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[PODCAST] EU Open Rundown 11.06.18

  • US President Trump refused to endorse the G7 communique which he stated was due to false statements made by Canadian PM Trudeau
  • Asian equity markets and the USD subsequently began the week somewhat cautiously
  • Looking ahead, highlights include Norwegian CPI, UK production, Barnier & Davis meet, US 3 and 10yr supply

G7/Trade

G7 official communique which was backed by all countries apart from the US, acknowledged free, fair and mutually beneficial trade was a vital engine for growth and jobs, while the countries will strive to lower tariff barriers and subsidies, as well as continue fighting protectionism. (Newswires)

US President Trump refused to endorse the G7 communique which he stated was due to false statements made by Canadian PM Trudeau who he criticized as being dishonest and weak, while he also suggested the US is looking at tariffs on autos flooding the market. This was in response to comments from Canadian PM Trudeau that Canada would impose retaliatory tariffs against US and warned that Canada would not be pushed around. (Twitter/Newswires)

US President Trump tweeted overnight about Canada and Trudeau in which he suggested Canada was bragging about making USD 100bln in trade from US and that PM Trudeau acts hurt when called out regarding this. US President also commented that Germany pays 1% of GDP to NATO while US pays 4% of a much larger GDP to NATO which he suggested doesn't make sense, while he added that US protects Europe but gets clobbered on trade and that change is coming. Furthermore, Trump also tweeted he will not let friends and enemies take advantage anymore regarding trade and that the American worker must be put first. (Twitter)

German Chancellor Merkel said have agreed with the US to review trade ties and tariffs, while she added that the aim is to avoid US tariffs on autos. Merkel further stated that EU will reassess if US imposes auto tariffs and that they must seek own path if negotiations fail, while she also commented that EU has prepared counter measures against US tariffs on steel and aluminium. (Newswires)

ASIA

Asian equity markets began the week somewhat cautious ahead of the upcoming key risk events including the summit between US and North Korea tomorrow, as well as the FOMC and ECB policy meetings later this week. Furthermore, a market closure in Australia and the G7 fall out in which Trump refused to endorse the communique and criticized Canadian PM Trudeau as being dishonest and weak, also added to the tentative tone and saw US equity futures briefly pressured at the open. However, US equity futures have since recovered, while both Nikkei 225 (+0.6%) and KOSPI (+0.6%) were marginally positive as focus turned towards the upcoming historical Trump-Kim summit. Elsewhere, Hang Seng (+0.4%) and Shanghai Comp. (-0.3%) were mixed with underperformance in mainland China after inaction by the PBoC led to a liquidity drain and as participants digested mixed inflation data. Finally, 10yr JGBs are flat amid the tentative tone in the region and a lack of Rinban announcement by the BoJ.

Chinese CPI (May) M/M -0.2% vs. Exp. -0.1% (Prev. -0.2%). (Newswires)
Chinese CPI (May) Y/Y 1.8% vs. Exp. 1.8% (Prev. 1.8%)
Chinese PPI (May) Y/Y 4.1% vs. Exp. 3.9% (Prev. 3.4%)

PBoC skipped open market operations for a net daily drain of CNY 20bln. (Newswires)
PBoC set CNY mid-point at 6.4064 (Prev. 6.4003)


UK/EU

Switzerland voted in referendum against motion to abolish traditional banking and only permitting money created by SNB; as expected. (Newswires)

Greece officials said plans for a Greek debt issuance could be knocked back following thee political uncertainty that occurred in Italy, according to press reports. (Times)

Italian Finance Minister Tria has stated that the new government is ‘clear and unanimous’ with its plan to keep the nation inside the EUR. (FT)


Fitch affirmed Poland at A-, outlook stable. DBRS affirmed Germany at AAA, stable trend and affirmed Poland at A, Stable trend. (Newswires)


FX

In FX markets, the DXY was slightly softer after Trump alienated the US from its closest allies by refusing to endorse a joint G7 statement and warned of auto tariffs, while he also took to Twitter in his reproach against PM Trudeau and to a lesser extent the EU. This benefitted the greenback’s major counterparts in which EUR/USD attempted to reclaim the 1.1800 handle and with GBP/USD above 1.3400, while antipodeans were also higher but with price action across the majors mostly contained ahead of the looming risk events. Elsewhere, there were initial safe-haven flows seen into JPY which was later fully reversed, while USD/CAD was short-squeezed at the open as CAD took the brunt of the G7 disarray and Trump’s overzealous tweeting.


COMMODITIES

Commodities were mixed overnight with WTI crude futures slightly lower and stuck within a narrow trading range amid a lack of fresh drivers for energy. Elsewhere, copper was subdued amid a somewhat cautious tone and gold was uneventful around the USD 1300/oz level with participants tentative ahead of this week’s policy decisions from both the Fed and ECB, while silver outperformed as prices retested last week’s highs to print its best levels in 7 weeks.

US Baker Hughes Total Rig Count (8 Jun) 1062 (Prev. 1060). (Newswires)

Saudi Arabia reportedly increased oil production by 100k in June ahead of incoming sanctions on Iran. (WSJ)


GEOPOLITICS

US President Trump and North Korean Leader Kim Jong Un arrived in Singapore ahead of the summit on Tuesday. (ABC)

US President Trump stated that he believes North Korean Leader Kim will do something positive and added that he has one time shot but thinks it will go well. Elsewhere, President Trump stated some of the other G7 members agreed with his view that having Russia back in the group would be positive. (Newswires)

North Korea said summit with US will discuss permanent and firm peace regime, as well as denuclearisation of the Korean peninsula. (KCNA)


US

Treasuries were pretty much unchanged on Friday as investors have been cautiously awaiting for a G7 outcome and ahead of FOMC and ECB next week. Most of the action was concentrated in the front end of the curve though yields were lower by less than c.1bps. Spreads were mixed, 2s10s were wider by c.1bps at settlement. US 10YR T-notes futures (Sep 2018) were unchanged at 119-19.

White House Chief of Staff Kelly reportedly told some senators last week that the White House was a miserable place to work. (Hill/NYT)

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Interesting insight from the man who (along with Tim Farron) didn't actually bother to turn up to the Customs Bill… https://t.co/xy5kaig6Kb