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[PODCAST] EU Open Rundown 8th January 2019

  • Asian equity markets traded mixed as the region failed to take full advantage of the gains on Wall St
  • Chinese Vice Premier Liu He unexpectedly attended US-China trade talks, which were scheduled to be at a Mofcom vice-ministerial level
  • UK and EU leaders are reportedly in talks regarding possibly extending Article 50 past March 29th amid fears that a Brexit agreement will not be struck in time
  • Looking ahead, highlights include US and Canadian trade, US JOLTS, APIs, supply from Germany, the UK and US

ASIA-PAC

Asian equity markets traded mixed as the region failed to take full advantage from the performance on Wall St where US-China trade hopes saw all US majors extend on recent gains. ASX 200 (+0.7%) and Nikkei 225 (+1.0%) got a tailwind from their counterparts stateside where focus centred on the resumption of trade talks between the world’s 2 largest economies which was surprisingly attended by Chinese Vice Premier Liu He who is a top economic adviser to President Xi, while recent currency flows were also favourable for Japanese stocks. Conversely, KOSPI (-0.3%) lagged following disappointing preliminary Q4 results from index giant and tech heavyweight Samsung Electronics, while Shanghai Comp. (-0.4%) and Hang Seng (-0.2%) were indecisive after another liquidity drain by the PBoC and with weakness seen in auto names led by Geely following a near-40% decline in December sales. Finally, 10yr JGBs were subdued amid gains in Japanese stocks although strong results at the 10yr auction, later provided a floor for prices.

Chinese Vice Premier Liu He unexpectedly attended US-China trade talks, which were scheduled to be at a Mofcom vice-ministerial level. (Newswires)

US Commerce Secretary Ross said there is a good chance of a good settlement with China on immediate trade though structural issue and compliance are harder, while US Secretary of State Pompeo said we are making progress with China. (CNBC)

PBoC skipped open market operations for a net daily drain of CNY 20bln. (Newswires)
PBoC set CNY mid-point at 6.8402 (Prev. 6.8517)

UK/EU

UK and EU leaders are reportedly in talks regarding possibly extending Article 50 past March 29th amid fears that a Brexit agreement will not be struck in time, according to the Telegraph. However, a UK Downing Street spokeswoman later stated that UK PM May has always said we would leave the EU on March 29th and that we would not extend Article 50. (Telegraph/Newswires) Instead, UK PM May is said to be pinning her hopes on a last-minute offer from Brussels to avoid her Brexit deal suffering a defeat at the House of Commons on the 15th January. (FT) Furthermore, UK PM will today be urged ‘play hardball’ with the EU by offering UK lawmakers a vote on her deal with the condition that they would be able to decide at a later date whether or not to enter the Irish backstop. (Times)

UK PM May said to mull move to restrict no-deal Brexit threat by accepting an amendment to the finance bill to block a no-deal Brexit by limiting tax hours. (ITV)

ITV's Paul Brand tweeted: Understand if (when) PM loses the Meaningful Vote on Tues, cabinet expect to be called to a meeting the next day to decide Plan B. One cabinet member suggests to me that’s likely to be a rerun - a second vote. (Twitter)

Italian government said Banca Carige can access state-backed precautionary recapitalization scheme, while it also said it is to provide guarantees for new bonds issued by the bank and on funding provided by Bank of Italy. (Newswires)

FX

In FX markets, the DXY recovered lost ground and eyes a retest of the 96.00 level which in turn has resulted to a pullback in EUR/USD and GBP/USD to trade at the mid-1.14 and 1.27 handles respectively. The latest Brexit related news has been conflicting and therefore inconclusive for price action as reports initially suggested UK and EU leaders were in talks regarding possibly extending the Article 50 Brexit process, although a Downing Street spokeswoman later downplayed the prospects of an extension. Elsewhere, AUD was briefly pressured following a narrower than expected trade surplus and amid a softer CNH, while USD/JPY and JPY-crosses were elevated on the risk appetite seen during US hours although briefly succumbed to some mild profit taking overnight.

Australian Trade Balance (AUD)(Nov) 1925M vs. Exp. 2230.0M (Prev. 2316.0M). (Newswires)
Australian Exports (Nov) M/M 1.0% (Prev. 1.0%)
Australian Imports (Nov) M/M 2.0% (Prev. 3.0%)

SNB's Zurbruegg said there is no reason for SNB to change its monetary policy, while he added they still need negative interest rates and stand ready to intervene in currency market. (Newswires)

COMMODITIES

Commodities were mixed with WTI crude futures flat as prices stuck around the USD 48.50/bbl level for lack of a better catalyst, although participants do get to mull over the latest API inventory report after-hours today. Elsewhere, gold was weighed amid a firmer greenback and as reports also noted gold imports by India (regular contender for the world’s largest gold importer) may have dropped by around 20%, while copper prices continued to ease after having plateaued on Monday and amid a mixed risk tone overnight.

India gold imports may have declined by 23% Y/Y in December and may have declined by 20% for 2018. (Newswires)
 

US

Following a range-bound overnight session, treasuries saw some upside in tandem with bunds as European traders sat at their desks and as equities sold off in early trade. Nonetheless, as risk sentiment improved and as stock indices turned green, opening higher in the US, the complex reversed course and drifted lower, also shrugging off disappointing Non-Mfg PMIs. The yield curve saw some modest bear-flattening as short dated yields were higher by c.5bps while longer date yields were higher by less than 1bps. 2s30s narrowed by c.3bps, 5s30s and 2s10s narrowed by c.2bps. US T-note futures (H19) settled 8 ticks lower at 122-01+.

US President Donald Trump is to deliver a primetime address about the border on Tuesday night. (Newswires)

US Vice President Pence said President Trump has not made a decision on whether to declare a national emergency over his demand for a border wall. (Newswires)

White House Economic Adviser Hasset said there will be some economic impact from the partial government shutdown. (Newswires)

US President Trump and Canadian PM Trudeau held discussion on steel tariffs and are to seek release of Canadians from China, although a Canadian source later stated that US and Canada are not holding negotiations to lift metal tariffs and are not scheduled to do so, while the source added that Canadian PM Trudeau continues to press US President Trump on lifting tariffs. (Newswires)

Fed's Mester (non-voter, hawk) said Fed could adjust its portfolio runoff if it proves more disruptive than what markets anticipated. (Newswires)

Fed's Bostic (non-voter, dove) said US economy is "pretty solid" and inflation is just a "sliver" below the 2% target. (Newswires)

White House confirmed Nellie Liang has withdrawn from Federal Reserve Board nomination. (Newswires)

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