council President Tusk says we will not renegotiate the deal, including the backstop, but ready to discuss how can facilitate UK ratification. (FT) Note, UK PM May is to meet with European Commission head Juncker later today.

UK Secretary of State for Work and Pensions Rudd said PM May is committed to maintaining the backstop in the agreement and trying to get reassurance on whether it can be temporary. (Newswires)

UK Tory Brexiteer Rees-Mogg said if PM May returns with the backstop removed, most problems are solved and that agreeing an end date for the backstop would not be enough. (Newswires)

UK Opposition Leader Corbyn said the Labour party will not table a no confidence motion prior to the Brexit vote. (Newswires)

UK Parliament will hold a 3-hour debate today to defer the meaningful vote. (Newswires)
 

French President Macron believes there is a way out of current problems, while he stated that overtime pay will not be taxed and has asked the government to increase minimum wage by EUR 100/month from January. Furthermore, Macron said the increase in social security tax for pensioners earning less than EUR 2,000/month will be scrapped in 2019 and that the wealth tax won't be reinstated. (Newswires) In the wake of this announcement, reports suggest the 2019 deficit/GDP ratio is likely to be around 3.5%. (Les Echos)

EU's Moscovici said Italy has been showing more willingness to cooperate on the budget, but added they are preparing next steps for possible disciplinary procedure while talks continue with Italy. Elsewhere, there were comments from EU Commissioner Dombrovskis who noted rising risks to the European economy and said the time is very limited for Italians to make any substantial changes to the 2019 budget. (Newswires) Later it was reported that Italian PM Conte is targeting a 2.1% deficit, however, separate reports suggest, Deputy PMs Salvini and Di Maio refuse a deficit of below 2.2%, whilst the EU are reportedly demanding a deficit target of 1.95%. (La Repubblica/Messaggero)

FX

In FX markets, the major pairs quietened from yesterday’s price moves which provided GBP/USD with some much-needed respite following its slip to 20-month lows in the fall-out of PM May’s 11th hour cancellation of the Brexit deal vote. EUR/USD also languished after its recent weakness and although it has bounced off support at 1.1350 the recovery is only modest as the DXY remains firm above 97.00. Elsewhere, AUD/USD was choppy around the 0.7200 level and USD/JPY just about held on to the 113.00 handle amid the mixed risk-tone, while focus was also on the INR after RBI Governor Patel’s shock resignation which saw USD/INR gap higher by 1.6% at the open and prompted suspected RBI intervention.  
 

COMMODITIES

Commodities were mostly uneventful in which WTI crude futures consolidated around the USD 51.00/bbl after the prior day’s resumed downtrend that saw prices drop over 3% due to an initial risk averse tone and firmer greenback. Elsewhere, gold prices nursed losses overnight and set course back towards resistance around the USD 1250 level, while copper also rebounded amid an improvement in global risk sentiment.

US


Treasuries ended Monday’s session lower as equities rebounded and pared back some of their losses. The complex hit session highs at the European close on confirmation that PM May will delay Tuesday’s Brexit vote in parliament, before edging lower ahead of this week’s supply. Most of the action was concentrated in the front end of the curve were yields were higher by c1bps at settlement. 2s30s and 5s30s were narrower by c.3bps while 2s5s widened by less than 1bps. US T-note futures (Z8) settled 2+ ticks lower at 120-22.

US President Trump is said to be concerned regarding an impeachment and sees it as a real possibility according to sources. (CNN)

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