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[PODCAST] EU Open Rundown 29th January 2019

  • Asian equity markets traded lower for most the session as the region followed suit to the negativity on Wall St
  • The DoJ’s announcement of charges against Huawei has raised concerns about the potential impact on US-China relations
  • UK PM May is said to have urged Tory MPs to back the Brady amendment which would replace the backstop with alternative arrangements
  • Looking ahead, highlights include US Consumer Confidence, UK Parliamentary vote on Brexit 'Plan B', BoE's Haldane Speaking, German 2020 Schatz auction, US 2yr FRN & 7yr Note Auction
  • EARNINGS: Advanced Micro Devices, Amgen, Apple, Verizon Communications, Biogen, Lockheed Martin, 3M, Pfizer, Allergan, eBay, LVMH, SAP, Philips

ASIA-PAC

Asian equity markets traded lower for most the session as the region followed suit to the negativity on Wall St where sentiment was dampened by corporate updates in which industrial bellwether Caterpillar missed on earnings and Nvidia reduced its guidance with both citing a slowdown in China, while the DoJ announcement of charges against Huawei raised concerns regarding the potential impact this could have on US-China relations. ASX 200 (-0.5%) was negative on return from the extended weekend with the index dragged lower by underperformance in healthcare as Resmed shares tumbled on poor sales figures and with energy names pressured by the recent 3% drop in oil prices, while price action in the Nikkei 225 (Unch.) was at the whim of the JPY-risk dynamic. Elsewhere, Hang Seng (-0.2%) and Shanghai Comp. (-0.1%) weakened after the US announced charges against Huawei including intellectual property theft, as well as bank and wire fraud, although markets gradually rebounded off lows as focus shifted to the upcoming trade discussions. Finally, 10yr JGBs were flat as prices failed to benefit from the weakness across stocks, while a mixed 40yr JGB auction also failed to provide a catalyst for direction. 

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.7356 (Prev. 6.7472)

US Department of Justice is formally seeking the extradition of Huawei's CFO to the US and announced a 13-count indictment including bank and wire fraud charges against Huawei, while there was an additional 10-count indictment against the Co. for conspiring to steal intellectual property from T-Mobile. (Newswires)

China Foreign Ministry expressed serious concern regarding US charges on Huawei and its CFO, whilst strongly urging the US to halt unreasonable suppression of Chinese companies and asked US to withdraw arrest order for Huawei's CFO. (Newswires)

China Minister of Industry and Information Technology Miao said China will continue to lower taxes and fees for SMEs, while China will also significantly reduce the investment negative list. (Newswires)

China is expected to oppose US demands for structural changes in the next round of trade discussions and sides are said to remain divided, although it was also reported that China is planning to offer a large increase in US farm and energy purchases, as well as modest industrial policy reforms. (WSJ)

Chinese Vice Premier Liu He arrived in Washingotn DC ahead of January 30th-31st trade discussions, while the Chinese delegation includes PBoC Govenor Yi Gang, China’s Vice Finance Minister and the NDRC Vice Chairman among others. (Newswires) US Treasury Secretary Mnuchin expects to make significant progress at trade talks with the Chinese delegation this week and noted enforcement will be a top priority for trade talks. (Newswires)


UK/EU

Sources said PM May told a meeting of Tory MPs that the motion for the Meaningful Vote will be laid on Feb 13th and there will then be two days of debate before the vote which could occur on the evening of Feb 14th. In addition, there were separate reports that UK PM May is said to promise MPs another chance to vote against a no-deal. (Newswires/Telegraph/Twitter) A minimum of 270 UK MPs have publicly declared their opposition to UK exiting the EU without a deal, while over 60 more signaled they could defy UK PM May over the issue ahead of today's vote on the Brexit "Plan B". (FT)

UK PM May was said to urge Tory MPs to back the Brady amendment which would replace the backstop with alternative arrangements, while an MP said that the government will whip its MPs to vote for the Brady amendment. In related news, there had been earlier comments from Jacob Rees-Mogg that the ERG will not support the Brady amendment, although Brexiters in and around the ERG reportedly told ITV's political editor they could vote for the PM’s Brexit deal if she tables an amendment similar but more tightly worded than Brady’s which pledges to ask the EU to reopen the WA and dump the backstop. (Newswires/Twitter)

