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[PODCAST] EU Open Rundown 10th January 2019

  • Asian stocks were mixed as the equity rally somewhat stalled overnight which momentarily saw all regional bourses in negative territory
  • FOMC Minutes stated that many policy makers said the Fed could be patient about further tightening given muted inflation pressures
  • UK Labour leader Corbyn is to reiterate his call for a general election today to break the Brexit deadlock, if PM May's deal is voted down in the House of Commons on January 15th
  • Looking ahead, highlights include Norwegian CPI, US Initial Jobless Claims, ECB Minutes, Fed's Powell, Bullard, Evans & Clarida and ECB's de Galhau

FOMC MINUTES

- FOMC Minutes stated that many policy makers said Fed could be patient about further tightening given muted inflation pressures, while policymakers said rate hike was appropriate although a few favoured no change.

- Participants said recent developments including financial markets volatility and global growth concerns, "made the appropriate extent and timing of future policy firming less clear than earlier", while some policymakers said the Fed should assess impact of risks that have become more pronounced in recent months.

- Furthermore, the Fed discussed fading out the use of forward guidance language in future post-meeting statements and some policymakers talked of the possibility of slowing the pace of declining reserves to reach the long-run level.

- The release was perceived as dovish amid suggestions that many policymakers thought that the Fed could be patient about further policy tightening due to muted inflationary pressures and the need to wait for greater clarity on global risk factors.


ASIA-PAC

Asian stocks were mixed as the equity rally somewhat stalled overnight which momentarily saw all regional bourses in negative territory, despite the gains in US where a dovish tone from the FOMC Minutes and several Fed speakers underpinned the US majors to their longest winning streak since September. ASX 200 (+0.3%) and Nikkei 225 (-1.3%) were subdued after sentiment in the region soured with BHP shares hit in Australia as it traded ex-dividend, while the Japanese benchmark underperformed as exporters took the brunt of detrimental currency moves. Hang Seng (+0.1%) and Shanghai Comp. (+0.1%) initially weakened as trade-related momentum began to wane, with sentiment also dampened after the PBoC drained another CNY 70bln from the interbank market and after soft Chinese inflation data added to the despondent tone. However, Chinese stocks then staged a gradual recovery throughout the session, while in terms of trade news, both US and China have issued separate statements in the aftermath of the trade discussions, although the sides refrained from a joint statement and there was also no mention of a timeline moving forward. Finally, 10yr JGBs were underpinned by the initial safe-haven demand which coincided with gains in T-notes in the wake of the Fed dovishness, although prices are off best levels as risk sentiment in the region began to recover, while mixed results at today’s 30yr JGB auction proved to be inconclusive for prices.

PBoC skipped open market operations for a net daily drain of CNY 70bln. (Newswires)
PBoC set CNY mid-point at 6.8160 (Prev. 6.8526)

Chinese CPI (Dec) Y/Y 1.9% vs. Exp. 2.1% (Prev. 2.2%). (Newswires)
Chinese PPI (Dec) Y/Y 0.9% vs. Exp. 1.6% (Prev. 2.7%)

China Mofcom issued a statement on trade talks with US in which it stated that China and US agree to continue close communication on trade and that sides had broad, deep and detailed communication. Furthermore, Mofcom said that talks promoted mutual understanding and established a foundation for resolution of each other’s concerns, while both sides agreed to maintain close contact. (Newswires)
 

UK/EU

UK PM May is said to be mulling supporting an amendment that would keep EU regulations regarding pay and conditions, health and safety as well as environmental standards in an effort to garner support for her Brexit deal. (Sky)

UK PM May’s Brexit approach is seen as being in tatters after Conservative Rebels opened discussions with Labour regarding an alternative to her deal. (Times)

