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[PODCAST] EU Open Rundown 17th January 2019

Asian equity markets were choppy throughout the session but eventually followed suit to the gains on Wall St

UK PM May defeated the no confidence motion as expected via 325 to 306 votes and has continued to declare her intention to deliver Brexit

Labour Party leader Corbyn has declared there will be no talks with PM May until a no-deal Brexit is off the table

Looking ahead, highlights include EZ Final CPI, US Initial Jobless Claims & Philly Fed Business Index, ECB's Lautenschlager, BoE's Carney, Fed's Quarles Speaking, UK 2024 Gilt

EARNINGS: American Express, Morgan Stanley, PPG Industries, Netflix

ASIA-PAC

Asian equity markets were choppy throughout the session but eventually followed suit to the gains on Wall St, where financials led after strong earnings from banking powerhouses Goldman Sachs and Bank of America. ASX 200 (+0.3%) and Nikkei 225 (-0.3%) were mixed as resilience in financials and commodity-related sectors kept the Australian benchmark afloat, while Tokyo trade was hampered again by currency effects. Hang Seng (Unch.) briefly surmounted the 27,000 level for the first time since early December where it then met resistance and Shanghai Comp. (+0.1%) swung between gains and losses as participants digested another substantial liquidity operation by the PBoC, as well as US-China concerns after reports that US prosecutors are to pursue criminal charges against Huawei over theft of trade secrets. Finally, 10yr JGB futures recovered from the prior day’s lows but with price action kept range-bound on the session alongside the indecisive risk tone in the region and a relatively tepid Rinban announcement by the BoJ.

PBoC injected CNY 250bln via 7-day and CNY 150bln via 28-day reverse repos for a net injection of CNY 380bln. (Newswires)

PBoC set CNY mid-point at 6.7592 (Prev. 6.7615)

US prosecutors to pursue criminal charges against Huawei over theft of trade secrets, while there were separate reports that US lawmakers are seeking to ban chip sales to Huawei and ZTE (763 HK). (WSJ/Nikkei)

 

UK/EU

UK PM May defeated the no confidence motion as expected via 325 to 306 votes. Elsewhere, a spokesperson for PM May said the government's policy is to be out of a customs union so it can do new trade deals, while UK PM May is said to plan to speak to EU leaders today. (Newswires)

UK PM May said there is now an opportunity to find a way forward on the Brexit and that she intends to deliver on Brexit which she believes it is her duty to do so. PM May also said we must work out what lawmakers want and that she spoke to several parties although the Labour party leader has yet to take part in discussions, while there were comments from Labour Party leader Corbyn who declared there will be no talks with PM May until a no-deal Brexit is off the table. (Newswires)

According to a leaked conference call, UK Chancellor Hammond told business leaders that the “threat” of a no-deal Brexit could be taken “off the table” within days and potentially lead to Article 50 “rescinded”. (Telegraph)

EU is said to think PM May's attempt to win the support for her Brexit deal has come too late and will probably not work now, while a diplomatic note warned that extending Article 50 to delay Brexit would not be as simple as some people assume. Furthermore, the EU is reportedly divided on how long Brexit extension can last and is said to discuss Brexit extension beyond July, while there were separate reports that the EU is looking at plans for Brexit extension to 2020 according. (BuzzFeed/Newswires)

UK RICS Housing Survey Dec -19 vs. Exp. -13.0 (Prev. -11.0). (Newswires)

Italian PM Conte says Cabinet is to approve budget later today. (Newswires)

Greek Prime Minister Tsipras won confidence vote in Greece's Parliament (by 151 vs 148). (Newswires)


FX

FX markets lacked drivers overnight although the DXY eked mild gains above the 96.00 level, while its major counterparts were lacklustre in which EUR/USD backed away from the 1.1400 handle and GBP/USD consolidated near the prior day’s highs. This follows PM May’s confidence vote survival by a narrow margin of 325 to 306 votes and with PM May now seen to seek a cross-party Brexit consensus to break the stalemate. Elsewhere, the initial deterioration in risk appetite spurred flows into JPY and high-beta currencies were indecisive alongside a similar risk tone before giving up ground to the greenback, while CNH softened despite the firmer fix by the PBoC as the central bank continued with its substantial liquidity efforts.


COMMODITIES

Commodities were lacklustre amid a firming greenback and choppy risk tone which saw WTI crude futures pull-back below the USD 52.00/bbl level. This also followed the post-DoE pressure in which a wider than expected draw in headline crude inventories was overshadowed by the much larger than expected build in gasoline and distillate stockpiles. Elsewhere, gold was subdued as USD eked marginal gains, while price action in copper reflected the indecisive overnight sentiment.

 

GEOPOLITICAL

US Vice President Pence said North Korea has yet to take concrete action to dismantle its nuclear weapons program. (Newswires)

US

A more constructive risk tone saw Treasuries sold on Wednesday. APAC volume was light and the range was narrow, and into the EU session, there was a downside bias after liquidation of 5yr call spreads, Informa reported, while lower Gilts were also influencing FI ahead of the confidence vote. There was some stabilisation towards the US open, though pressure in the long-end was seen, helping the curve steepen. After the UK confidence vote, where UK PM May survived, there was some selling of the T-Note, though it remained within the day’s range. At settlement, major curve spreads were mixed, and generally +/- around 1bps. US T-note futures (H9) settled 6 ticks lower at 121-23.

Fed's Beige Book stated economic activity expanded in most of the US with eight of the twelve districts reporting modest-to-moderate growth, while all noted tight labour markets at all skill levels. Furthermore, many districts reported contacts had become less optimistic due to rising financial market volatility, rising short-term rates, falling energy prices, as well as elevated trade and political uncertainty. (Newswires)

Fed's George (Voter, Hawk) said portfolio runoff could offer "fair explanation" for some of the recent market volatility, while she added the Fed should be more patient in raising rates to avoid overtightening and to extend the expansion. (Newswires)

Fed's Kashkari (Non-Voter, Dove) said Fed has less room to cut rates in future downturn but has other tools, while he repeated that he wants to see wage growth and inflation before backing a rate hike. (Newswires)

US President Trump signed bill to give Federal workers back pay from the shutdown, while there was also reports that the White House threatened to veto the stopgap bill the House is preparing. (Newswires)

US Senate Finance Committee Chairman Grassley said Trump administration's trade negotiations may be delayed due to government shutdown and believes US President Trump is inclined to impose new US auto tariffs. (Newswires)

Apple (AAPL) is reportedly planning a reduction in hiring amid slow iPhone sales. (Newswires)

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Fitch Maintains the UK on Rating Watch Negative https://t.co/QuZXLMFNoR