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[PODCAST] EU Open Rundown 06.06.18

  • Asian equity markets traded somewhat mixed after a similar performance on Wall St. FX markets were largely influenced by NAFTA trade concerns
  • Sources suggest that ECB sees 14th June meeting as 'live' to discuss QE exit
  • UK opposition Labour party are reportedly going to announce a major shift towards a soft Brexit
  • Looking ahead, highlights include RBI rate decision, DoEs, ECB’s Praet, BoE’s Tenreyro and McCafferty

 

GLOBAL/TRADE

US Treasury Secretary Mnuchin is said to have urged Trump to exempt Canada from steel and aluminium tariffs. (Newswires)

Canadian government official said NAFTA is a trilateral agreement and that they are to continue negotiating that way, while the official added that it is not the first time the US was said to break NAFTA talks into bilateral negotiations. (Newswires)

Mexico confirmed previously announced US tariffs alongside a 350k tonne tariff free quota for import of pork legs and shoulders from non-US suppliers. (Newswires)

ZTE (763 HK) signed an agreement in principle with the US that would lift the Commerce Department ban and in which the US is to claim approx. USD 1.7bln against the Co. according to sources. (Newswires)

World Bank maintained 2018 global economic growth estimate at 3.1% and stated that risks to global economy are tilted to the downside. World Bank predicted global growth to moderate over the next 2 years and stated that trade protectionism is posing a significant risk, while it also raised China 2018 growth estimate to 6.5% from 6.4%. (Newswires)

ASIA

Asian equity markets traded somewhat mixed after a similar performance on Wall St, where tech extended on gains and the Nasdaq edged fresh records highs, although the DJIA underperformed amid weakness in energy and financials. ASX 200 (+0.4%) was positive with gains led by miners after recent upside in metal prices and with BHP also higher due to interest in its US shale assets, while better than expected GDP data also contributed to the upbeat tone. Elsewhere, Nikkei 225 (+0.4%) eked modest gains amid a weaker currency but with upside capped as wage data added to the recent slew of disappointing releases from Japan, while Shanghai Comp. (-0.2%) and Hang Seng (+0.6%) were mixed as trade uncertainty lingered. Furthermore, the PBoC refrained from reverse repo operations and instead opted to inject via its Medium-term Lending Facility, while there was also speculation PBoC is likely to lift rates on its lending facilities and reverse repos should the Fed hike as expected next week. Finally, 10yr JGBs were subdued amid weakness in USTs and modest gains in Tokyo stocks, while the BoJ Riban announcement was largely ignored as the central bank kept purchase amounts unchanged in 1yr-10yr maturities.

China may reduce RRR and increase yields on MLF and reverse repos. (Twitter/China Securities Journal)

PBoC skipped Reverse Repo operations but conduced CNY 463bln lending through its Medium-term Lending Facility. (Newswires)
PBoC set CNY mid-point at 6.4040 (Prev. 6.4157)


UK/EU

UK PM May warned anti-EU MPs that accepting House of Lords alterations could reverse the Brexit. (Newswires)

UK opposition Labour party are reportedly going to announce a major shift towards a soft Brexit, in which party leader Corbyn will table "internal market" amendment to the withdrawal bill, customs bill and trade bill. (The Times)

There were source reports that stated the ECB sees 14th June meeting as 'live' to discuss QE exit. Sources suggested that Draghi could use next week’s meeting to signal a potential move in July. (Newswires)

ECB’s Weidmann (Hawk) said Italy’s market turmoil shows the currency union is not yet ‘crisis proof’, while he added it would be tragic if reforms and fiscal consolidation achieved during the crisis, were reversed. (Newswires)

Italian PM Conte won his confidence vote in the Senate; as expected. Italy's League leader Salvini said the government is to overhaul the pension system. (Newswires)

FX

FX markets were largely influenced by NAFTA trade concerns with the greenback weaker after reports that President Trump was considering a shift towards bilateral negotiations which Canada and Mexico both opposed. MXN underperformed after Mexico confirmed tariffs in retaliation to the US and CAD continued its rebound with support seen following reports that US Treasury Secretary Mnuchin was said to have urged President Trump to exempt Canada from steel and aluminium tariffs. Elsewhere, EUR/USD remained firm and back at the 1.1700 handle after source reports suggested next week’s meeting is live in regards to discussing a QE exit, while AUD outperformed after GDP figures topped estimates.

Australian GDP (Q1) Q/Q 1.0% vs. Exp. 0.9% (Prev. 0.4%, Rev. 0.5%). (Newswires)
Australian GDP (Q1) Y/Y 3.1% vs. Exp. 2.8% (Prev. 2.4%)


COMMODITIES

Commodities were mostly uneventful overnight in which WTI crude futures continued to nurse its recent losses, while the marginal overnight gains also followed the release of the latest API crude inventory report which showed a relatively inline drawdown to what analyst had forecast. Nonetheless, the inventory report pressured RBOB after a significant build in gasoline stockpiles, although this was then gradually pared throughout the session. Elsewhere, gold and copper traded sideways as the metals complex mostly took a breather from the prior day’s gains, although Dalian iron ore futures rallied at the open which some attributed to reports of a deadly iron ore mine explosion in China’s Liaoning province.

API Weekly Crude Stocks (1 Jun) -2.028M vs. Exp. -1.800M (Prev. 1.001M). (Newswires)
API Weekly Gasoline Stocks (1 June) +3.759mln (Exp. +0.600mln, Prev. -1.682mln)

Russia’s Energy Minister Novak reiterated OPEC+ countries should consider a possible easing of oil output restrictions depending on demand conditions. (Newswires)


GEOPOLITICS


G7 leaders to call on North Korea to undergo a complete verifiable, irreversible denuclearisation, according to a senior EU official. Furthermore, G7 is said to establish a rapid response mechanism to reinforce cooperation on defending democracies from foreign threats and is likely to uphold sanctions against Russia over Crimea and Ukraine. (Newswires)


US

Treasury yields fell on Tuesday, with investors citing concerns regarding the rhetoric of Italian PM Conte, who delivered an address to lawmakers ahead of his confidence motions, which was said to contribute to Eurozone peripheral yields widening versus the Bund. The solid ISM data helped yields rise slightly, though a collection of negative news flow on trade and NAFTA kept the bid in Treasuries. Yields were down between 1-3bps across the curve, with most of the action in the belly (2s -1.6bps, 5s -2.6bps, 10s -3bps, 30s -1bp), though the curve was left modestly steeper at settlement (2s30s +1.5bps, 5s30s +2.5bps). Some of the steepening was attributed to block trades in FVU7 and WNU8, according to Informa. US 10YR T-Notes futures (Sep 2018) settled 6+ ticks higher at 119-22+.

Senate Majority Leader McConnell cancelled 3 weeks of the month-long August recess "due to the historic obstruction by Senate Democrats of the president’s nominees, and the goal of passing appropriations bills prior to the end of the fiscal year". McConnell said senators will spend the time working to approve nominees and spending bills but are still expected to have the first week of August off. (Politico)

Republican and Democratic senators are to introduce a bill to force Trump to obtain congressional approval for tariffs on national security grounds, according to Republican Senate Foreign Relations Chair Corker. (Newswires)

Source: RANsquawk

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