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[PODCAST] EU Open Rundown 20th February 2019

  • Asian stocks traded somewhat indecisively following the cautious gains seen on Wall St. ahead of upcoming risk events
  • UK PM May is considering plans to bring forward the meaningful vote on Brexit deal to next week in an effort to ward off the threat of resignations by pro-European MPs
  • US President Trump said China talks are going well but are complex and that March 1 deadline is not a magical date
  • Looking ahead, highlights include EZ Consumer Confidence, FOMC Minutes, ECB’s Praet, Riksbank’s Floden, Fed’s Kaplan, Bullard & Daly, UK PM May meeting EU Commission President Juncker, German 2024 Bobl auction
  • Earnings: Edison, Fresenius SE, Fresenius Medical, Iberdrola, Lloyds, Glencore

ASIA-PAC

Asian stocks traded somewhat indecisively following the cautious gains seen on Wall St. ahead of this week’s key events including FOMC minutes and US-China trade talks. ASX 200 (-0.2%) and Nikkei 225 (+0.5%) were mixed with Australia dragged lower by continued underperformance in Consumer Staples after Woolworth shares slumped more than 5% post-earnings, while Tokyo stocks were propped up as the impact of a weaker currency eclipsed the concerns from the steepest decline in Japanese Exports for more than 2 years. Elsewhere, Hang Seng (+0.8%) and Shanghai Comp. (-0.4%) were also varied as the mainland lagged despite the PBoC announcement of its first liquidity injection since before the Lunar New Year, as the amount was a relatively paltry CNY 20bln and with participants also kept tentative ahead of upcoming senior level trade discussions between US and China. Finally, 10yr JGBs were subdued with price action contained by an indecisive risk tone in the region and after having recently hit resistance at 153.00, while the absence of the BoJ in the market also contributed to the lacklustre trade.

PBoC injected CNY 20bln via 7-day reverse repos. (Newswires)
PBoC set CNY mid-point at 6.7558 (Prev. 6.7642)

US President Trump said China talks are going well but are complex and that March 1 deadline is not a magical date, while he added that China is trying to move fast to avoid tariff increases. In separate reports, the US is said to be pushing for a stable yuan and is wielding the tariff threat if this is violated. (Newswires)

Japanese Trade Balance (JPY)(Jan) -1415.2B vs. Exp. -1011.0B (Prev. -55.3B, Rev. -56.7B). (Newswires)
Japanese Exports (Jan) Y/Y -8.4% vs. Exp. -5.5% (Prev. -3.8%, Rev. -3.9%); largest decline since October 2016.
Japanese Imports (Jan) Y/Y -0.6% vs. Exp. -2.8% (Prev. 1.9%)


UK/EU

UK PM May is considering plans to bring forward the meaningful vote on Brexit deal to next week in an effort to ward off the threat of resignations by pro-European MPs, while there were separate reports that PM May is to present the EU with fresh legal proposals to break the Irish backstop deadlock and which will hopefully convince Brexiteers to support her deal. In related news, a spokesperson said PM May and Brexit Ministers updated cabinet on Brexit and that the UK is still looking to reopen the withdrawal agreement. (Telegraph/Guardian/Newswires)

UK Chancellor Hammond said a no-deal Brexit would be mutual calamity for UK and EU, while he also noted that the most urgent task is to reach an agreement that will protect trading relationship with EU. Furthermore, Hammond said the Malthouse initiative is a valuable effort to allay backstop concerns in the future but added that EU will not consider a replacement to the backstop now. (Newswires)

UK Brexit Secretary Barclay was said to have confirmed new legal proposals prepared by Attorney General Cox will be taken to the EU on Wednesday and that the Malthouse Compromise alternative arrangements will be a part of future relationship discussions, while Barclay also stressed the need to avoid a no-deal Brexit and is confident that new proposals will lead to progress, according to Sky Political Correspondent Kate McCann. However, McCann later tweeted that UK's new legal proposals may not be presented to the EU on Wednesday and could instead be on Thursday or Friday. (Twitter)

