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[PODCAST] EU Open Rundown 25.06.18

  • Asian equity markets began the week mixed as the region digested a targeted RRR reduction by the PBoC and reports the US is planning new restrictions on China
  • US President Trump is said to be planning new restrictions on tech exports to China and Chinese investment with an announcement expected by end of the week
  • Looking ahead, highlights include German IFO

TRADE

US President Trump is said to be planning new restrictions on tech exports to China and Chinese investment with an announcement expected by end of the week. Furthermore, repots stated the US Treasury is devising rules to block firms with 25% Chinese ownership from acquiring companies involved in industrially significant technologies and that it plans using International Emergency Economic Powers Act 1977 to impose investment restrictions. (WSJ)

US President Trump tweeted that the US is insisting all countries that have placed trade barriers and tariffs on goods going into their country, remove them or be met with more than reciprocity by the US, while he added trade must be fair and not one-way. (Twitter)

ASIA

Asian equity markets began the week mixed as the region digested a targeted RRR reduction by the PBoC with reports the US is planning new restrictions on tech exports to China and on Chinese investment, which are expected to be announced by end of the week. ASX 200 (-0.2%) and Nikkei 225 (-0.4%) both initially opened higher with gains led by the energy sector in the wake of the OPEC+ agreement to raise output so they no longer overshoot on production cuts. The actual communique didn’t explicitly state an amount for the output increase, although the touted figures by ministers were much less than some of the previously suggested scenarios of as much as 1.8mln bpd, which in turn lifted crude by around 4% on Friday. However, gains in the bourses were later pared as trade tensions returned to the fore with the US Treasury said to be devising rules to restrict China investment under the International Emergency Economic Powers Act of 1977. Elsewhere, the Hang Seng (-0.7%) was among the laggards as money market rates in Hong Kong printed fresh decade highs, while Shanghai Comp. (+0.2%) was choppy as support from the PBoC’s policy efforts tussled with renewed trade concerns. Finally, 10yr JGBs were uneventful with prices flat near last week’s best levels amid the cautious risk tone. The release of the Summary of Opinions also failed to spur demand as the BoJ stuck to its rehashed statements, and the central bank’s presence in the market was largely ignored as it was only seeking Treasury discount bills.     
 

PBoC announced that it will lower some banks' RRR by 50 basis points on July 5th. (Xinhua)

PBoC skipped open market operations for a daily net drain of CNY 10bln. (Newswires)

PBoC set CNY mid-point at 6.4893 (Prev. 6.4804)

BoJ Summary of Opinions from June 14th-15th meeting stated it is appropriate to pursue powerful monetary easing with persistence under the current guideline as inflation is a long way from target but added the momentum towards achieving 2% is maintained. Furthermore, Summary of Opinions stated that although Japan's GDP for the March quarter of 2018 contracted for the first time in nine quarters, this largely reflects temporary factors such as irregular weather. (Newswires)


UK/EU

At least 50 UK Conservative MPs are willing to rebel against the government if PM May fails to inject more money into defence, an ally of Gavin Williamson, the defence secretary, said last night. (Times)

Over 50 Conservative MPs are prepared to block any attempt to remove Britain from the EU without a deal — including some sitting ministers — according to senior Conservative politicians. (FT)

UK PM May's plans for a customs partnership are "bureaucratic, unwieldy and impractical", according to Andrea Leadsom, the Leader of the Commons. (Telegraph)

UK Trade Secretary Fox told Sky he would accept an extended Brexit transition period given it was for technical reasons. (Sky News)

ECB's Praet (Dovish) says prolonging the purchase of assets for 2019 is an option. (Espresso)

FX

In FX markets, most major currencies were uneventful with the DXY flat around 94.50 and with its counterparts across the pond kept sideways overnight at the mid-1.1600 and mid-1.3200 handles for EUR/USD and GBP/USD respectively. Elsewhere, USD/CAD was slightly higher but with price action relatively low-key in comparison to the volatility last Friday triggered by weak data and oil strength, while JPY benefitted from safe-haven flows which dragged USD/JPY further below the 110.00 level. However, the biggest movers in FX came from EM with CNY weaker on the PBoC’s quasi-loosening and with TRY buoyed after President Erdogan won the election on Sunday with more than 50% of votes to avoid the need for a 2nd round run-off.

Turkey President Erdogan won the Presidential election with 53% of the vote which means that a 2nd round runoff is unnecessary, while his closest rival Ince said it was not a fair race but declared that Erdogan won. (Newswires)

COMMODITIES

Commodities were subdued with WTI crude futures taking a breather from last week’s OPEC-inspired rally which saw prices rally around 4% to briefly above USD 69.00/bbl. Conversely, Brent crude gave up its gains with prices down as much as 2% as participants mulled over the OPEC+ agreement in which no exact amount was specified for the output increase, while there were also comments from the Saudi Energy Minister who suggested concern regarding price rallies. Gold was also lacklustre overnight and failed to benefit from the cautious risk tone while copper was indecisive amid the opposing forces from China’s targeted RRR cut and potential fresh trade measures against China.

Saudi Energy Minister Al-Falih stated that the total OPEC+ oil hike is closer to 1mln bpd than 600k and that it would be a concern if Friday’s increase in prices were to become a trend. (Newswires)

Goldman Sachs said it doesn't see OPEC deal altering market outlook and that physical oil market is still tightening, while it also commented that OPEC deal may represent beginning of the unravelling of the output cut deal. (Newswires)

Baker Hughes Rig Count (22 June) total rigs -7 to 1052, with oil rigs down by 1 to 862 which is the 1st reduction of oil rigs in 12 weeks. (Newswires)
 

GEOPOLITCAL

US is expected to provide North Korean timeline soon, which is expected to include specific asks from North Korea with the purpose to assess the nation's level of commitment. (Newswires)
 

US

Treasuries were flat on Friday and volume was thin, though the complex did close higher for the second straight week, ahead of next week, where the US Treasury will auction more than $200bln of paper. Higher stocks initially had Treasuries on the back foot on Friday, and yields were also dancing to the tune of oil prices. But losses were pared as we headed into the close, with the curve steepening a touch on the day. US 10YR T-notes futures (Sep 2018) 1 tick lower at 119-26+.

Reports noted that new federal prosecutors have started to participate in Special Counsel Mueller's cases which suggests could be a sign Mueller is considering winding down investigations before handing off prosecutions to other parts of the DOJ. (Newswires)

Canada’s NAFTA negotiator Verheul said on Friday that there were no active NAFTA talks at that moment. (Newswires)

Russia's Economy Minister Oreshkin said Russia will increase tariffs on US autos. (Newswires)

Categories:
MOC: * SPX 850mln to sell (vs at 650mln to sell at 1549 EDT) * Dow 50mln to sell (vs 100mln to buy at 1549 EDT)