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[PODCAST] EU Open Rundown 14th January 2019

  • Asian equity markets began the week subdued following the indecisive close on Wall St, US Government Shutdown and disappointing Chinese trade data
  • UK PM May is to say she believes parliament will more likely block Brexit than the UK leave without a deal
  • UK Cabinet Ministers are reportedly exploring "Plan B" options with PM May expected to lose her Brexit vote on Jan 15
  • Separate reports suggest that Pro-EU MPs are to publish draft legislation on Monday for a 2nd referendum
  • Looking ahead, highlights include Swedish CPI and earnings from Citi

ASIA-PAC

Asian equity markets began the week subdued following the indecisive close on Wall St last Friday as the US government shutdown extended to its longest in history, while disappointing Chinese trade data and the absence of Japanese participants for Coming of Age Day also contributed to the downbeat sentiment. ASX 200 (Unch.) failed to hold on to early gains as strength in Telecoms and its largest weighted Financials sector was eventually overwhelmed by losses in the broader market, while KOSPI (-0.7%) was lacklustre amid softness in the index heavyweights including Samsung Electronics and Hyundai Motor. Hang Seng (-1.6%) and Shanghai Comp. (-0.8%) were also pressured as Chinese Exports and Imports figures took a further hit from the US-China trade dispute, although losses in the mainland were capped after the PBoC injected liquidity to the interbank market in which it utilized 28-day reverse repos for the first time since June last year.

PBoC injected CNY 80bln via 7-day and CNY 20bln in 28-day reverse repos for a net daily injection of CNY 20bln. (Newswires)
PBoC set CNY mid-point at 6.7560 (Prev. 6.7909)

Chinese Trade Balance (USD)(Dec) 57.06B vs. Exp. 51.53B (Prev. 44.71B)
Chinese Exports (Dec) Y/Y -4.4% vs. Exp. 3.0% (Prev. 5.4%)
Chinese Imports (Dec) Y/Y -7.6% vs. Exp. 5.0% (Prev. 3.0%)

China Customs said the biggest worry this year in trade is still external uncertainty and protectionism, while it added that trade growth may slow this year. (Newswires)

UK/EU

UK PM May warned that failure to back her Brexit deal risks a no-deal Brexit and is to say she believes parliament will more likely block Brexit than the UK leave without a deal, according to the PM's office. In separate reports, the UK government commented that any defeat by less than 100 votes on Tuesday would be counted as a good result. (Newswires)

UK Cabinet Ministers are reportedly exploring "Plan B" options with PM May expected to lose her Brexit vote on Jan 15. Furthermore, reports in The Times noted that Brussels expects the UK to ask for an extension to Article 50 to allow Brexit to be delayed if the House of Commons rejects Theresa May’s deal tomorrow, while there were separate reports that Pro-EU MPs are said to publish draft legislation on Monday for a 2nd referendum. (Newswires/Independent/Times/Telegraph)

BBC’s Europe Editor Katya Adler tweeted that to her understanding, the EU letter of assurances does not contain anything new. The letter would come from EU Commission President Juncker and Council President Tusk, though they cannot change the Brexit deal without the EU 27 leaders. (Twitter)

Brussels is to propose extending majoring voting to all EU tax policies by end-2020 in a move to scrap national vetoes but will likely trigger opposition from member states. (FT)

Greece PM Tsipras is calling for a vote of confidence in the government after junior coalition partner and Defense Minister Kammenos announced to quit in protest of a deal to end dispute with Macedonia regarding its name. (Newswires)

Fitch affirmed Spain at 'A-'; Outlook Stable. (Newswires)
 

FX

In FX markets, USD was marginally softer as the US government shutdown extended into a record 24th day, with early price action driven by initial China currency strengthening as USD/CNY briefly broke below 6.7400 after another firmer reference rate setting by the PBoC. This mildly benefitted the greenback’s major counterparts across the pond in which EUR/USD attempted to nurse Friday’s losses and GBP/USD held firmly on to the 1.2800 handle, while pressure in USD/JPY was exacerbated amid the risk averse tone and absence of Tokyo participants. However, CNY later gave up most of its gains following the China trade data upset which also showed iron ore imports declined to a 6-month low and coupled with a pullback in oil prices, eventually weighed on commodity-linked currencies.
 

COMMODITIES

Commodities were mostly lower with weakness in the complex triggered by the risk averse tone, which saw WTI crude futures edge lower to test the USD 51.00/bbl to the downside and pressured Brent crude to beneath USD 60.00/bbl. Conversely, gold was kept afloat by a softer greenback and with the precious metal also benefitting from its safe-haven characteristics, while copper was downbeat amid the subdued risk appetite triggered by the Chinese data miss.

Baker Hughes Rig Count (11/Jan): Oil down 4 at 873, NatGas up 4 at 202; total unchanged 1075. (Newswires)

Saudi Energy Minister Al-Falih stated there is no need for an extraordinary OPEC meeting before April and that the oil market is on the right track. (Newswires)

Russia's Energy Minister Novak said domestic oil output is declining gradually and suggested a decrease oil output by 50,000 BPD in January from October levels (11.4mln BPD). (Newswires)

China 2018 copper concentrates and ore imports at record high, while 2018 unwrought aluminium and product exports also at a record high. However, China December iron ore imports felt to the lowest since June at 86.1mln tons. (Newswires)

GEOPOLITICAL

US President Trump tweeted that US is starting long overdue pullout from Syria, while he also threatened to devastate Turkey economically if Turkey hits the Kurds and likewise doesn't want the Kurds to provoke Turkey. (Twitter)

Iran suggested it could restart its nuclear program as its nuclear program chief stated that they have started preliminary activities for designing a modern process for 20% uranium enrichment for its reactor in Tehran. (Associated Press) In separate news, US President Trump’s reportedly instructed the Pentagon last year to provide military options to strike Iran. (WSJ)
 

US

Treasuries firmed on Friday amid the longest US government shutdown in history, as well as reports that the PBOC is becoming wary of yuan strength, while geopolitical headlines also influenced (reports of Turkish troops along the Syrian border). The modest bounce continued after an in-line CPI report, though the complex saw some profit-taking towards the European close, sources noted. Yields were lower across the curve at settlement, with most of the action in the belly, where they fell by around 3bps. Major spreads were mixed, with 2s5s and 2s10s narrowing by around 1bps, while 2s30s and 5s30s steepened by 0.5bps and 2bps respectively. US T-note futures (H19) settled 7+ ticks higher at 121-30+

US President Trump said he will not declare a national emergency right now and wants congress to act, while he later stated he will sign a bill for back pay for Federal workers. Separately, there were comments from the US Senator Graham that US President Trump is ready to end shutdown, although there were also reports that OMB is said to have drafted plans for a government shutdown that runs through February. (Newswires)

Fox's Gasparino cited sources which said internal data shows impact of shutdown will hit economy shortly as officials grow increasingly worried about economic impact of impasse and that US President Trump likely to end impasse with government emergency as soon as next week. (Twitter)

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Dominic Raab = The Turnip in Brussels via @Telegraph https://t.co/lf6JLRb6Pg