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[PODCAST] EU Open Rundown 18th January 2019

  • Asian equity markets traded higher across the board as the region took impetus from Wall St where the major indices were lifted on hopes of easing trade tensions
  • FX markets were relatively quiet with the DXY flat around the 96.00 level as its major counterparts consolidated, while antipodeans found some support from the heightened risk appetite
  • Northern Irish DUP Party indicated that they would be open to a Norway-style deal if it removed the threat of a backstop
  • Looking ahead, highlights include UK retail sales, Canadian CPI, US industrial production and University of Michigan sentiment, weekly Baker Hughes rig count, Fed’s Williams and Harker

ASIA-PAC

Asian equity markets traded higher across the board as the region took impetus from Wall St where the major indices were lifted on hopes of easing trade tensions after the US was said to mull lifting China trade tariffs to break the stalemate, although the Treasury was quick to downplay the prospects regarding this. As such, ASX 200 (+0.5%) and Nikkei 225 (+1.3%) were positive with broad gains across the sectors and with the Japanese benchmark the outperformer as it coat-tailed on the favourable currency moves. Hang Seng (+1.1%) and Shanghai Comp. (+1.0%) were boosted by the trade hopes with US and China also said to be in discussions on reopening access for US poultry exports to China, while the PBoC’s continued efforts this week resulted to a substantial net weekly injection of CNY 1.16tln to the interbank market. Finally, 10yr JGBs were lower as they tracked the downside in T-notes and with demand for bonds subdued by the positive sentiment across stock markets in the region, but with losses limited amid improved demand in the enhanced liquidity auction for 10yr, 20yr & 30yr JGBs.

PBoC injected a total CNY 20bln today for a weekly net injection of CNY 1.16tln vs. Prev. CNY 410bln drain last week. (Newswires)
PBoC set CNY mid-point at 6.7665 (Prev. 6.7592)

US is reportedly mulling lifting China trade tariffs to break stalemate according to CNBC reports, although there were later comments from a US Treasury official that no statement is expected on China and that both US Treasury Secretary Mnuchin and Trade Representative Lighthizer have not made any recommendations to anyone about tariffs. (CNBC/Newswires)

Mofcom said it will continue to widen market access and strengthen protection of foreign investors' legal rights, while there were also reports that US and China are said to be in talks regarding reopening China's markets to US chicken exports. (Newswires)

Japanese National CPI (Dec) Y/Y 0.3% vs. Exp. 0.3% (Prev. 0.8%). (Newswires)
Japanese National CPI Ex. Fresh Food (Dec) Y/Y 0.7% vs. Exp. 0.8% (Prev. 0.9%)
Japanese National CPI Ex. Fresh Food & Energy (Dec) Y/Y 0.3% vs. Exp. 0.3% (Prev. 0.3%)

UK/EU

Northern Ireland DUP Party is said to be leaning towards a customs union; according to the Time citing senior sources. The party indicated that they would be open to a Norway-style deal if it removed the threat of a Northern Irish backstop. (Times)

UK PM May reportedly sent a letter to opposition Labour Party leader Corbyn which made no reference to a 2nd referendum and was said to be sticking to her deal and not moving towards other options. Furthermore, Labour MPs have accepted the Premier’s invitation to cross-party talks, defying party leader Corbyn’s demands for no talks until a no-deal scenario is off the table. (Twitter/Times)

UK replacement trade deal is reportedly not ready for the March Brexit deadline; according to an internal Whitehall memorandum. (FT)

Former Minister Nick Boles is set to table a bill which would make it impossible for the UK government to legally leave the EU without a deal on March 29th. MPs are to vote on this amendment on January 29th. (Guardian)

Norway PM Solberg said to form majority government after successful talks with Christian Democrats. (Newswires)
 

FX

FX markets were relatively quiet with the DXY flat around the 96.00 level as its major counterparts consolidated in which EUR/USD failed to reclaim the 1.1400 handle to the upside and GBP/USD held near the prior day’s highs within close sight of 1.3000. Elsewhere, antipodeans found some support from the heightened risk appetite which had also fuelled upside in USD/JPY and JPY-crosses, while reports of the US mulling lifting China tariffs further boosted high-beta currencies and exacerbated the outflows from safe-haven JPY.

 

COMMODITIES

Commodities were mostly higher with prices underpinned by the increased risk appetite which saw WTI crude futures extend further above the USD 52.00/bbl following the prior day’s gains, while the most recent OPEC monthly report showed crude production fell 751k bpd in December to average 31.58mln bpd according to secondary sources. Elsewhere, gold prices were flat amid a rangebound greenback and copper benefitted from the trade related optimism.

OPEC Secretary General Barkindo said oil market is not yet out of the woods and that he is optimistic healthy demand will remain in 2019. Furthermore, Barkindo added the main objective of oil supply cut deal is to ensure inventory build-up above the 5-year average is avoided, while there were separate reports that OPEC plans to conduct an ordinary meeting in Vienna tentatively on June 25th. (Newswires)

US

Treasuries were lower on Thursday despite the ongoing government shutdown and the trade dispute with China, supported by stronger than expected Philly Fed Index and pushing investors away from the safe-haven. The complex was near session lows at settlement after reports suggesting the US is considering lifting China trade tariffs; most of the action was concentrated in the front/belly end of the curve were yields were higher by c.3bps and the long-end floating around the unchanged mark. The Treasury sold USD 13bln in 10yr TIPS tailing by 0.6bps at a high yield of 0.919%. The bid-to-cover came in at 2.42x. Looking at the breakdown, indirects took most of the supply, directs were awarded the biggest share since July while dealers were left with the smallest share in a year. US T-note futures (H9) settled 6+ ticks lower at 121-16+.

White House confirmed US President Trump cancelled the delegation trip to Davos amid government shutdown, while the White House also stated that US President Trump and Treasury Secretary Mnuchin are to hold Oval Office meeting today. (Newswires)

US State Department in a letter ordered staff to return to work on 22 January and said it has taken steps to make funds available for salaries. (Newswires)

US Treasury Secretary Mnuchin has declined a request to testify next week regarding government shutdown according to US House Ways and Means Committee Chairman Neal, while the US Treasury instead offered to send senior officials to the Way and Means hearing. (Newswires)

US President Trump's former lawyer Cohen is said to be reconsidering plan to testify publicly in Congress next month amid fear for his family according to an adviser, while there were later reports that alleged US President Trump is said to have directed former lawyer Cohen to lie to Congress regarding Trump Tower in Moscow. (BuzzFeed)

Fed's Evans (Voter, Dove) said economy continues to do well and believes Fed is around 75bps away from a restrictive rate, while he added that the Fed can be patient and assess data as it comes in. Furthermore, Evans said the Fed can be patient, that it is a good point for pausing in rate hikes and that the Fed can hike two times in 2019 although might be less. (Newswires)

US President Trump is said to consider whether to re-nominate Marvin Goodfriend to the Fed. (Newswires)

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