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[PODCAST] EU Open Rundown 21st January 2019

  • Asian equity markets began the week higher as the region followed suit to the optimism seen last Friday amongst the US majors
  • Overnight data releases saw Chinese Q4 GDP print in-line with expectations, whilst retail sales and IP exceeded forecasts
  • US Trade Representative Lighthizer said US and China are making little progress regarding intellectual property issues
  • UK PM May halted the cross-party approach to Brexit last night as she informed her cabinet that she would focus on securing changes from Brussels
  • Looking ahead, highlights include UK PM May tabling her amendable Brexit motion. Note US markets are closed for MLK Day

ASIA-PAC

Asian equity markets began the week higher as the region followed suit to the optimism seen last Friday amongst the US majors after reports China is to offer concessions to eliminate the US trade imbalance, but with gains capped as participants digested a slew of Chinese data including 2018 GDP which was at the slowest growth in 28 years as expected. ASX 200 (+0.2%) and Nikkei 225 (+0.2%) were both positive from the open as they benefitted from the US-China trade optimism, but then pulled-back from their highs heading into the Chinese data and after US Trade Representative Lighthizer noted there was little progress made with China regarding intellectual property theft. Elsewhere, Hang Seng (+0.4%) and Shanghai Comp. (+0.4%) had a relatively tepid open on caution prior to the key data releases and after the PBoC skipped liquidity operations, although Chinese markets later breathed a sigh of relief from the inline GDP numbers, as well as better than expected Industrial Production and Retail Sales data. Finally, 10yr JGBs traded relatively flat with demand subdued amid the gains in riskier assets and with downside also limited by the BoJ’s presence in the market for JPY 1tln of JGBs in maturities spread across the curve.
 

PBoC skipped open market operations for a net drain of CNY 80bln. (Newswires)
PBoC set CNY mid-point at 6.7774 (Prev. 6.7665)


Chinese GDP (Q4) Q/Q 1.5% vs. Exp. 1.5% (Prev. 1.6%). (Newswires)

Chinese GDP (Q4) Y/Y 6.4% vs. Exp. 6.4% (Prev. 6.5%)

Chinese GDP (2018) Y/Y 6.6% vs. Exp. 6.6% (Prev. 6.7%)

Chinese Industrial Output (Dec) Y/Y 5.7% vs. Exp. 5.3% (Prev. 5.4%)

Chinese Retail Sales (Dec) Y/Y 8.2% vs. Exp. 8.1% (Prev. 8.1%)

China stats bureau chief said China has ample room for macro policy adjustments and that China will cut more taxes as well as fees. (Newswires)

US President Trump stated there was a recent false report about lifting China tariffs, while he added trade talks are going well and a trade deal with China could very well happen. In separate news, it was also reported over the weekend that US President Trump’s Administration is said to be preparing an executive order that would restrict Chinese telecoms from operating in US. (Newswires)

US Trade Representative Lighthizer said US and China are making little progress regarding intellectual property issues, while Chinese officials denied IP theft and have asked US for proof. (Newswires)
 

UK/EU

UK PM May held a conference call with the Cabinet to renew efforts to find acceptable changes to the backstop arrangement. However, the conversation was said to be light on specifics and a source also stated there were "no actual solutions" proposed during the call. (Guardian)

UK PM May halted the cross-party approach to Brexit last night as she informed her cabinet that she would focus on securing changes from Brussels designed to win over rebel Conservatives and the DUP. (Times) Labour leader Corbyn is reportedly likely to refrain from making fresh moves towards backing a second referendum until PM May’s “Plan B” is voted on at the end of the month. (The Guardian)

UK PM May is reportedly considering amending Good Friday Agreement after failing again at attempt to negotiate a cross-party deal to break the Brexit deadlock. The proposal could see a rewriting of the 1998 accord to assure Ireland that the UK is committed to no hard border on the island after the UK leaves the EU in March (Telegraph)

EU is reportedly split regarding how long UK should delay Brexit with some governments said to be calling for an extension of as long as a year, while some are against any extension. (Newswires)

UK’s Leave Means Leave is fundraising and plotting a campaign strategy in the belief that another referendum is now inevitable and Brexiteers have fallen behind pro-Remain groups in preparing for a fresh vote. (Telegraph)

UK Rightmove House Prices (Jan) M/M 0.4% (Prev. -1.5%). (Newswires)
UK Rightmove House Prices (Jan) Y/Y 0.4% (Prev. 0.7%)

Fitch affirmed Austria at 'AA+'; outlook Positive and affirmed France at 'AA'; outlook stable, while S&P affirmed Grece at B+; outlook positive. (Newswires)


FX

FX markets struggled for firm direction with the DXY rangebound as the US celebrates the long-weekend due to Martin Luther King Jr. Day, while its major counterparts were mixed in which EUR/USD attempted to recover some of its recent losses and with GBP/USD lacklustre ahead of PM May’s ‘Plan B’ deadline today. Furthermore, it was reported that PM May is considering amending the Good Friday Agreement to break the deadlock and that she held a conference call with the Cabinet in an effort to find a solution to the backstop issue, although a source noted the conversation was light on specifics and that there were no actual solutions proposed during the call. Elsewhere, high-beta currencies and USD/JPY traded indecisive but found some brief support in the aftermath of the Chinese data deluge.
 

COMMODITIES

Commodities were indecisive overnight as participants digested the slew of Chinese data releases with WTI crude futures marginally supported to briefly above USD 54.00/bbl on relief as Chinese GDP printed inline with expectations, although upside was limited as the data also showed the slowest annual growth in 28 years. Elsewhere, gold traded flat and mirrored the similar lacklustre price action in the greenback amid the US holiday, while copper was slightly softer but held on to support around USD 2.70/lb.

Baker Hughes Rig Count (18/Jan): oil rigs down 21 at 852, nat gas down 4 at 198, total down 25 at 1050 (prev. 1075). (Newswires)

GEOPOLITICS

White House said US President Trump is planning a second summit with North Korea at the end of February, while it added that the US continues to make progress with North Korea and that sanctions are to remain. In related news, US State Department said Secretary of State Pompeo and Special Representative Biegun "had a good discussion" with the North Korean Envoy on efforts for progress on commitments made at the Singapore summit. (Newswires)

Syrian air defences reportedly shot down several hostile targets according to SANA, while the Israel Military later confirmed it was conducting strikes on Iranian Qud Forces targets in Syria and warned Syria not to harm Israeli territory or forces. (Newswires)

US

Investors moved away from treasuries on Friday as sentiment improved on hopes that US and China are making progress in talks. Solid manufacturing output also placed downward pressure on the complex. Most of the action was concentrated in the front end of the curve where yields were higher by c.5 bps at settlement. The yield curve saw some modest bear flattening heading into the long weekend as US markets will remain closed on Monday. US T-note futures (H9) settled 11 ticks lower at 121-05+.

US President Trump reportedly made an offer on the shut down over the weekend that would provide “Dreamers” and Temporary Protection Status visa holders protection to stay in US for another 3 years in exchange for funding the Border Wall, although this was said to have been rejected by the Democrats. (Newswires)

US Special Counsel Mueller’s office said BuzzFeed report that alleged document showed President Trump told former lawyer Cohen to lie, are not accurate. (Newswires)

Fed's Daly (Non-Voter, Dovish) is reportedly leaning towards pausing on interest rate hikes for a while. (Washington Post)

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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