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[PODCAST] EU Open Rundown 13.06.18

  • Asian stocks traded subdued with participants tentative ahead of the looming FOMC decision and amid a resurfacing of trade concerns
  • House of Commons rejected withdrawal bill amendments related to Brexit day, Henry VIII powers and ‘meaningful vote’
  • Looking ahead, highlights include IEA monthly oil report, UK CPI, US PPI, DoEs, FOMC rate decision and press conference, supply from Italy and Germany

ASIA

Asian stocks traded subdued with participants tentative ahead of the looming FOMC decision later today. ASX 200 (-0.6%) was dragged by weakness in energy and financials, although upside was seen in APA Group which surged over 20% after Cheung Kong Infrastructure made an offer for the Co. valued at AUD 13bln. This was also in tandem with a plethora of M&A newsflow overnight that began stateside after a US judge ruled AT&T could proceed with its acquisition of Time Warner without any conditions imposed, which in turn underpinned several media and telecom names on the prospects of open M&A floodgates. Nikkei 225 (+0.4%) outperformed and was kept afloat by JPY weakness, while Shanghai Comp. (-0.8%) and Hang Seng (-0.6%) were lower amid expectations of a looming Fed hike and China to follow suit by raising rates on its repo and lending facilities. Today saw the resumption of trade for ZTE shares from a 2-month halt which hit limit down in Shenzhen and dropped around 40% in Hong Kong after agreeing to pay a USD 1.4bln penalty to the US, while trade concerns also resurfaced as President Trump stated that USD 80bln agriculture purchase commitment from China and with trade adviser Navarro suggesting that Trump is to impose some tariffs on China. Finally, 10yr JGBs were flat amid similar uneventful trade in T-notes and a tentative tone in riskier assets, while the BoJ Rinban announcement also failed to spur demand with the total amount at a reserved JPY 505bln. 

US President Trump said USD 80bln agriculture purchase commitment from China was insufficient. (Fox News) In related news, there were also comments from White House trade adviser Navarro that President Trump is planning to impose tariffs on a subset of China imports that were part of an initial list of around USD 50bln in goods, while reports also noted speculation this could be in place as soon as Friday. (Newswires)

PBoC injected CNY 60bln via 7-day reverse repos, CNY 40bln via 14-day reverse repos and CNY 30bln via 28-day reverse repos, for a net daily injection of CNY 70bln. (Newswires)
PBoC set CNY mid-point at 6.4256 (Prev. 6.4121)


UK/EU

House of Commons backed the government and voted to reject withdrawal bill amendments related to Brexit day, Henry VIII powers and ‘meaningful vote’ which would have given parliament more say in Brexit negotiations, with rebel Conservative MPs said to have agreed to back the government on concession that further changes would follow. The concessions saw PM May give in to demands from pro-EU MPs that parliament should be consulted on whether “no deal is better than a bad deal”. Furthermore, Solicitor General Buckland said he would be open to discussing the Grieve amendment with a view to accepting some or all of it in a new amendment in the Lords. (Newswires/Guardian)

The Telegraph reports that the Best for Britain group has held a series of talks with Remain-supporting ministers and MPs to encourage them to oppose Theresa May. (Telegraph)

German Chancellor Merkel said the US would have a large surplus with EU if services were included in calculations and stated that she has lobbied against one-sided car tariffs with the US. (Newswires)


FX

FX markets were relatively quiet with the DXY marginally extending on the prior day’s gains ahead of an anticipated Fed rate hike and after reports that Fed Chair Powell was considering conducting press conferences after every Fed meeting, which could essentially make every meeting ‘live’. EUR/USD and GBP/USD were flat and languished near US-session lows, which provided the latter with some respite from the Brexit-related swings before another day of amendment voting at the House of Commons later. Elsewhere, JPY extended on weakness and commodity-linked currencies were also lacklustre amid recent softness in the energy and metal prices.
 

COMMODITIES

Commodities were subdued overnight amid a slightly firmer USD. As such, WTI crude futures were lower following an unexpected build in API crude inventories, with the pressure exacerbated on a break below USD 66.00/bbl as well as the prior session’s lows. Elsewhere, price action in gold was contained by pre-FOMC caution and copper weakened alongside a risk averse tone and underperformance in its largest consumer China.

US API Weekly Crude Stocks (8 Jun) +0.800M vs. Exp. -2.700M (Prev. -2.028M). (Newswires)

Russia is said to seek a rollback on oil cuts for most OPEC+ nations and propose OPEC+ share out 1.8mln bpd quota increase, while the plan said to leave 1mln bpd of involuntary oil cuts intact. (Newswires)

EIA raised forecast for 2018 world oil demand by 40,000 and sees increase 1.801mln bpd Y/Y, while it cut forecasts for 2019 growth by 10,000 bpd and sees increase of 1.72mln bpd Y/Y. (Newswires)


GEOPOLITICAL

US President Trump said US will not be conducting war games as long as it is negotiating in good faith with North Korea and stated that North Korea denuclearization is expected to begin immediately. (Newswires) However, US forces in South Korea had earlier stated they have not received updated guidance on the execution or cessation of training exercises and there were also reports US Vice President Pence told Republicans that military exercises in Korea will carry on. (abcNEWS/Newswires/Twitter)

US President Trump tweeted there is no limit what North Korea can achieve if it gives up nuclear weapons and embraces commerce & engagement with the world, while he also wanted to thank North Korea Leader Kim for taking first bold step towards a bright new future for his people. (Twitter)

North Korea said US President Trump agreed in summit to lift sanctions against North Korea and offer North Korea security, while North Korea also stated that US President Trump agreed to step-by-step denuclearization by the North in return for US concessions. (KCNA)

North Korean Leader Kim praised US President Trump's will to resolve issues and that both sides should commit to avoid antagonizing each other while he suggested legal and institutional steps to guarantee it. Furthermore, Kim also said it is urgent for both sides to make bold decision to halt irritating and hostile military actions. (KCNA)

US

The treasuries complex was drifting lower in pre-market trade ahead of US CPI data, and Wednesday’s FOMC rate decision. Action was generally contained within narrow ranges. Most of the action was in the front end of the curve where 2yr and 5yr yields were up by c.2bps at settlement. 2s30 and 5s30s widened by c.1bps. The US Treasury auctioned $14bln of 30-year notes, tailing by 0.1bps; demand was firm, with indirects taking down above recent averages. US 10YR T-note futures (Sep 2018) 1 tick lower at 119-13.

Fed Chair Jerome Powell is reportedly considering following all Fed meetings with a press conference. (WSJ)

AT&T (T) won US court approval to purchase Time Warner (TWX) for USD 85bln with no conditions imposed, while the judge urged the government not to seek a stay in ruling which he would deny if requested. (Newswires) 

Canada's Foreign Minister Freeland said Canada is hoping for the best but prepared for the worst regarding NAFTA and that she is expected to meet US Trade Representative Lighthizer this week/ Furthermore, Freeland stated Canadian PM Trudeau raised issue of autos tariffs ' very clearly' with US President Trump last week and that she is prepared for any eventuality over auto tariffs

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