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[PODCAST] EU Open Rundown 9th January 2019

  • Asian equity markets were higher across the board as sentiment remained underpinned by trade hopes after US-China discussions were extended into a 3rd day
  • US President Trump is said to want a trade deal with China soon to boost markets, according to press reports
  • UK Government was defeated in a vote over changes to budget legislation, meaning the government must win parliamentary approval for a no-deal Brexit
  • Looking ahead, highlights include EZ Unemployment, BoC rate decision, FOMC & Riksbank minutes, Fed's Evans & Rosengren, BoC's Poloz & Wilkins

ASIA-PAC

Asian equity markets were higher across the board as sentiment remained underpinned by trade hopes after US-China discussions were extended into a 3rd day and with progress said to have been made on issues including purchases of US goods, while US President Trump also provided encouragement as he stated that talks were going well. As such, ASX 200 (+1.0%) and Nikkei 225 (+1.0%) were positive as they benefitted from the trade-related optimism which had inspired a 3rd consecutive gain amongst the US majors, with notable strength also seen in Australia’s energy names after WTI reclaimed the USD 50/bbl level to the upside. Hang Seng (+2.7%) and Shanghai Comp. (+1.6%) were also in the green as focus centred on trade while reports suggested that US President Trump wants a China trade deal soon to boost markets. Finally, 10yr JGBs tracked the downside in T-notes as the broad gains in stocks sapped safe-haven demand, while the BoJ’s Rinban announcement was also somewhat trivial with the central bank only in the market for around JPY 450bln concentrated in the belly.

PBoC skipped open market operations for a net daily drain of CNY 40bln. (Newswires)
PBoC set CNY mid-point at 6.8526 (Prev. 6.8402)

China is said to plan deficit target of 2.8% for this year vs. Exp. 2.6% for 2018. (Newswires)

US President Trump is said to want a trade deal with China soon to boost markets, according to press reports. (Newswires)

US trade delegation will return to US on Wednesday evening and are currently wrapping up discussions with Chinese representatives, while a US trade delegation member said it has been a good one for us. (Newswires)
 

UK/EU

UK Government was defeated in a vote over changes to budget legislation, meaning the government must win parliamentary approval for a no-deal Brexit before it can amend tax laws to cope with leaving EU without a deal. The House of Commons voted 303 to 296 to approve Amendment 7 to the Finance Bill which prevents the Government implementing the “no deal” provisions of Clause 89 without the explicit consent of Parliament for such an outcome. (Newswires)

UK government spokesperson said the defeat on no-deal amendment does not change the fact the UK is leaving the EU on March 29th, while the spokesperson added that the government will work with Parliament to make sure the tax system works smoothly in all Brexit scenarios. (Newswires) In response to the defeat, UK PM May is set to unveil a series of pledges on the Northern Irish border to win over support from the DUP. (Sky News)

A cross-party alliance of MPs told UK PM May that they will end the threat of a no-deal Brexit. Loyalist Sir Oliver Letwin suggests that he will continue to rebel against the government to prevent a no deal. (Guardian)
 

FX

FX markets were relatively rangebound in which the 96.00 level remained elusive for the DXY amid choppy price action in EUR/USD and as GBP/USD nursed recent losses, while the major currencies were also unfazed by US President Trump’s first-ever prime-time Oval Office address which he used to make the case for a border wall and provided very few surprises. Elsewhere, commodity-linked currencies were underpinned by strength in oil prices as well as the positive risk-tone but with gains in AUD capped by poor Building Approvals data, while USD/JPY and JPY-crosses edged higher on widespread positive sentiment.

Australian Building Approvals (Nov) M/M -9.1% vs. Exp. -0.5% (Prev. -1.5%). (Newswires)
Australian Building Approvals (Nov) Y/Y -32.8% vs. Exp. -24.8% (Prev. -13.4%)
 

GEOPOLITICAL

China Foreign Ministry spokesperson Lu said China opposes US provocation in its territorial waters after a US ship sailed through waters of Xisha Islands on Monday. (Newswires)
 

COMMODITIES

Commodities were mixed with WTI crude futures lifted back above the USD 50/bbl level amid the heightened risk appetite and larger than expected drawdown in headlines API crude inventories. Conversely, gold was subdued as the rally across stocks dampened safe-haven demand and with participants sidelined ahead of today’s FOMC minutes release, while copper prices extended on gains aided by the risk tone and outperformance in China. 

US API Weekly Crude Stocks (4 Jan) -6.127mln vs. Exp. -2.7mln (prev. -4.5mln). (Newswires)

UAE Energy Minister said oil price fluctuation and volatility last year was counterproductive and unacceptable, while he added that OPEC has stopped chasing price which is not logical or practical. (Newswires)
 

US

Treasuries remained in negative territory on Tuesday as optimism over US and China trade talks pushed stocks higher. The yield curve saw decent bear-flattening once again with shorter dated yields higher by c.6 bps and the longer end only higher by c.4bps at settlement. The complex hit new sessions lows just after the auction. The US Treasury sold USD 38bln in 3yr notes tailing by 0.4bps at a high yield of 2.559%, the lowest yield since April. Demand was relatively weak as showed by the bid-to-cover of 2.44x the lowest since April 2009. Directs’ demand was secured as they secured the largest share since December 2015, indirects were awarded the smallest portion since July, and dealers were left with a share below recent average. US T-note futures (H9) settled 9+ ticks lower at 121-24.

US President Trump delivered his first-ever prime-time address in which he said there is an increasing security crisis at the US southern border and that Americans are hurt by uncontrolled, illegal migration, while he also said they requested USD 5.7bln for a border wall which will be a steel barrier. Following the speech, US House Speaker Pelosi responded that President Trump is rejecting bipartisan deal to reopen government and has chosen fear over shutdown impasse, while Senate minority leader Schumer called for the government to reopen while debate over border continues. (Newswires)


US President Trump is expected to call on Congress to pass legislation that would give him greater powers to raise tariffs if he deems other countries' tariffs are too restrictive, in State of The Union Address this month. (Newswires)

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