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[PODCAST] EU Open Rundown 24th January 2019

  • Most Asian bourses eventually followed suit to the gains stateside where the DJIA led the majors higher
  • US President Trump said talks are going well with China but added that tariffs could increase if no deal is reached
  • Nearly 20 UK ministers have reportedly been conducting a secret meeting in Parliament to discuss plans to avert a no-deal Brexit
  • Looking ahead, highlights include French, German, EZ and US Flash PMI's, Norges & ECB Rate Decisions, US Jobless Claims, BoE's Carney, Riksbank's Skingsley
  • EARNINGS: American Electric Power Co, Bristol-Myers Squibb, Freeport-McMoRan, Intel, Norfolk Southern Co, Southwest Airlines, Starbucks, Union Pacific, Western Digital, Discover Financial Services, American Airlines

ASIA-PAC

Most Asian bourses eventually followed suit to the gains stateside where the DJIA led the majors higher on better than expected earnings from several of its components, although trade was far from smooth sailing in the Asia-Pac region and upside in the other US majors were also capped amid ongoing shutdown concerns and trade uncertainty. ASX 200 (+0.4%) and Nikkei 225 (-0.1%) were mixed throughout the majority of the session as corporate updates dictated price action and in which energy names kept Australia afloat after Santos reported an increase in Q4 output and revenue, while Japanese exporters lacked unison amid an indecisive currency. Hang Seng (+0.3%) and Shanghai Comp (+0.4%) were initially lacklustre amid ongoing trade uncertainty and following another substantial daily liquidity drain by the PBoC of CNY 250bln, but then gradually improved as money market rates declined ahead of the 2nd phase of the PBoC’s 100bps RRR taking effect tomorrow. Finally, 10yr JGBs were flat with price moves contained by the indecision across riskier assets throughout the sessions and amid mixed results at this month’s 20yr JGB auction.

PBoC skipped open market operations for a net daily drain of CNY 250bln. (Newswires)
PBoC set CNY mid-point at 6.7802 (Prev. 6.7969)

US President Trump said talks are going well with China but added that tariffs could increase if no deal is reached. In addition, there comments from Director of the Center for Chinese Strategy at the Hudson Institute Michael Pillsbury, who is US President Trump's outside China advisor and a noted China hawk, that there will not be a breakthrough in trade talks soon. (Newswires)

China's Securities Regulatory Commission Official Fang thinks there will be a deal in US-China trade talks and suggested that US President Trump measures his successes by the rise and fall in US stocks. (Newswires)

BoK kept 7-Day Repo Rate unchanged at 1.75% as expected via unanimous decision. BoK stated that South Korean growth is to hover below prior projections and that government spending is to hold up growth, while it added employment condition is sluggish and that inflation is to fluctuate at 1% for some time. (Newswires)

UK/EU

BoE's Haldane said BoE is likely to increase rates if economy keeps growing but will be flexible in the event of a downturn. (Newswires)

UK opposition Labour Party leader Corbyn is said to likely back bill to force government to request extension of Article 50, while there were also reports that nearly 20 UK ministers have reportedly been conducting a secret meeting in Parliament to discuss plans to avert a no-deal Brexit. (Telegraph)

Brussels is reportedly to sue the UK regarding tax breaks for commodities traders. (FT)
 

FX

In FX markets, the greenback traded lacklustre and is in proximity to test a breakdown of the 96.00 level amid concerns of the shutdown effects on the economy which White House adviser Hassett suggested could result to 0% growth in Q1, while its major counterparts retained the majority of recent gains with GBP/USD firmly above 1.3000 amid rising hopes of a potential extension to Article 50. Elsewhere, USD/JPY and JPY crosses were indecisive as they reflected the similar overnight risk tone, while AUD/USD whipsawed with initial support from better than expected Employment Change and a surprise decline in the Unemployment Rate. However, gains were then pared as the growth in employment was solely fuelled by part-time jobs and coincided with a decline in the Participation Rate, while reports of NAB hiking mortgage rates due to higher funding costs later wiped out gains for AUD as some suggested this could restrict RBA from increasing rates especially considering the backdrop of declining house prices.

Australian Employment Change (Dec) 21.6K vs. Exp. 16.5K (Prev. 37.0K). (Newswires)
Australian Full Time Employment (Dec) -3.0k (Prev. -6.4k)
Australian Unemployment Rate (Dec) 5.0% vs. Exp. 5.1% (Prev. 5.1%)

Australian Participation Rate (Dec) 65.6% vs. Exp. 65.7% (Prev. 65.7%)


COMMODITIES

Commodities were mostly sideways amid the choppy risk sentiment overnight with WTI crude futures mildly pressured following an unexpected build in headline API crude stockpiles, while Brent crude failed to hold above the USD 61.00/bbl level. Elsewhere, an uneventful greenback kept gold prices within this week’s tight range and copper also flatlined due to the flimsy risk tone. 

US API Weekly Crude Stocks (18 Jan) +6.55mln vs. Exp. -0.4mln (prev. -0.560mln). (Newswires)

China is reportedly building up gold reserves in shift away from the dollar. (Nikkei)

GEOPOLITICS

US President Trump said the US is recognising Juan Guaido as Venezuela's interim President after the opposition leader declared himself the interim head of state, while President Trump said US could impose Venezuelan oil sanctions this week if the political situation worsens and that all options are on the table for Venezuela. Furthermore, there were later comments from the Venezuela Defense Minister that the armed forces disavow the self-proclaimed President. (Newswires)

North Korea leader Kim said he will advance 'step by step' toward goal agreed with US, while there were separate reports that US and North Korea may agree to complete denuclearisation by 2020. (Yonhap/Dong-A)
 

US

Although volumes were better, it was another range-bound session for the Treasury complex. Overnight, news US/China talks were making progress helped spur selling, and when the US day got underway, some decent corporate earnings numbers offered support to risk assets, to the detriment of the T-Note. There was also some inspiration from the UK, where Gilts were sold on the hope that hard Brexit can be avoided. However, after the US cash equity open, stocks struggled to build on the optimism, and slid, which gave support to the T-Note. Major curve spreads were mixed, and generally +/- 1bps at settlement. US T-note futures (H9) settled 6 ticks lower at 121-12+.

US House Speaker Pelosi said she would not pass a resolution allowing President Trump to deliver the State of the Union address from the House chamber until the government reopens, while there were also comments from US President Trump that he will do something "alternative" to the State of the Union address. However, Trump then later said he will deliver State of the Union Address when shutdown is over. (Newswires)

US President Trump is reportedly considering executive actions separate from emergency declaration to fund border wall according to CNN, while there were reports in Washington Post that the White House is said to be making preparations in case the shutdown lasts into March. (CNN/Washington Post)

US House Tax Committee cancelled a planned Thursday hearing regarding shutdown impact on IRS and tax season. (Newswires)

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Morning all! - Asian equity markets partially resumed the momentum from last Friday’s record-setting performance on Wall St.