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[PODCAST] EU Open Rundown 11th January 2019

  • Asian equity markets traded mostly higher following the 5th consecutive session of gains on Wall Street
  • In FX markets, the DXY pared some of the prior day’s gains which has provided some reprieve for its major counterparts across the pond
  • Fed Chair Powell repeated that the Fed has the ability to be patient given the inflation data and has the ability to be patient and flexible rates
  • Looking ahead, highlights include UK GDP & Production, US CPI, Real Weekly Earnings, Baker Hughes, ECB’s Mersch, Nowotny & Makuch, supply from Italy

ASIA-PAC

Asian equity markets traded mostly higher following the 5th consecutive session of gains on Wall Street as global sentiment remained underpinned by perceptions of a more patient Fed approach. ASX 200 (-0.3%) and Nikkei 225 (+1.0%) were mixed with the initial upside in Australia clouded by weakness in the key financials and mining related sectors, while the Japanese benchmark outperformed as it coat-tailed on the recent USD/JPY moves. Elsewhere, Shanghai Comp. (+0.3%) and Hang Seng (+0.2%) conformed to the overall positive risk tone following the recent trade-related optimism with Vice Premier Liu He said to possibly visit the US later this month and amid hopes of further supportive measures as China may adopt more tax cuts for the manufacturing sector. Finally, 10yr JGBs were lacklustre on profit taking following recent gains and with demand also limited by the upside in riskier assets.

China is reportedly to set a lower 2019 GDP growth target of between 6.0%-6.5%. (Newswires)

PBoC skipped open market operations for a net weekly drain of CNY 410bln vs. CNY 320bln drain last week. (Newswires)
PBoC set CNY mid-point at 6.7909 (Prev. 6.8106)

US Treasury Secretary Mnuchin said there is a plan for Chinese Vice Premier Liu He to visit later this month, while reports later noted that trade talks on January 30th-31st although sources added that the US government shutdown could delay the scheduled visit. (Newswires)
 

UK/EU

UK PM May launched an appeal to Britain’s biggest unions last night in an attempt to win Labour support for her Brexit deal. (Times)

Leading Brexiteer and former Brexit Minister Steve Baker is planning to publish a new Brexit deal proposal which intends to take a tougher line with Brussels. Another former minister told the newspaper that serving ministers may stand down to vote against the PM’s Brexit deal. (The Guardian)

Japanese PM Abe, after talks with UK PM May, has stated that the whole world wants to avoid a no-deal Brexit and has offered his deepest respect for the work she has done with the EU. (Newswires)

Confederation of British Industry expects a no-deal Brexit to shrink UK GDP by as much as 8%. (Newswires)

German Economy Minister Altmaier said the economy is not heading towards recession and that the government mulling additional fiscal measures to support growth. (Newswires)

EU Trade Commissioner Malmstrom said the EU would not accept quotas on car exports to the US. (Newswires)


FX

In FX markets, the DXY pared some of the prior day’s gains which has provided some reprieve for its major counterparts across the pond in which EUR/USD and GBP/USD also found support around the 1.1500 and 1.2750 levels respectively. The softer greenback also capped some of the risk-fuelled advances in USD/JPY, while antipodeans were underpinned by their high-beta status, better than expected Australian Retail Sales data and as CNH continued to firm in which USD/CNH slipped below 6.7500 after the PBoC adjusted the fix to its strongest since late July.

Australian Retail Sales (Nov) M/M 0.4% vs. Exp. 0.3% (Prev. 0.3%). (Newswires)


COMMODITIES

Commodities were mostly underpinned amid a softer greenback and the predominantly positive risk appetite which underpinned copper prices, while gold approached closer towards the USD 1300/oz level in the wake of the plethora of dovish rhetoric this week from the Fed. Conversely, WTI crude futures were flat near this week’s highs as prices took a breather from the recent rally above the USD 52.00/bbl.

US

The Treasury curve bear-steepened modestly on Thursday, with 2s30s and 5s30s wider by 4bps at settlement. The US auction of 30-year bonds was grim, tailing by 1.1bps, and adding pressure to the long-end, not helped by corporate supply. Cover was weaker, directs took the largest takedown since Dec 2014, indirects the smallest since November 2016. Treasuries settled unchanged at 121-23.

US President Trump said he will most likely declare an emergency if there is no border deal but added should be able to make a deal with Congress, while there were earlier reports that US President Trump had been briefed regarding plan to use Army Corps of Engineers funding to border wall construction. Furthermore, President Trump tweeted he is cancelling his trip to the World Economic Forum in Davos, Switzerland due to the Democrats and also commented that he has the absolute right to declare a national emergency and is not doing it yet but will do if shutdown carries on. (Newswires/NBC/Twitter)

Fed Chair Powell repeated that the Fed has the ability to be patient given the inflation data and has the ability to be patient and flexible on rates, while he also commented that there is no preset path for rates and that markets are pricing in a more pessimistic view than is apparent in data. Furthermore, Powell also commented that he doesn't know what the ideal level to let the balance sheet shrink to but will be "substantially" smaller. (Newswires)

Fed's Vice Chair Clarida (voter, neutral) said Fed can be patient assessing how to adjust policy as data evolves this year and that monetary policy is not on a preset course, while he added they will not hesitate to make changes to strategy of shedding assets. (Newswires)
 

Fed's Bullard (voter, dove) said the Fed is sufficiently pre-emptive on inflation and should be moderate in normalising policy, while he added that he is moderately concerned the global slowdown will worsen. (Newswires)

Fed's Evans (voter, dove) said FOMC can easily assess the data for six months before lifting rates. (Newswires)

Fed's Kashkari (voter, dove) reiterated his opposition to further rate hikes and warned there could be uncounted slack in the US labour market. (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)