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[PODCAST] EU Open Rundown 24th December 2018

  • Asia-Pac bourses traded mostly higher in holiday-thinned liquidity following the downbeat lead from Wall St. on Friday
  • US President Trump has reportedly privately discussed firing Fed Chair Powell over the latest Fed rate hike
  • UK PM May's allies are plotting to keep her at No.10 for at least another two years amid growing confidence her Brexit deal will pass the meaningful vote in January
  • Today’s calendar sees a lack of tier 1 highlights. Note, some markets are closed and others are subject to early closures

ASIA-PAC

Asia-Pac bourses traded mostly higher in holiday-thinned liquidity following the downbeat lead from Wall St. on Friday, where the S&P notched a weekly loss of 7%, Nasdaq closed in bear market and the Dow posted its worst week since the 2008 financial crisis. ASX 200 (+0.5%) and Shanghai Comp. (+0.1%) nursed opening losses with the former aided by IT and material names amid positive comments from China’s MOFCOM over the weekend that US and China have “made new progress” on trade and IP issues. Meanwhile, trade optimism also led Mainland China higher as most sectors moved into the green with telecom, healthcare and tech leading the gains, however, upside was capped after the PBoC’s liquidity efforts amounted to a net daily drain of CNY 140bln. Finally, Hang Seng (-0.6%) came off intra-day lows but ultimately underperformed after the Hong Kong Finance Chief stated there will be “fewer sweeteners” in the FY19/20 budget and as such, almost all sectors were in the red with hardware names leading the decline. Over in Japan, Nikkei 225 was closed as participants observe the Emperor’s day public holiday.

China's Commerce Ministry said China and the US "made new progress" on the issues of trade balance and intellectual property during a phone call between officials. (SCMP)

Chinese Finance Ministry said tariffs on some import and export products will be adjusted from Jan 1st, 2019. China will levy temporary import tariffs on over 700 items but not levy export tariffs on 94 items including fertiliser and iron ore. China will further cut MFN tariffs on 298 IT products from July 2019 and will maintain "relatively low" import tariffs temporarily on some aircraft engines. (Newswires)

White House Trade Adviser Navarro said on Friday that a trade pact with China in 90 days is difficult. (Nikkei)

Tsunamis linked to volcanic eruptions hit the coastal towns around Indonesia's Sunda Strait, killing at least 281 people and injuring over a thousand. (BBC/The Guardian)

PBoC set CNY mid-point at 6.9006 (Prev. 6.8825). (Newswires)
PBoC injected CNY 20bln via 14-day reverse repos for a net daily drain of CNY 140bln.
 

UK/EU

UK PM May's allies are plotting to keep her at No.10 for at least another two years amid growing confidence her Brexit deal will pass the meaningful vote in January. (The Times) Other reports state that UK PM May has curtailed her cabinet’s Christmas break and has requested they return on Jan 2nd for discussions about a no-deal Brexit. (FT)

ECB's Weidmann (Hawk) said he is worried about the implications of Italy's budget deal with the European Commission for future fiscal discipline in the Euro zone. (Welt Am Sonntag)

FX

In FX markets, DXY remained sub-97.000 and continued to ease and print fresh session lows ahead of the holiday-shortened week. GBP/USD gapped higher at the open and extended on gains after The Times reported that UK PM May's allies are confident that her Brexit deal will pass the meaningful vote in January, hence providing some optimism over the widely feared no-deal scenario. Meanwhile, USD/JPY opened sub-111.00 around its 200 DMA at 110.90 amid weekend reports that US President Trump has discussed firing Fed Chair Powell, however, Treasury Secretary Mnuchin attempted to calm markets by stating that he doesn’t believe Trump has this right. USD/JPY has since traded choppy but ultimately reclaimed the 111.00 handle as risk sentiment across the region took a turn for the better. Elsewhere, the China-exposed antipodeans outperformed their G10 peers on the aforementioned positive trade comments from China’s MOFCOM, with AUD/USD extending above 0.7050 ahead of resistance at 0.7085-90 while similarly, NZD/USD moved further north of 0.6700 and tested its 50 DMA to the upside at 0.6741. Finally, EUR/USD and USD/CAD also benefitted from the easing greenback as the former edged closer to the 1.1400 handle and the latter attempted to cover more ground below 1.3600.

