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[PODCAST] EU Open Rundown 23rd January 2019

  • Asian equity markets were choppy as the region attempted to shrug off the headwinds from Wall St
  • US reportedly turned down an offer by China for 2 vice-ministers to travel to the US for preparatory trade talks; later denied by Kudlow
  • UK PM May is reportedly set to force ministers to keep a no deal Brexit on the table despite threats of ministerial resignations
  • Looking ahead, highlights include Canadian Retail Sales, EZ Consumer Confidence (flash)
  • Earnings: Abbott Laboratories, Kimberly-Clark Corp, Procter & Gamble, Progressive, Texas Instruments, Ford Motor, Raytheon, Comcast Corp, TE Connectivity

ASIA-PAC

Asian equity markets were choppy as the region attempted to shrug off the headwinds from Wall St, where stocks declined as the risk averse tone and lingering global growth concerns caught up with the major US indices on return from their extended weekend. Furthermore, it was also reported that the US turned down China’s offer for preparatory trade talks, which was later denied by NEC Director Kudlow. Nonetheless, ASX 200 (-0.3%) was subdued with underperformance in the energy sector after crude prices slipped by over 2% and Nikkei 225 (-0.1%) was dampened by disappointing trade data including the sharpest drop in exports since October 2016. However, sentiment in Tokyo was later propped up by a weaker currency, while Japan Display shares surged on reports it is in investment discussions with TPK and Silk Road Fund. Hang Seng (-0.1%) and Shanghai Comp. (-0.2%) conformed to the indecisiveness after mixed actions by the PBoC as it conducted a Targeted Medium-term Lending Facility for the first time ever which was at a lower rate than MLF rates and is aimed at spurring lending to small firms, but conversely refrained from reverse repo operations which resulted to a daily drain of CNY 350bln. Finally, 10yr JGBs traded sideways throughout most the session amid the indecisive risk tone in stocks and with participants side-lined prior to the BoJ policy announcement, but then saw  choppy trade in reflection of sentiment in the region and following an unsurprising BoJ decision to keep policy setting unchanged.

PBoC skipped reverse repo operations for a net daily drain of CNY 350bln, although it conducted a CNY 257.5bln 1yr Targeted Medium-term Lending Facility with rate at 3.15% in its first use of TMLF vs 3.30% rate at last MLF. (Newswires)
PBoC set CNY mid-point at 6.7969 (Prev. 6.7854)

US reportedly turned down an offer by China for 2 vice-ministers to travel to the US for preparatory trade talks because of a lack of progress on two important issues which reports suggested highlighted the difficulties of reaching a deal by March 1st deadline. However, NEC Director Kudlow later denied the report and noted the big meeting will be at the end of January with the Chinese Vice-Premier, while Kudlow also stated that enforcement of deadlines and timetable is crucial to the success of China talks. (FT/Newswires)

BoJ kept monetary policy settings unchanged as expected with NIRP held at -0.1% and 10yr JGB yield target at around 0%. Furthermore, the BoJ extended its lending scheme for 1 year and stated that economic momentum for reaching price goal is sustained but lacking strength, while it added that risks to price and economic outlooks are skewed to the downside. BoJ reduced Real GDP forecasts for FY18 but raised Real GDP forecasts for FY19 and FY20, while it reduced Core CPI forecasts on all years through to FY20. (Newswires)


Japanese Trade Balance (JPY)(Dec) -55.3B vs. Exp. -29.5B (Prev. -737.7B). (Newswires)
Japanese Exports (Dec) Y/Y -3.8% vs. Exp. -1.9% (Prev. 0.1%)

Japanese Imports (Dec) Y/Y 1.9% vs. Exp. 3.7% (Prev. 12.5%)


UK/EU

UK PM May is reportedly set to force ministers to keep a no deal Brexit on the table despite threats of ministerial resignations. (Huffington Post) This has been seen as a defence mechanism against the Labour Party’s potential support for the Cooper-Boles Brexit delay plan. (Newswires)

