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[PODCAST] EU Open Rundown 16th January 2019

  • UK PM May’s Brexit deal was defeated by 230 votes (432 vs. 202) in Parliament
  • UK Leader of the opposition Labour party Corbyn called for a vote of no confidence in the government
  • UK Government ministers told business leaders that there is a backbench motion being prepared to delay Article 50 and said the no confidence motion will fail
  • Looking ahead, highlights include UK CPI, US Import & Export Prices, BoE's Carney, Fed's Kashkari, ECB's Stournaras & de Galhau
  • Earnings: Bank of New York Mellon, PNC Financial Services Group, Bank of America, Goldman Sachs, BlackRock

ASIA-PAC

Asian equity markets traded mixed as the region struggled for firm direction after the tech-led gains on Wall St. and PM May’s Brexit deal defeat in parliament. ASX 200 (+0.4%) finished positive as gains in tech and financials eventually outweighed the weakness across the commodity-related sectors, while Nikkei 225 (-0.7%) suffered the fallout from a firmer currency. Hang Seng (+0.2%) and Shanghai Comp. (Unch.) conformed to the indecisive tone but with the mainland kept afloat for most the session after stronger than expected Loans and Aggregate Financing data, while the PBoC also conducted its largest ever daily net liquidity injection heading into next month’s Chinese New Year celebrations in which it cited rapidly falling liquidity due to tax payments. Finally, 10yr JGBs eked only minimal gains despite the underperformance of riskier assets in Japan and firmer results in the latest 5yr JGB auction.

PBoC injected CNY 350bln via 7-day and CNY 220bln via 28-day reverse repos for a CNY 560bln net daily injection. (Newswires)
PBoC set CNY mid-point at 6.7615 (Prev. 6.7542)

China Mofcom said will further boost consumption this year and that trade talks with US are among top priorities for this year, while there were also comments from Assistant Commerce Minister Ren that foreign trade faces increasing uncertainties this year but added that China will actively expand imports this year. (Newswires)

Chinese House Prices (Dec) Y/Y 9.7% (Prev. 9.3%). (Newswires)

UK/EU

UK PM May’s Brexit deal was defeated by 230 votes (432 vs. 202) in Parliament. UK PM May spoke following the defeat that the house has spoken and the government will listen, although added that the vote shows nothing about what parliament supports and that she does not know if the house intends to honour the referendum decision. (Newswires)

UK Leader of the opposition Labour party Corbyn called for a vote of no confidence in the government and a Labour Party spokesperson said if not able to get a general election, all options are on the table including a 2nd referendum. Sky Deputy Political Editor said up to 100 Labour MPs will pivot towards a second referendum this morning. (Newswires)

UK Government ministers told business leaders that there is a backbench motion being prepared to delay Article 50 (possibility raised by Chancellor Hammond) and said the no confidence motion will fail. In related news, a BBC Political Correspondent said DUP will be backing PM May in the no confidence vote, while Former Foreign Minister Johnson also said he will back PM May in a no-confidence vote. (Newswires)

EU27 urged UK Government to clarify its intentions on its next steps as soon as possible and EU will continue EU's process of ratification of the agreement reached with the UK on Brexit according to a spokesperson. In related news, a WELT correspondent tweeted that several EU sources confirmed that EU27 would be ready to extend Article 50 until end of June, while there were separate reports that EU officials said no special summit is planned and Brexit deal not open for renegotiation. (Newswires/Twitter)

There had been reports prior to the vote that the EU is planning to make clear it won’t change its position if UK PM May's Brexit deal was rejected by MPs, while there were also separate reports that UK PM May is said to bring back a more "palatable" Brexit deal next week. (Newswires)

UK Visa December consumer spending fell 1.0% Y/Y vs. 0.7% decline in November; largest drop since April. (Newswires)


ECB's Draghi said present stance is very accommodative already and that snapshot still shows consumption and investment is expanding, while he added exports are less so but still good. Furthermore, Draghi suggested there is a slowdown which is not heading towards a recession but could be longer than previously expected. (Newswires)


FX

In FX markets, the DXY was uneventful and traded around the 96.00 level as all focus centred on GBP/USD amid UK PM May’s historic defeat, in which Parliament voted against her Brexit deal by the largest ever margin of 230 votes. This ultimately lifted GBP/USD off its lows and from support at the 1.2700 level with as participants found solace from hopes for an extension of Article 50 and likelihood the opposition Labour party’s no confidence attempt will fail but ultimately, potentially lead to a softer Brexit. Elsewhere, high-beta currencies were choppy amid the indecisive sentiment, while JPY saw a bout of safe-haven flows amid underperformance of stocks in Japan.
 

COMMODITIES

Commodities mostly traded uneventful in which WTI crude futures took a breather overnight above the USD 52.00/bbl level following the prior day’s near-3% rally, with a narrower that expected draw in headline API crude inventories doing little to dent the recent firm gains. Elsewhere, gold was flat amid a lacklustre greenback and copper prices were higher despite the indecisive risk tone, but with price action contained within the recent weeks’ tight range.
 

US API Weekly Crude Stocks (11 Jan) -0.560mln vs. Exp. -1.3mln (prev. -6.127mln). (Newswires)


US EIA increases forecasts for 2019 world oil demand growth by 20,000 BPD to 1.54mln BPD and sees 2020 world oil demand to hit 103.07mln which would be up by 1.53mln BPD from 2019. (Newswires)

Trump administration still might let Iran export oil and that could lower prices according to CNBC, while there were also reports that the Trump administration is considering an embargo of Venezuelan crude. (Newswires/CNBC)

Move to block Trump administration from lifting sanctions on Rusal (468 HK) and other companies linked to Deripaska has passed first hurdle in US Senate. (Newswires)


US

Treasuries ended Tuesday’s section mixed; the complex continued to edge higher at the European open amid soft growth data in Germany and ahead of the Brexit vote. The complex remained unreactive to worse than expected Fed Manufacturing and PPI data as well as cautious comments from ECB’s President Draghi on the economy. Yields turned negative as Parliament begun to vote on PM May’s Brexit deal where PM May suffered the biggest defeat since 1920. Treasuries however pared back gains heading into the close and ended Tuesday’s session on the unchanged mark. SPX +1.07% at 2610, NDX +1.97% at 6670, DJI +0.65% at 24065.

Fed discount rate minutes showed half of the Fed's 12 regional banks voted to leave the discount rate unchanged in December. (Newswires)

Fed's George (Voter, Hawk) said it might be a good time to pause on rate hikes as should be patient and that rates are not yet at neutral but are close to it. George also commented that the rate-setting panel will be data dependent in their meeting in two weeks and that the Fed always has to be ready to pivot. (Newswires)

Fed's Kaplan (Non-Voter, Dove) said global growth is decelerating and US economy faces risks from global growth, weakness in interest sensitive industries as well as tightening financial conditions. Kaplan also repeated that due to many risks, Fed would be "wise" to hold off on further policy action but added that he doesn't mean the Fed should halt hikes altogether. (Newswires)

Fed's Kashkari (Non-Voter, Dove) said there is no need to tap the brakes on economy as long as inflation is low. (Newswires)

US Vice President Pence said President Trump is standing firm for border security and that Democrats are not negotiating. (Newswires)

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Asia stocks begin negative following a weak lead from US where the majors declined for a 2nd consecutive day amid m… https://t.co/9pyde5kC8F