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[PODCAST] EU Open Rundown 4th February 2019

  • Asian equity markets began the week positively but with gains only marginal amid the mass closures in the region for the Lunar New Year
  • UK PM May could be planning for a general election in June, according to reports; later downplayed
  • The Tories’ fragile Brexit truce was dealt a blow yesterday after hardline Brexiteers ruled out two of May’s proposals for solving the Irish backstop issue
  • Looking ahead, highlights include EZ PPI, US Building Permits, Durable Goods & Factory Orders, New York ISM Business Conditions, Fed’s Mester, ECB’s Mersch
  • EARNINGS: Alphabet, Gilead Sciences, Emerson Electric, Sysco, RyanAir, Julius Baer

ASIA-PAC

Asian equity markets began the week positively but with gains only marginal amid the mass closures in the region for the Lunar New Year and following the indecisive performance on Wall St last Friday amid mixed employment data. ASX 200 (+0.5%) was led higher by energy names and with optimism also seen in the largest weighted financials sector despite the looming Banking Royal Commission final report on the industry which was released after the close and referred 24 misconduct to regulators but did not suggest criminal charges. Nikkei 225 (+0.4%) was underpinned by favourable currency moves and a slew of earnings, but with Sony and Honda among the few notable underperformers after Sony reduced its revenue outlook and Honda posted a 34% drop in 9-month net. Elsewhere, Hang Seng (Unch.) traded indecisive amid the absence of mainland participants all week and early closure in Hong Kong, while Chinese PMI data over the weekend was somewhat inconclusive in which Caixin Services PMI topped estimates but Caixin Composite PMI weakened from prior. Finally, 10yr JGBs were lower with demand subdued by the gains in riskier assets and as prices tracked the post-NFP declines in T-notes, although losses were contained by the BoJ presence in the market for a respectable JPY 1tln of JGBs.

Chinese Caixin Services PMI (Jan) 53.6 vs. Exp. 53.3 (Prev. 53.9). (Newswires)
Chinese Composite PMI (Jan) 50.9 (Prev. 52.2)

US President Trump commented on Saturday that he expects to reach a trade agreement with China soon, while there were also reports that President Trump may meet with Chinese President Xi in Da Nang, Vietnam at the end of February. In related news, China state-owned Cofco Group said it purchased an additional 1mln tons of US soybeans. (Newswires/SCMP)


UK/EU

UK PM May said she will seek a pragmatic solution regarding Brexit when she returns to Brussels and said she will be armed with a fresh mandate and new ideas. (Newswires) Additionally, UK PM May could be planning for a general election in June, according to reports; reports were later downplayed by Boris Johnson. (Sky News)

UK PM May has invoked the support of Jeremy Corbyn to insist the EU must offer concessions on her Brexit deal, as she states that she will "battle for Britain" when she travels to Brussels to re-open negotiations. (Telegraph)

UK Chancellor Hammond said UK and EU would agree for more time on Brexit if a deal is agreed to. In related news, sources also noted on Friday that there is zero chance of the backstop being reworded. (Newswires/ITV)

UK Business Secretary Clark reportedly urged PM May to rule out a no-deal Brexit and told PM May that Nissan’s decision to cancel production of a new model in its Sunderland factory was a warning sign of what could occur to the UK car industry in the event of failing to reach an agreement. (Newswires)

The Alternative Arrangements Working Group consisting of several UK Tory MPs will conduct its first meeting today to discuss alternative arrangements for the backstop, which will be chaired by Brexit Secretary Barclay. (BBC/FT) However, The Times reported that the Conservative Party’s fragile Brexit truce was close to collapse yesterday after hardline Brexiteers ruled out two of May’s proposals for solving the Irish backstop issue (unilateral withdrawal clause or end date) and insist that they want the backstop scrapped entirely. (Times) Other reports suggested that the truce is fracturing amid fears by Eurosceptics that May will sell them short. (Telegraph)

