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[PODCAST] EU Open Rundown 11th February 2019

  • Asian equity markets began the week mixed following the similar performance of their US peers on Friday and ahead of US-China trade talks
  • UK PM May has agreed to talks with Labour leader Corbyn regarding a soft Brexit according to The Telegraph; later reports suggest she has rejected this potential pivot
  • CHF saw volatility overnight amid a mini ‘flash-crash’ which saw the currency weaken by 1% which some attributed to stops being taken out amid thin liquidity
  • Looking ahead, highlights include Swiss CPI, UK GDP, Production & Trade, ECB’s de Guindos

ASIA-PAC

Asian equity markets began the week mixed following the similar performance of their US peers on Friday and with participants also cautious ahead of this week’s US-China trade discussions, while a stalemate regarding border wall funding also spurred fresh US government shutdown fears. ASX 200 (-0.2%) was negative with the index dragged by losses in the top-weighted financials sector and with focus on several corporate updates, while the absence of Japanese markets for National Founding Day has contributed to the uninspiring tone. Elsewhere, Hang Seng (+0.2%) and Shanghai Comp. (+0.9%) were initially choppy on China’s return from the week-long closure amid trade-related uncertainty and expectations of a drain in liquidity which is typically the case following the Lunar New Year holidays, although mainland stocks later found support in tandem with outperformance in Shenzhen.

PBoC skipped open market operations for a net daily drain of CNY 20bln, while there were separate reports that over CNY 1.0tln of PBoC lending operations will expire this week. (Newswires/China Securities Journal)
PBoC set CNY mid-point at 6.7495 (Prev. 6.7081)

China GDP is expected to slow to 6.3% for this year, while it was also suggested that Q1 GDP may slow to 6.0% which would be the weakest start to the year on record. (China Daily/FT)

US President Trump's advisers are said to have informally discussed holding a summit at Mar-a-Lago next month with Chinese President Xi as part of an attempt to end the trade dispute. Separately, there were reports on Friday that the China trade deadline of March 1st could move according to a senior administration official. (Axios/CNBC)

US Treasury Secretary Mnuchin and USTR Lighthizer to go to China for trade meetings on February 14-15 and deputy-level talks are to begin on February 11. In related news, there were reports that many of the concessions Beijing is offering appear to be rehashes of measures previously announced. (Newswires/Nikkei)


UK/EU

UK PM May has agreed to talks with Labour leader Corbyn regarding a soft Brexit according to The Telegraph, although it was separately reported that UK PM May rejected a pivot towards a Brexit customs union compromise. Nonetheless, should May engage in discussions with Corbyn on entering into a customs union, The Times reports that this could see the PM lose support from some members of her cabinet. (Telegraph/Newswires)

Irish PM Varadkar said on balance he believes a deal can be secured but is unsure if it can be done by the end of March or after an extension. (Newswires)

A leading thinktank, The Institute for Fiscal Studies, has revealed that UK Chancellor Hammond will need to find an extra GBP 5bln this year to meet his claims of ending austerity. (The Guardian)

UK and Switzerland have struck an agreement that will allow the two nations to trade without any additional tariffs after the UK leaves the EU. (Newswires) Elsewhere, Italy is forming emergency plans to safeguard financial stability and keep trade with the UK flowing even if there is a no-deal Brexit. (Telegraph)

Italy’s coalition government is reportedly in sharp disagreement over protecting the Bank of Italy’s independence after central bankers issued more pessimistic economic growth forecasts this year. (FT)

Fitch affirmed Greece at BB-, Outlook Stable. (Newswires)


FX

In FX markets, the DXY remained firm and in proximity to its YTD highs as its counterparts traded mixed with EUR/USD and GBP/USD at the bottom halves of the 1.1300 and 1.2900 handles respectively, while antipodeans outperformed but have much further to go to recover from the aftermath of the RBA’s recent dovish shift to its rate outlook and poor New Zealand jobs data. Elsewhere, price action in USD/JPY was initially contained by the lack of Japanese participants before a slight improvement in risk tone provided some mild support, while CHF began the day volatile in which an early mini flash-crash saw the currency weaken by 1% which some attributed to stops being taken out amid thin liquidity, although the move was later pared given the lack of news catalysts.



COMMODITIES

Commodities mostly weakened amid the cautious risk tone overnight which pressured WTI crude futures towards the USD 52.00/bbl level where it has found some support. Elsewhere, gold prices saw mild losses as the greenback held near last week’s best levels and copper failed to benefit from China’s return to the market as trade uncertainty and US shutdown concerns dampened broader market sentiment, while Dalian iron ore futures bucked the trend as they played catch up to global prices and hit limit up shortly after the open on Vale-related supply concerns.

Baker Hughes Rig Count (8/Feb): Total rigs +4 at 1059; oil rigs +7 at 854; gas rigs -3 at 195. (Newswires)


UBS said iron ore market faces deficit of 30mln tons due to Vale crisis. (Newswires)
 

GEOPOLITICS

US General said withdrawal of US forces from Syria is likely to begin in weeks dependent on conditions on the ground, while he added that US troop levels in Iraq are to remain steady. (Newswires)

UK Defence Minister said Britain should enhance military lethality post-Brexit and must show it will act when needed, while he added that Russia provocation must come at a cost. (Newswires)
 

US

Much of the movement in the T-Note was sideways on Friday, with a slight upward bias, inspired by the usual cocktail of lingering concerns over US/China trade, and global growth. A brief dip in the pre-market was attributed to dealers unloading auction long positions, while Bunds were providing some influence in early trade too. Profit-taking at the end of the European day saw some of the gains pared back to leave the T-Note 3 ticks higher at settlement. Major curve spreads were mixed, but generally +/- 1bps at settle. US T-note futures (H9) settled +3 ticks at 122-12.

US President Trump tweeted a comment that suggested he is on sound legal ground to declare a National Emergency, while he also noted that Border Committee Democrats are all of a sudden behaving irrationally. Furthermore, it was separately reported that bipartisan talks over the weekend regarding funding for the border wall is said to have reached a stalemate ahead of this week’s government shutdown deadline. (Twitter)

NEC Director Kudlow and Chief of Staff Mulvaney are said to be mulling departing from the Trump administration. (Vanity Fair)

Fed's Daly (non-voter) said US economy is slowing down and that in itself will help prevent a recession, while also noted financial conditions are tighter now than at the start of 2018. Furthermore, Daly commented that the Fed is discussing whether QE should be used only in emergencies or more readily and that patience is data-dependent not time-dependent. (Newswires)

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Fitch Maintains the UK on Rating Watch Negative https://t.co/QuZXLMFNoR