Telegraph's Deputy Political Editor tweeted that those behind the Cooper amendment which requires government to extend Article 50 in the event a deal can't be reached, said it is going to be 'nail-bitingly close'. (Twitter)

UK Home Office said if Britain leaves without an agreement the government will seek to end free movement as soon as possible. (Newswires)


FX

In FX markets, most major currencies were uneventful amid a sparse calendar and tentativeness heading into this week’s key risk events, with the DXY virtually unchanged below the 96.00 level. The greenback’s major counterparts also struggled for direction with EUR/USD flat at the 1.1400 handle and with GBP/USD subdued ahead of today’s Parliamentary vote on PM May’s Brexit ‘Plan B’. Elsewhere, antipodeans were initially lacklustre with AUD/USD momentarily pressured after NAB Business Conditions declined to its lowest since 2015, while USD/JPY was stuck near the prior day’s lows as the predominantly risk-averse tone clouded over the pair.

Australian NAB Business Conditions Dec 2 (Prev. 11.0). (Newswires)
Australian NAB Business Confidence Dec 3 (Prev. 3.0)


COMMODITIES

Commodities were mixed overnight in which WTI crude futures partially nursed losses overnight to trade back above the USD 52.00/bbl, which provided some reprieve from the prior day’s 3% drop that had been attributed to the subdued risk sentiment and the re-opening of Libyan ports. Elsewhere, gold mirrored the uneventful price action in the greenback and plateaued just above USD 1300/oz, while copper traded sideways before finding mild support as stocks rebounded from lows.

US National Security Advisor confirmed the US is to impose sanctions on Venezuela's PDVSA and stated that USD 7bln in assets will be blocked. In related news, US Secretary of Treasury Mnuchin said the Treasury is to issue temporary licences to permit some transactions with PDVSA and said that US refineries can continue to operate using Venezuelan oil, while he added that oil supplies are sufficient to ensure no significant impact on US gas prices in short term. (Newswires)

Venezuela President Maduro said US is stealing CITGO and that they will begin legal action, while Venezuela also ordered PDVSA customers with tankers waiting to load US-bound crude, to prepay cargoes or they will not be delivered. (Newswires)

US government is considering the release of oil from US Strategic Petroleum Reserve in order to coincide with possible sanction imposed on Venezuela's exports. (Newswires)
 

US

Treasuries started the week marginally higher as stocks were sliding amid disappointing earnings from Caterpillar (CAT) and cut in Q4 guidance for Nvidia (NVDA). Yields were lower by c.1bps across the curve at settlement; the complex recovered some losses after the auctions albeit remaining in negative territory. The curve, which saw some modest flattening earlier in the day, steepened after the auctions on some long-end selling. The US sold USD 40bln in 2-year notes on Monday at the lowest yield since June 2018, stopping through by 0.6bps with a bid-to-cover ratio of 2.56x; primary dealers took the smallest share since January 2018 and indirect bidders took the largest since then. The US also sold USD 41bln of 5-year notes at the lowest yield since January 2018, stopping through by 0.6bps with a bid-to-cover of 2.41x. Overall a robust auction; primary dealers took the smallest share since last July, direct bidders took the largest share since July 2014, indirect bidders took the largest share since last August.
US T-note futures (H9) settled ticks 3 higher at 121-16.

US House Speaker Pelosi invited President Trump to give State of the Union Address on February 5th, which President Trump accepted. (Newswires)

White House Economic Advisor Kudlow said US GDP report will likely be released next week and that he still thinks US is still on 3% trend line GDP growth rate. (Newswires)

US acting Attorney General Whitaker said Special Counsel Mueller's investigation is near to being completed. (Newswires)

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Morning all! - Asian stocks were mixed as the region struggled for firm direction following yesterday’s rally and… https://t.co/Z4rnzsUd0k