Rebel Labour MPs are threatening to step down and form their own party amid growing disaffection with Jeremy Corbyn as a new opinion poll puts the Tories seven points ahead. (Telegraph)

Scotland First Minister Sturgeon is to say Britain is nowhere close to being ready for Brexit and is to use speech in US to call again for a 2nd referendum. (The Times)

Bank of Italy Governor Visco said there are internal and external downside risks for Italy’s growth including interest rates on government bonds which are a significant risk. (Newswires)

Fitch affirmed Finland at AA+; Outlook Positive while it affirmed Czech Republic at AA-; Outlook Stable and affirmed Malta at A+; Outlook Stable. (Newswires)


FX

FX markets lacked firm direction overnight in which the DXY eked mild gains after last week’s mixed jobs data, while most major pairs consolidated alongside this week’s deluge of market closures with EUR/USD and GBP/USD little changed at the 1.14 and 1.30 handles respectively. Elsewhere, antipodeans were lacklustre with AUD/USD pressured after Building Approvals showed the largest contraction in more than 5 years, while USD/JPY marginally extended on Friday’s best levels and CNH weakened amid the absence of Chinese participants and decline in money market rates in which the 1-month CNH HIBOR dropped to the lowest level since 2016.

Australian Building Approvals (Dec) M/M -8.4% vs. Exp. 1.8% (Prev. -9.1%, Rev. -0.9%). (Newswires)
Australian Building Approvals (Dec) Y/Y -22.5% vs. Exp. -10.9% (Prev. -32.8%)


COMMODITIES

Commodities were uneventful overnight in which WTI drifted sideways but near the highs during last Friday’s US session where prices got a boost from trade hopes, strong NFP numbers and reports of the sharpest drop in OPEC output in 2 years. Elsewhere, gold pries were slightly lower as the greenback eked mild gains overnight, while copper was lacklustre amid similar price action across the complex and amid the absence of its largest buyer China.
 

Baker Hughes Rig Count (1/Feb) showed Total rigs -14 at 1055; oil rigs -15 at 847; gas rigs +1 at 198. (Newswires)
 

GEOPOLITICS

US President Trump said he wants a new nuclear treaty with Russia. In related news, Russian President Putin said the US breached the INF arms treaty and that Russian will also suspend the treaty, while he is said to agree with Defense Ministry proposal to begin development of a mid-range supersonic missile. (Newswires)

Turkey President Erdogan said Turkey and Syria have begun low level discussions. (Newswires)


US

Treasuries ended Friday’s session in negative territory -supported by a strong US labour market report which added 304k jobs to in January. Optimism continued also on the trade front fuelled by hopes that a deal will be put on paper by March 1st. Most of the action was concentrated in the front end and belly of the curve where yields were higher by c.7bps at settlement. Light profit taking emerged into the European session close but the complex extended weakness into the US afternoon trade. The curve was mixed; steeper at the front end and flatter at the long end. US T-note futures (H9) settled ticks -17 at 121-30.

US President Trump said he will be looking at declaring a national emergency over the wall and that an emergency would have a strong legal standing while may discuss a national emergency and wall on February 5th. (Newswires)

Excerpt released by the White House shows US President Trump is to tell congress at State of the Union Address about progress on China trade talks and is to communicate that Republicans and Democrats can break decades of political stalemate, while President Trump will also ask congress to pass his NAFTA replacement and to give him an infrastructure bill. (Newswires)

Fed’s Kashkari (non-voter, dove) said Chairman Powell is coming around the view that more rate hikes are not needed. (Newswires)

Fed's Kaplan (non-voter, dove) said he is not saying they are never going to raise rates again, while he added that that he has not changed his own view since December and that he believes Fed should keep rates on hold for months not weeks. Kaplan also commented that inflation pressures are very likely to be muted and the Fed has the luxury of patience over rates. (Newswires)

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