EU's Brexit Negotiator Barnier said there is a "clear and strong" unity of EU27 leaders to preserve the Withdrawal Agreement in "all its dimensions, including on Ireland", while there were comments from EU Commission President Juncker that he expects "friendly" talks with UK PM May today and that no EU member will oppose a UK request for an extension. (Twitter/Newswires)

Dutch MPs warned EU to prepare for the worst regarding Brexit as they were left with the impression UK politics is "locked in the mother of all chicken games" and "a mess" following a visit to Westminster. (Telegraph)

Officials in Brussels were said to talk openly of a 60% probability there will be a no-deal Brexit, according to ITV political editor Peston. (ITV)

An eighth Labour MP, Joan Ryan, has quit the party to join the newly-formed Independent Group amid unhappiness over how the party handled Brexit and its antisemitism problem. (The Guardian)

Tory and Labour MPs are reportedly anxious that the new breakaway Independent Group has increased the chances of PM May calling for an early election. (The Guardian)


FX

In FX markets, the DXY languished after the prior day’s slide from the 97.00 level and amid cautiousness heading into today’s FOMC minutes, while its major counterparts held on to recent gains in which EUR/USD and GBP/USD retained a firm grip on the 1.1300 and 1.3000 handles respectively. Elsewhere, JPY weakened in the aftermath of disappointing trade data in which Japanese Exports declined by the most since October 2016, while AUD/USD eventually shrugged off early pressure from softer than expected Wage Prices amid a subdued greenback and as the PBoC also strengthened its reference rate accordingly.

Australian Wage Price Index (Q4) Q/Q 0.5% vs. Exp. 0.6% (Prev. 0.6%). (Newswires)
Australian Wage Price Index (Q4) Y/Y 2.3% vs. Exp. 2.3% (Prev. 2.3%)


COMMODITIES

The commodities complex was kept rangebound overnight amid a tentative risk tone and uneventful greenback in which WTI crude futures consolidated at YTD highs above the USD 56.00/bbl level and with participants awaiting this week’s inventory reports which are delayed by a day due to President’s Day. Elsewhere, gold prices took a breather from the prior day’s advances which was on the back of the recent USD-woes, while copper was also steady amid the cautiously optimistic risk tone.

Keystone oil pipeline has restarted with 20% pressure reduction, according to US regulator PHMSA. (Newswires)
 

GEOPOLITICS

US President Trump said he has no pressing time schedule for the denuclearisation of North Korea provided that no nuclear testing is carried out, while the US State Department said sanctions on North Korea to be maintained until US has achieved the final result of full verified denuclearisation. (Newswires)

China officially warned citizens on travel to New Zealand in which it said to expect robberies, dangerous driving and a police force with a patchy response record. (Newswires)


US

Yields were down by 0.5-2.4bps across the curve, with steepening in the belly being seen ahead of the FOMC minutes, which are expected to continue the dovish rhetoric seen out of the central bank in 2019. The complex settled off highs, which newswires attributed to talks between the US and China nearing their deadline (on 1 March). US T-note futures (H9) settled 5+ ticks higher at 122-07.

The press lockup for the FOMC minutes has been cancelled as the Fed announced Washington offices will be closed today due to weather, although the minutes will still be released as scheduled at 1400EST. (Newswires)

Fed's Williams (Voter, Hawk) said would need a different outlook for inflation or growth to back further rate hikes and that monetary policy is where it should be with rates around neutral, while he added that current data is a strong argument for taking some time on rates. Furthermore, Williams sees balance sheet reserves falling to USD 1trln 'or somewhat more' vs around USD 1.6trln now and expects to be drawing down balance sheet for some time. (Newswires)

Fed's Mester (Non-Voter, Hawk) said she would be comfortable ending balance sheet runoff before year end and doesn't think it would have a material effect on the economy, while she also thinks a rate increase could be needed later this year. (Newswires)

White House Chief of Staff Mulvaney said President Trump is working on drug pricing, trade and deregulation and is also spending a lot of time preparing for his North Korean summit. (Newswires)

White House Economic Advisor Hassett sees another 3%+ growth in 2019 and doesn't see a recession this year. (Newswires)

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