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[PODCAST] EU Open Rundown 15th February 2019

  • Asian equity markets traded mostly negative following the weakness of their counterparts in US
  • US Congress passed the government funding and border security bill, which President Trump is expected to sign but is also anticipated to declare a national emergency
  • US and China are reportedly scrambling to at least produce a memorandum of understanding by the end of today which could help pave the way for a Trump-Xi meeting
  • UK Government once again suffered defeat in the HoC with lawmakers also rejecting the Labour and Blackford amendments
  • Looking ahead, highlights include UK Retail Sales, US NY Fed Manufacturing & Uni of Michigan Sentiment, US Import/Export Prices, US Industrial Production & Manufacturing Output, ECB's Coeure, Fed's Bostic Speaking
  • EARNINGS: Deere, Moody's, PepsiCo, Allianz, EDF, RBS

ASIA-PAC

Asian equity markets traded mostly negative following the weakness of their counterparts in US, where sentiment was dampened by a surprise contraction in Retail Sales. Furthermore, participants were also wary due to events in Washington where Congress passed the government funding and border security bill, which President Trump is expected to sign but is also anticipated to declare a national emergency. ASX 200 (+0.1%) and Nikkei 225 (-1.2%) were lower from although the Australian benchmark later recovered led by strength in telecoms and energy, while losses in Japan were exacerbated by a firmer currency. Elsewhere, Hang Seng (-1.7%) and Shanghai Comp. (-0.9%) weakened after further PBoC inaction resulted to a liquidity drain of CNY 680bln for the week and as participants digested softer than expected CPI data, while ongoing trade talks further added to the cautious tone with US and China said to be far apart on reform demands. Finally, 10yr JGBs tracked the recent gains in T-notes as the risk averse tone spurred a flight to safety, although some of the gains were eventually pared following a softer 10yr inflation-indexed auction.

PBoC skipped open market operations and drains net CNY 680bln for the week. (Newswires)
PBoC set CNY mid-point at 6.7623 (Prev. 6.7744)

Chinese CPI (Jan) Y/Y 1.7% vs. Exp. 1.9% (Prev. 1.9%). (Newswires)
Chinese PPI (Jan) Y/Y 0.1% vs. Exp. 0.2% (Prev. 0.9%)

US and China are said to be far apart on reform demands and there have been discussions on removing the 10% tariffs, while China also is proposing parallel talks aimed at resolving Huawei CFO’s extradition case. (SCMP)

US and China are reportedly scrambling to at least produce a memorandum of understanding by the end of today which could help pave the way for a Trump-Xi meeting and the report had also noted little progress on core issues, according to sources. (FT)


UK/EU

UK Parliament rejected Labour amendment “A” which would have called for a full ‘meaningful vote’ by February 27th or the government would have to state that there is no longer a deal, while Parliament rejected the Blackford amendment “I” which would have extended Article 50 by at least 3 months. Furthermore, the UK government Brexit motion was also defeated which would have given parliamentary backing for PM May's plan to seek changes to her Brexit deal. (Newswires)

UK PM May's officials are reportedly preparing to compromise on their demands to re-write the Brexit agreement and tell the EU it doesn't want to renegotiate the agreement, according to a source. (Newswires)

UK PM May's office said that due to the Labour party voting against the government, they are making a no-deal Brexit more likely, while it added that the government will continue to seek legally binding changes to the Irish backstop with the EU. (Newswires)

Tory Brexiteer Jacob Rees-Mogg suggested the message is that there is a majority for the Malthouse compromise, but government needs to work with its backbenchers rather than against them, according to The Telegraph’s Political Editor. (Newswires)

Irish Foreign Minister Coveney said he does not believe no deal Brexit will happen. (Newswires)


FX

FX markets were mostly quiet with the DXY relatively stable after having recovered to back above the 97.00 level, while its counterparts traded subdued in which EUR/USD backed away from resistance around 1.3000 and with GBP/USD stuck around 1.2800 in the aftermath of another government defeat in parliament in which MPs rejected PM May’s motion. Elsewhere, USD/JPY and JPY-crosses were pressured as the risk averse tone spurred flows into the safe-haven JPY, while antipodeans were also softer due to their high-beta characteristics and after the miss on Chinese inflation data.


COMMODITIES

Commodities were mixed with trade in the complex mostly uneventful amid the frail appetite for risk. Nonetheless, WTI crude remained firm following the prior day’s recovery and briefly tested USD 55.00/bbl as Brent crude momentarily broke above the USD 65.00/bbl level for the first time this year. Elsewhere, gold was virtually unchanged amid USD tranquility and copper was subdued amid weakness across risk assets.

US is mulling further PDVSA sanctions as a next step against Venezuela's Maduro. (Newswires)

Saudi Aramco halted production from its heavy crude field in Safaniyah this week following a power cable accident and the stoppage to the field, which is the world’s largest offshore field, could last until March. (Energy Intelligence)
 

US

Treasuries traded higher on Thursday as US growth concerns were amplified by a negative print of retail sales for December, which decreased by 1.2%, the worst reading in nine years. The move in the 10-year was exacerbated by a block steepening trade where real money reportedly bought 18k+ TYH9, whilst selling 4k Ultra Bonds. However, dovish comments from Fed’s Brainard, who mentioned curtailing the balance sheet normalisation process this year, and NEC Director Kudlow saying there were “glitches” in the retail sales figure were a headwind for treasury prices. Going into the close, the front-to-belly of the curve flattened, whilst the belly-to-long end of the curve steepened, with the 5s/30s steepening by c. 2.5bps. US T-note futures (H9) settled 13+ ticks higher at 122-05+.

US Senate voted 83-16 and US House voted 300-128 to pass the government funding and border security bill, which sends the bill to President Trump for signing. (Newswires)

US President Trump is to deliver remarks on border at 1000EST/1500GMT. There were also comments from US Senate Majority leader McConnell that President Trump is prepared to sign border security legislation and indicated to declare a national emergency to build the wall, which White House Press Secretary Sanders also repeated. (Newswires)

US Senate Minority leader Schumer said it would be a gross abuse of power and contempt of law if President Trump declares a national emergency, while House Speaker Pelosi said they may file a legal challenge if that occurs. (Newswires)

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EU Mid-Session Update: Attack sees crude prices pop as Saudi crude output drops https://t.co/IAoChFglPp