COMMODITIES

WTI and Brent prices consolidated following Friday’s decline as the risk sentiment across Asia improved amid positive US-Sino trade developments. Prices were also underpinned by comments from the UAE Energy Minister who stated that further production curbs may occur if the 1.2mln BPD OPEC+ cut is not enough, while he added that he believes the supply glut will be removed in Q1 next year. Elsewhere, most metals benefitted from the softer buck with gold revisiting Friday’s levels above USD 1260/oz, meanwhile copper erased opening losses and conformed to the positive risk tone.

UAE Energy Minister Mazrouei said if the 1.2mln BPD OPEC+ production cut is not enough, then OPEC may decide curb further production. He added that he believes the supply glut will be removed in Q1 2019. Mazrouei reiterated that OPEC’s 800K BPD cut is to start in January and added that the cartels will have an extra meeting if the cut is not enough. (Newswires)

Iraqi Oil Minister said they want to stem the decline in oil prices and there could be a supply shortage in Q3 2019. He added that OPEC wants to output cut deal to be for the year and Iraq shares Saudi's view that the deal will be extended. (Newswires)
 

GEOPOLITICAL

Russian Foreign Ministry said that Russia and Iran have agreed to continue expanding and protecting bilateral cooperation from US sanctions. (Newswires)

US Secretary of State Pompeo said the US are “counting on” a second summit between US President Trump and North Korean leader Kim Jung Un; he added that there has been progress in denuclearisation. (NPR)

Canadian Foreign Minister Freeland has called for the immediate release of the two Canadians detained in China. (Newswires)

US

US T-Note futures were pretty much flat by settlement on Friday. There were some downticks after the Fed’s Williams suggested that if the economic outlook deteriorated materially, the FOMC could consider its policy to keep the balance sheet unwind on autopilot. However, the Williams moves were faded, before T-Notes resumed modest up ticks, while equities resumed their slide. There is some focus on next week’s auctions of 2s, 5s, 7s, with around USD 131bln of supply on tap, however, at the end of play, Treasuries were little changed, with most of the moves seeing the 2s sector, where yields were around 3bps lower.

US President Trump has reportedly privately discussed firing Fed Chair Powell over the latest Fed rate hike against the backdrop of a global stocks rout; according to sources. Furthermore, US Treasury Secretary Mnuchin tweeted about Trump's disapproval with the latest hike, however he attempted to reassure investors by stating that he does not believe Trump has the right to fire the Fed Chair. It was then reported on WSJ that White House advisers are discussing arranging a meeting between President Trump and Fed Chair Powell in the coming weeks. (Newswires/Twitter/WSJ)

The US government has been partially shut after Senate failed to pass a bill containing funding for US President Trump's border wall. A top White House official warned that it is "very possible" the shutdown will extend into the new year. Senate are to meet again on Dec 27th to try reach a deal. President Trump is also said to be willing to accept USD 2.6bln in wall funding; according to Fox News. In related news, White House Budget Director Mulvaney said border wall funding proposals are in the range of USD 1.6-5.0bln, he added that it is possible for the shutdown to continue into new Congress. (Newswires/Telegraph/Fox News)

US President Trump appointed Deputy Defence Secretary Patrick Shanahan as acting Defence Secretary effective Jan 1st, following Jim Mattis' resignation last week. (Twitter/BBC)

US anti-ISIS envoy, Brett McGurk has resigned (effective Dec 31st) over President Trump's decision to pull troops from Syria. (BBC/Newswires)

US Treasury Secretary Mnuchin has reportedly held calls with the head of the six large US banks (JP Morgan, Bank of America, Goldman Sachs, Morgan Stanley, Wells Fargo and Citigroup) to discuss the recent market turmoil. (CNBC)

Fed's Mester (Hawk, Voter) said the US economy is doing quite well but global outlook has softened. (Newswires)

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Dominic Raab = The Turnip in Brussels via @Telegraph https://t.co/lf6JLRb6Pg