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[PODCAST] EU Open Rundown 25th January 2019

  • An upbeat tone was observed across Asia-Pac majors heading into the weekend, which followed the mostly positive performance of their global peers
  • DUP party is said to have privately agreed they will back PM May's Brexit deal when she toughens it up in terms of the backstop being specifically time limited
  • US Senate blocked 2 competing proposals to end the government shutdown including one backed by US President Trump; as expected
  • Looking ahead, highlights include German Ifo, US Baker Hughes and ECB's Coeure
  • Earnings: Air Products & Chemicals, Colgate-Palmolive, D.R. Horton, Royal Caribbean Cruises

ASIA-PAC

A jubilant tone was observed across the Asia-Pac majors heading into the weekend, which followed the mostly positive performance of their global peers amid firmer US PMI data and a dovish tone from the ECB. ASX 200 (+0.7%) and Nikkei 225 (+1.1%) were buoyed by broad gains across the sectors and with Japanese exporters supported by favourable currency flows, although not all was rosy as healthcare lagged in Australia and steep losses in AMP Capital. Elsewhere, Hang Seng (+1.5%) and Shanghai Comp. (+0.9%) advanced as the 2nd phase of the PBoC’s RRR cut took effect and with outperformance seen in tech names including Tencent after regulators approved 2 of the Co.’s mobile phone games. However, gains in the mainland were initially capped after the PBoC‘s continued inaction resulted to a net weekly drain of CNY 770bln, in which it cited high liquidity levels due to the RRR cut. Finally, 10yr JGBs remained close to this week’s best levels after the prior day’s extended gains and with the BoJ also present in the market for government bonds with 5yr-10yr maturities, although prices have slightly eased with demand for bonds subdued by the risk appetite.

PBoC skipped open market operations for a weekly net drain of CNY 770bln vs. last week's net injection of CNY 1.16tln, while it commented that the liquidity level in the banking system is relatively high following the 2nd phase of the RRR cut. (Newswires)
PBoC set CNY mid-point at 6.7941 (Prev. 6.7802)

Japanese Tokyo CPI (Jan) Y/Y 0.4% vs. Exp. 0.2% (Prev. 0.3%). (Newswires)

Japanese Tokyo CPI Ex. Fresh Food (Jan) Y/Y 1.1% vs. Exp. 0.9% (Prev. 0.9%)
Japanese Tokyo CPI Ex. Fresh Food & Energy (Jan) Y/Y 0.7% vs. Exp. 0.6% (Prev. 0.6%)


UK/EU

DUP party is said to have privately agreed they will back PM May's Brexit deal when she toughens it up in terms of the backstop being specifically time limited. (The Sun) Furthermore, Sun Political Editor Dunn tweeted that former UK Foreign Minister Boris Johnson is close to supporting PM May's deal with a backstop time limit following discussions with the chief whip on Wednesday. (Twitter)

Some EU countries are reportedly pushing for the EU to provide a more generous stance to the UK in the event of a no deal, with some countries wanting UK hauliers to be given the right to operate within EU and some also want British airliners to be able to offer connecting flights within EU. (BBC)

The Queen has urged the country to “seek out the common ground” in a sign of royal nervousness over the divisions caused by Brexit. (Times)

UK PM May is facing an open cabinet revolt over the prospect of a no-deal Brexit after two ministers said yesterday they could step down rather than let Britain crash out of the EU. (Times)

UK Treasury reportedly ruled out online tax to support high street shops as it would breach EU rules. (The Times)

Irish central bank said a disorderly Brexit could reduce the Irish economic growth rate by as much as 4ppts in first full year and could weaken growth this year to 1.5%. (Newswires)

German government cut 2019 GDP growth forecast to 1.0% (Prev. 1.8%). (Handelsblatt) Note, the European Commission currently hold a 1.8% forecast for 2019 German GDP growth.


FX

In FX markets, the DXY slightly pulled-back to below the 96.50 level, but still held on to the majority of the prior day’s gains as EUR/USD languished in the wake of soft EU PMI data and dovish ECB comments. GBP/USD was underpinned by reports the DUP are said to have privately agreed they will back PM May’s deal with a backstop as long as its specifically time limited, which helped the pair reclaim the 1.3100 handle as it sets its sights for its biggest weekly gain in more than a year. Elsewhere, the positive risk sentiment coupled with CNY strength provided some respite from the recent selling across antipodeans, while USD/JPY and JPY-crosses also recovered lost ground.


COMMODITIES

Commodities traded higher as the heightened risk appetite provided a catalyst for overnight trade in the complex which saw WTI crude and Brent crude futures gains over 1% each towards the USD 54.00/bbl and USD 62.00/bbl level respectively. Elsewhere, the risk sentiment also underpinned copper throughout the session, while gold was only marginally higher as support from the mild softness in the greenback was counterbalanced by a lack of safe haven demand.

GEOPOLITICS

US State Department ordered non-emergency US government employees to leave Venezuela for security reasons, while there were also comments from US National Security Adviser Bolton that the Trump administration is focused on cutting off Venezuela's Maduro from revenue sources and that he doesn't think Maduro has backing of the military. (Newswires)
 

US

Renewed demand for the safe haven sent treasuries higher on Thursday amid a mix of factors including a dovish ECB, Ross cautious comments on US and China trade talks as well as Germany’s downgrade to its 2019 growth forecasts. Solid PMI data took the complex off highs but were not enough for a change of direction. Most of the action was concentrated in the belly of the curve where yields were lower by c.5bps at settlement. Spreads were mixed close to the unchanged mark. US T-note futures (H9) settled 11+ ticks higher at 121-24.

US Senate blocked 2 competing proposals to end the government shutdown including one backed by US President Trump as expected, while reports then noted that a bipartisan plan to open government for 3 weeks will be offered. (Newswires)

US President Trump said he wants a prorated down payment on the wall in any short-term government funding bill and that if Senate Majority Leader McConnell and Minority Leader Schumer can reach an agreement on government funding, he would support it. However, US House Speaker Pelosi said the idea of including a down payment on wall is a non-starter and Democrats were said to not support any kind of border wall funds which was made clear to McConnell, while Pelosi was later reported to postpone a press conference concerning counter offer to President Trump. (Newswires)

US Commerce Secretary Ross said US President Trump is doing everything he can to reach a compromise on the border wall and commented that both US and China want to make a trade deal, while White House Economic Advisor Kudlow said he thinks President Trump is rather optimistic on US-China trade talks and that the jobs report for January will be up. (Newswires)

Senate Intelligence Committee subpoenaed Former Trump Lawyer Cohen to testify in mid-February. (MSNBC)

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