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[PODCAST] EU Open Rundown 6th February 2019

  • Asian equity markets traded tentatively with most bourses in the region closed for holidays
  • UK ministers are reportedly considering a plan that would delay Brexit to May 24th
  • US President Trump delivered the State of the Union Address which focused on the economy, the border wall and trade talks
  • Looking ahead, highlights include US International Trade, Retail Sales, EIA Inventories, Brazilian Rate Decision, Fed Chair Powell, Fed’s Quarles and BoC’s Lane, US 10yr Note Auction
  • EARNINGS: AIG, Boston Scientific, Goodyear, Humana, Eli Lily, Regeneron, Prudential Financial, Chipotle, General Motors, Carlsberg, BNP Paribas, Vinci, Dassault Systems, Daimler, ING Groep, GlaxoSmithKline

ASIA-PAC

Asian equity markets traded quietly with most bourses in the region closed for holidays, although the few that opened were kept afloat after the gains of their counterparts in US where earnings remained in focus and the S&P 500 notched a 5th consecutive win streak. ASX 200 (+0.3%) was led higher by tech as it mirrored the sector’s outperformance stateside, although the index was initially pressured and briefly retreated below the 6000 level amid weakness in financials due to profit taking and after its top component CBA posted a decline in H1 net. Nikkei 225 (+0.2%) also benefitted from the tailwinds and with focus centred on earnings releases, which has seen the list of best and worst performing stocks in Japan dominated by recent corporate updates. Finally, price action in 10yr JGBs was contained as the lack of demand due to the positive risk tone in Japan, was counterbalanced by the BoJ’s presence in the market.

US President Trump is to meet with Chinese President Xi later this month. In related news, US Trade Representative Lighthizer and Treasury Secretary Mnuchin will visit Beijing early next week for trade discussions, while reports also noted that China is said to have agreed to negotiate on items which were previously off-limits according to a senior administration official. (Newswires/WSJ)


UK/EU

UK ministers are reportedly considering a plan that would delay Brexit to May 24th. There were separate reports that the Department for exiting the EU are looking at a plan that would use technology to keep the Irish border open; to be tested in March. (Telegraph/Sun)

UK PM May is said to have suggested to business leaders during a meeting yesterday that she was seeking a legally binding limit to the backstop rather than negotiating a new one, which is not what Brexiteers expect of her according to ITV's political correspondent. (Twitter)

Cabinet ministers told PM May it's time to go public with the reality of no deal in which Work and Pensions Minister Rudd said the government needs to be 'straight with the British people' and lift lid on implications for national security, according to Telegraph's Swinford. (Twitter)

CBI has warned that the UK risks "crashing out" of 40 trade agreements across five continents in the event of a no-deal Brexit. (BBC)

Ireland is reportedly in dialogue with the EU over emergency funds to offset the damage caused to the country in a no-deal Brexit scenario. (The Guardian)

ECB officials see no urgent need to offer fresh LTROs and may avoid doing so at their March meeting, according to sources. (Newswires)


FX

In FX markets, price action was mostly tentative amid the widespread closures and uneventful State of the Union Address, which kept the DXY relatively unchanged at the recently reclaimed 96.00 level, while its major counterparts languished with EUR/USD eyeing 1.1400 to the downside. GBP/USD was also subdued below the 1.3000 handle following weaker than expected Services PMI data and lack of Brexit progress, with PM May said to be seeking a legally binding limit to the backstop which is against what Brexiteers were hoping for. Elsewhere, antipodeans underperformed as AUD/USD slumped on comments from RBA Governor Lowe that the interest rate outlook is more evenly balanced which is in contrast with the central bank’s previously held view of the next move likely to be up. This weakened NZD/USD in sympathy and pressured the relevant JPY-crosses, in which USD/JPY followed suit shortly after.

RBA Governor Lowe said interest rate outlook is more evenly balanced and that lower rates may be appropriate if unemployment increases and inflation stalls, while he added that there are scenarios when next move in rates is up and scenarios when next move is down. Furthermore, Governor Lowe commented that the board does not view strong case for near term move and that the central bank is in position to maintain current policy while assessing shifts in global economy and household spending. (Newswires)
 

COMMODITIES

Commodities were relatively unchanged amid a similar muted tone seen across most asset classes which kept WTI crude futures sideways below the USD 54.00/bbl, while the latest API report also failed to spur any significant reaction as inventories didn’t deviate much from expectations. Elsewhere, gold was also kept rangebound amid an uneventful greenback and copper marginally extended on the risk-driven gains.

US API Weekly Crude Stocks (1 Feb) 2.514mln vs. Exp. 2.200mln (prev. +2.098mln). (Newswires)


Vale declared force majeure in iron ore sale contracts. (Newswires)
 

GEOPOLITICS

US President Trump plans to meet with North Korea leader Kim in Vietnam on February 27th-28th. (Newswires)
 

US

Treasuries were marginally higher on Tuesday, in quiet markets conditions, with the complex catching a bid at the US cash open and continuing to drift higher for the rest of the session following a disappointing ISM Non-Mfg reading. Yields were lower by c.2bps across the curve at settlement. Spreads were mixed with some modest steepening from the belly to the long end and flatter elsewhere. The US Treasury sold USD 38bln in 3yr notes stopping through by 0.3bps at a high yield of 2.502%, the lowest since April. Overall a decent auction with the bid-to-cover indicating that demand was close to recent averages. Also, the breakdown showed foreign buyers taking most of the supply, directs were awarded the biggest share since December 2015 and dealers were left with the smallest portion since January. * US T-note futures (H9) settled 5 ticks higher at 121-28.

US President Trump delivered the State of the Union Address in which he said the state of the union is strong and unemployment has reached its lowest level in half a century. President Trump also noted that he sent a proposal to Congress that includes plans for a physical barrier or wall on the southern border and said that he will get the border wall built, while he also commented that a new trade agreement with China must include end to unfair trade practices, reduce chronic trade deficit and protect American jobs. (Newswires)

Fed's Kaplan (non-voter, dove) said Fed should be patient and do nothing on rates until there is greater clarity on economic outlook and financial condition, while he added it is highly appropriate to be open to adjusting balance sheet plan. (Newswires)

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