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[PODCAST] EU Open Rundown 7th January 2019

  • Asian stocks began the week higher across the board as the region took its first opportunity to react to the trifecta of bullish developments from last Friday
  • UK PM May warned that Britain would be in unchartered territory if her Brexit deal is rejected by parliament and said the vote would be held around 15th January as expected
  • More than 200 UK lawmakers from the Conservative and opposition parties have signed a letter to UK PM May asking her to rule out the option of a No deal Brexit
  • Looking ahead, highlights include US Factory Orders, US ISM Non-MFG PMI, Fed’s Bostic and ECB’s de Guindos

ASIA-PAC

Asian stocks began the week higher across the board as the region took its first opportunity to react to the trifecta of bullish developments from last Friday including the blockbuster NFP jobs data, dovish comments from Fed Chair Powell and the PBoC’s 100bps RRR cut. ASX 200 (+1.1%) and Nikkei 225 (+2.6%) gained from the open with Australia led by strength in tech and miners, while the Japanese benchmark outperformed and initially rose by over 3% as it tracked the rally in its Wall St. counterparts. Elsewhere, Shanghai Comp. (+0.4%) and Hang Seng (+0.9%) conformed to the positive tone following the RRR cut announcement and with mid-level trade discussions set to resume between US and China today, although the mainland lagged its regional peers following a CNY 170bln liquidity drain by the PBoC. Finally, 10yr JGBs were softer with safe-haven demand dampened amid the rally across stocks, but with downside also stemmed by the BoJ’s presence in the market for JPY 1tln in JGBs with maturities spread across the curve.

PBoC skipped open market operations for a net daily drain of CNY 170bln. (Newswires)
PBoC set CNY mid-point at 6.8517 (Prev. 6.8586)


UK/EU

UK PM May warned that Britain would be in unchartered territory if her Brexit deal is rejected by parliament and said the vote would be held around 15th January as expected. May also left open the possibility of a 2nd referendum but stated that this is not a course of action she wanted to follow. (Newswires)

More than 200 UK lawmakers from the Conservative and opposition parties have signed a letter to UK PM May asking her to rule out the option of a No deal Brexit. (Newswires) This also comes in the context of reports stating that Parliament will vote on two amendments to the finance bill on Tuesday that would result in a government shutdown unless UK PM May is able to secure support for her Brexit deal. (Times)

UK MPs reportedly believe that Parliamentary rules will prevent UK PM May bulldozing her Brexit deal through by staging multiple repeat votes until the Commons surrenders. (Independent)

UK PM May will decide today whether to cancel MPs’ February break and make them work at weekends as time runs out to pass Brexit legislation before Britain leaves the EU. (Telegraph)

UK PM May is set to make another bid to EU leaders to offer a concession on the Irish backstop as she attempts to win over Brexiters who have vowed to vote down the government’s deal. (Guardian)

UK December High Street sales fell 1.9% Y/Y which was the 6th consecutive year of declines, according to BDO data. (Newswires)

UK new car registrations declined 7% Y/Y in 2018 which was the largest decline since the financial crisis, according to SMMT. (Newswires)


FX

In FX markets, the greenback failed to hold onto the initial knee-jerk support from Friday’s stellar US jobs numbers as Fed Chair Powell provided a dovish tone in which he stated that Fed policy is not on a pre-set path, while he also noted the Fed will be patient in watching data and are prepared to adjust policy stance. As such, the DXY continued to soften and breached the 96.00 level to the downside which has underpinned its major counterparts with EUR/USD and GBP/USD above Friday’s best levels, while AUD, NZD and CAD were also firmer as they benefitted from their high-beta characteristics. Elsewhere, JPY-crosses were initially elevated on the safe-haven outflows but have since pulled back from highs, and CNY firmed against the greenback to under 6.8500 following a stronger reference rate setting by the PBoC.
 

GEOPOLITICAL

A second summit between US President Trump and North Korea leader Kim is reportedly likely to be held in Hanoi, Vietnam. (Newswires)
 

COMMODITIES

Commodities were mixed overnight in which WTI crude futures recovered from last Friday’s unexpected headline DoE crude inventory build as prices found support at the USD 48.00/bbl level. Elsewhere, gold prices were underpinned by the softer greenback in the aftermath of Fed Chair Powell’s dovish comments with the precious metal homing back in on the USD 1300/oz level, while copper was relatively flat as it took a breather from Friday’s rally which was inspired by several bullish factors from both US and China. 

Baker Hughes Rig Count (4/Jan): Oil down 8 at 877, NatGas unchanged at 198; total down 4 at 1075. (Newswires)

Goldman Sachs cut 2019 WTI forecast to USD 55.50/bbl from USD 64.50/bbl and cut 2019 Brent forecast to USD 62.50/bbl from USD 70.00/bbl. Goldman Sachs also cut 3-month copper price target to USD 6100/ton from USD 6500/ton but maintained 12-month copper forecast at USD 7000/ton, while it reduced base metals targets amid notable China deceleration. (Newswires)
 

US

Yields rose by between 7.5bps and 12bps across the curve on Friday, underpinned by a blockbuster payrolls report as well as dovish comments by Fed chair Powell. Most of the action was in the belly of the curve, which helped 2s5s widen by around 2bps on the session, leaving it around 0.5bps away from unwinding its inversion. However, other major curve spreads were tighter, notably the 5s30s part of the curve, which came in by over 5bps. US T-note futures (H19) settled 27+ ticks lower at 122-09+.

US President Trump and Chinese President Xi Jinping are reportedly mulling a potential summit in H1 2019 if progress is made in trade talks which begin today in Beijing according to sources, while US President Trump said he thinks US will make a deal with China and that China economic weakness has put US in a strong position in trade talks. Elsewhere, US President Trump renewed his threat to invoke a national emergency as a way to circumvent Congress and build a wall on the southern US border in which he warned he may declare a national emergency dependent on what happens over the next few days, while he also said he is willing for the government shutdown to go on for months or years but doesn't think it will and hopes the government can reopen in a few days. (Nikkei/Newswires)

US President Trump tweeted that Vice President Mike Pence and group had a productive meeting with the Schumer/Pelosi representatives in which many details of border security were discussed, while he added we are now planning a steel barrier rather than concrete. (Twitter)

OMB Director Mulvaney is said to demand USD 5.7bln for steel barrier spanning 234 miles and requests USD 800mln of humanitarian aid at the border in letter to congressional leaders. (Newswires)


Fed's Bostic (voter, dovish) defended the central bank's approach to winding down the balance sheet, while he added that policy path is not "set in stone" and can be adjusted for the unexpected. (Newswires)
 

Fed's Barkin (non-voter) said economy will grow more slowly in 2019 than in 2018. (Newswires)

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It's a wrap from us for the week, gang!! As always, thanks for your nosebleed levels of awesomeness!! Stay safe, pl… https://t.co/UNcZxkJ1ie