UK Labour leader Corbyn is to reiterate his call for a general election today to break the Brexit deadlock, if PM May's deal is voted down in the House of Commons on January 15th. (The Guardian). The Times reports, that Shadow Brexit Secretary Starmer has told Jeremy Corbyn that a second referendum could now be the only option to avoid a no-deal Brexit. (Times)

UK BRC Retail Sales (Dec) Y/Y -0.7% vs. Exp. -0.3% (Prev. -0.5%). (Newswires)
UK Barclaycard Consumer Spending (Dec) Y/Y 1.8% (Prev. 3.3%)
 

FX

FX markets have quietened with most major currencies holding on to the prior day’s gains against the greenback following dovish Fed speakers and the FOMC Minutes. This has kept the DXY within proximity of the 95.00 level to the downside and EUR/USD near the prior day’s highs at the 1.1500 handle. High beta currencies were choppy alongside the risk sentiment with AUD briefly dampened by the soft Chinese inflation data, while USD/JPY was pressured to trade at a sub-108.00 level as it took a double whammy from the impact of the dovish Fed tone on USD and early safe-haven flows into JPY. Elsewhere, CNH took its swipe at the greenback in which it firmed to under 6.8000 after the PBoC adjusted the reference rate to its strongest since August 30th. 
 

GEOPOLITICAL

South Korean President Moon said he expects a 2nd Trump-Kim summit soon, However, there were also comments from the South Korea Ambassador to US that US-North Korea nuclear talks have slowed and that it could take years to realize goals in North Korea. (Newswires)

COMMODITIES

Commodities were mixed with a mild pullback seen in WTI crude futures which eased back below the USD 52.00/bbl as prices took a breather from the prior day’s near-5% surge which had been inspired by recent inventory draws as well as OPEC commentary from Saudi’s Energy Minister Al Falih refusing to rule out future action. Elsewhere, gold remained lifted by a weaker greenback in the aftermath of the dovish Fed comments and FOMC Minutes, while copper was choppy and mostly reflected the changes in risk appetite.

Saudi Energy Minister Al Falih said he would not rule out additional OPEC+ action at some point. (Newswires)

Australia December Port Hedland iron ore shipments to China 37.4mln tons vs. Prev. 32.9mln tons. (Newswires)
 

US

Yields were mixed along the Treasury curve, with the 2s and 5s sectors seeing yields lower (driven by dovish Fed commentary), while 7s, 10s and 30s saw yields rise (supply, including corporate, as well as optimism on US/China trade talks). The net impact was a steepening of major curve spreads (2s5s +1bps at settlement, 2s10s +10bps, 2s30s +4.5bps, 5s30s +4bps). On the note of supply, the US sold 10-year notes in a stellar auction; although cover was in line with recent averages, the yield was the lowest at a 10s auction in nearly a year, and we saw a stop through of 0.8bps. The direct bid returned with a vengeance, taking their highest share at 10s auctions since May 2015, leaving dealers with a share below recent averages. US T-note futures (H9) settled 1 tick lower at 121-23.

US President Trump said he has tremendous Republican support on border security issues and is willing to keep government shutdown to achieve goals for however long it takes. In related news, US House Speaker Pelosi said meeting with President Trump at the White House did not last long and Senate Minority Leader Schumer said Trump walked out of the meeting with congressional leaders, while President Trump called the meeting a waste of time. (Newswires)

US House voted to approve bill to reopen Treasury Department and several other agencies without border wall money, although the White House had previously threatened to veto the bill. Elsewhere, there were reports that US Republican Senators are said to be planning on courting Democrat senators to reach a deal on border wall. (Newswires)
 

US Senate Finance Committee Chairman Grassley said Congress will not grant President Trump greater powers regarding tariffs or other trade solutions. (Newswires)
 

Fed's Rosengren (Voter, Hawk) said it is possible that the Fed will need to lower interest rates but stated it is not in his view, while he had also commented that he is more optimistic than recent market volatility would suggest, that current policy is appropriately balancing risks and that the Fed be patient about any adjustments. (Newswires)

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