UK Tory party Brexiteers concerned about prospects of a delay, have suggested they could be won over if UK PM May can get a serious concession from the EU on backstop. (Guardian)

Irish Foreign Minister Coveney said it is prudent to now intensify planning for a no deal scenario. (Newswires) Irish PM Varadkar said the UK and Ireland would have to negotiate a bilateral agreement on the full alignment of customs to avoid a hard border in the case of a no-deal Brexit. (The Guardian)

UK Trade Department said Trade Minister Fox is to discuss replicating EU trade agreement with ministers from around the world at Davos. (Newswires)

FX

In FX markets, the DXY was flat with price action contained to within this week’s tight range, while EUR/USD and GBP/USD also consolidated overnight with the latter at the 1.2900 handle as it held on to the recent employment and wage inspired gains. NZD/USD was underpinned by firmer than expected CPI data which also lifted AUD/USD in sympathy, although the indecisive risk tone has capped the upside in the antipodeans due to their high-beta characteristics. Elsewhere, JPY gradually weakened in the aftermath of the discouraging trade data, while some mild pressure was also seen after the BoJ policy announcement in which the central bank reduced CPI forecasts across the board and noted that risks to its outlook were skewed to the downside. 

New Zealand CPI (Q4) Q/Q 0.1% vs. Exp. 0.0% (Prev. 0.9%). (Newswires)

New Zealand CPI (Q4) Y/Y 1.9% vs. Exp. 1.8% (Prev. 1.9%)

New Zealand RBNZ Sectoral Factor Inflation Gauge (Q4) 1.7% (Prev. 1.7%)


COMMODITIES

Commodities were mixed in which oil prices found mild reprieve from the prior day’s over 2% declines which were attributed to the risk averse tone and after Saudi Energy Minister Al Falih cancelled his trip to Davos where he was due to hold talks on the recent OPEC+ production cuts with the Russian Energy Minister Novak who also cancelled his visit to the World Economic Forum. Nonetheless, WTI crude futures have marginally recovered overnight and just about reclaimed the USD 53.00/bbl level, while focus for the complex shifts to the API inventory report later today which is a day later than usual due to the recent US holiday. Elsewhere, gold traded sideways amid a flat greenback and indecisive risk tone, while copper continued to nurse the prior day’s losses.

US

Treasuries were bid on Tuesday as risk-sentiment deteriorated amid renewed fear of a global slowdown following weak China growth GDP figures as well as growth downgrades by the IMF for 2019 and 2020. In afternoon trade the belly and long-end of the curve hit fresh session highs after the FT announced the US turned down a China offer of preparatory trade talks over lack of progress. Finally, Existing Home Sales were the lowest since 2015 and thus contributed to upside in the complex. The curve saw some modest bull-flattening with short-dated yields lower by c.3bps and long-dated yields lower by c.5bps at settlement. Spreads were mixed heading into the close. US T-note futures (H9) settled 13 ticks higher at 121-18+.

US President Trump is scheduled to give State of the Union Address from the Capitol on January 29th as scheduled, while it was separately reported that US President Trump is said to have begun interviewing new candidates for the open Fed board seat. (Fox/Newswires)

There were reports that the US Senate will vote on two separate bills on Thursday that could end the government shutdown, including one that is supported by US President Trump which reportedly includes USD 5.7bln for the border wall and is said to be a compromise between Senate Majority Leader McConnell and Senate Minority Leader Schumer according to reports in NYT. However, McConnell's office later stated that the NYT report of a shutdown deal is inaccurate and that Trump’s stance on shutdown fight is unchanged, while reports also noted that neither parties think there are enough votes to pass the bill. (NYT/Newswires)

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Well, this week has had us all bamboozled! Team RAN tapping out for the weekend to reload, ECB quite possibly abo… https://t.co/n0fsbPLwFp