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[PODCAST] EU Open Rundown 22nd February 2019

  • Asian stocks were mixed following the weak lead from their peers on Wall St. where all US major indices declined and the Nasdaq snapped its 8-day win streak
  • US President Trump is expected to meet with China Vice Premier Liu He today at 1430EST
  • As many as 25 UK government members are ready to vote for a Brexit delay unless UK PM May rules out a "no-deal"
  • EU expects PM May to be forced to request a 3-month extension to the Brexit, according to 2 EU officials
  • Looking ahead, highlights include EZ CPI (Final), Canadian Retail Sales, Riksbank Minutes, Riksbank's Ingves & Jansson, Fed's Bostic, Williams, Daly, Clarida, Bullard & Harker, ECB's Draghi & Villeroy

ASIA-PAC

Asian stocks were mixed following the weak lead from their peers on Wall St. where all US major indices declined and the Nasdaq snapped its 8-day win streak, with sentiment weighed by uninspiring data. ASX 200 (+0.5%) and Nikkei 225 (-0.1%) were mixed with the Australian benchmark resilient as participants took a breather from the recent deluge of earnings and as financials remained afloat, but with upside capped by weakness in Energy following similar underperformance by the sector stateside and with Woodside Petroleum shares down by over 4% as it traded ex-dividend. Conversely, Japanese stocks were lacklustre after the recent flows into the JPY, while Hang Seng (Unch.) and Shanghai Comp. (+0.6%) conformed to the indecisive tone but with losses in the mainland eventually reversed after a tepid liquidity injection by the PBoC and as focus remained on US-China trade talks with President Trump set to meet China Vice Premier Liu He later today. Finally, 10yr JGBs were initially underpinned by the weak risk sentiment and BoJ’s presence in the market for a total JPY 685bln of JGBs, but then pared a majority of the gains after hitting resistance at 153.00 and as the regional stock markets bounced off intraday lows.

PBoC injected CNY 40bln in 7-day reverse repos for a net weekly injection of CNY 60bln vs. Prev. CNY 680bln drain. (Newswires)
PBoC set CNY mid-point at 6.7151 (Prev. 6.7220)

US President Trump is expected to meet with China Vice Premier Liu He today at 1430EST, while there were separate reports that the decision on China tariff increase due on March 1st needs to be made by Tuesday. In related news, China trade talks are said to be positive and the Trump administration is counting on Vice Premier Liu He to get Beijing to accept tough new strictures. (Newswires/CNBC/WSJ)

Chinese House Prices (Jan) Y/Y 10.0% (Prev. 9.7%). (Newswires)

Japanese National CPI (Jan) Y/Y 0.2% vs. Exp. 0.2% (Prev. 0.3%). (newswires)
Japanese National CPI Ex. Fresh Food (Jan) Y/Y 0.8% vs. Exp. 0.8% (Prev. 0.7%)

Japanese National CPI Ex. Fresh Food & Energy (Jan) Y/Y 0.4% vs. Exp. 0.4% (Prev. 0.3%)



UK/EU

UK government spokesperson said EU negotiator Barnier and Brexit Secretary Barclay agreed to focus on what we can do to conclude a Brexit deal ASAP. Furthermore, the spokesperson commented that EU's Juncker and UK PM May agreed work will focus on guarantees relating to the backstop that underline its temporary nature, while EU and UK Brexit talks are to continue next week. (Newswires)

UK's Downing Street will reportedly delay its no-deal tariffs report to avoid uproar before a crunch Brexit vote next week. (The Sun)

As many as 25 UK government members are ready to vote for a Brexit delay unless UK PM May rules out a "no-deal". (Guardian) Parliamentary Under-Secretary of Communities and Local Government Percy told the BBC more than 30 MPs may try block a no-deal. (BBC) Furthermore, The Telegraph reported that PM May has been warned by a group of 100 moderate Tory MPs that they are prepared to rebel against the Government to force her to delay Brexit if she cannot reach a deal. (Telegraph) Opposing this, Eurosceptic Conservative MPs have warned they will seek to “end the government” if PM May delays the UK’s departure from the EU, as the HoC prepares to vote on proposals to try to avert a no-deal Brexit. On the other side of the aisle, UK Opposition Leader Corbyn has been warned that he faces another exodus of MPs unless he backs a plan to put Theresa May’s Brexit deal to a second referendum. (Times)

EU expects PM May to be forced to request a 3-month extension to the Brexit according to 2 EU officials. (Newswires)

UK opposition Labour Party leader Corbyn was warned he faces another exodus of MPs if he doesn't support a plan to put PM May's Brexit deal to a 2nd referendum. (The Times)

ECB’s Weidmann is to serve an additional eight years as Bundesbank President. (Handelsblatt)


FX

In FX markets, price action was mostly uneventful amid a lack of currency moving data releases which saw the greenback stabilize from the prior day’s whipsaw, while its major counterparts were also steady with EUR/USD and GBP/USD virtually unchanged at the 1.1300 and 1.3000 handles respectively. Elsewhere, a subdued risk tone thwarted recovery attempts by JPY-crosses and kept USD/JPY relatively flat in the aftermath of an uneventful Japanese CPI release, while antipodeans languished near this week’s lows for most the session before NZD/USD slipped heavily below 0.6800 after the RBNZ suggested its proposed bank capital increase could lead to an eventual rate cut.

RBNZ said the capital hike proposal would give big 4 banks 5 years to increase capital ratio to 16% from current 12% and that the bank capital increase could lead to an eventual rate cut. (Newswires)

RBA Governor Lowe said he doesn't see a strong case for near-term change in the cash rate and that the rate outlook is more evenly balanced than 6-months ago. Furthermore, RBA Governor Lowe also noted that the RBA still expects to make progress towards goals and if this progress is made, it remains the case that higher rates will be appropriate at some point, although he added it is unlikely rates will go up this year and that a hike next year may be appropriate. (Newswires)

BoC Governor Poloz reaffirmed need to move rates up to neutral over time but said the path is very uncertain and that he will remain data dependent, while he added keeping inflation low can lead to dangerous imbalances like high household debt. (Newswires)


COMMODITIES

Commodities were lacklustre amid the cautious risk tone which kept WTI crude below the USD 57.00/bbl level following the prior day’s mild losses and larger than expected build in headline DoE inventories, while Brent crude was virtually glued to USD 67.00/bbl. Elsewhere, gold was relatively unchanged as it reflected a muted greenback and copper prices also drifted sideways alongside a similar mundane tone across the complex.
 

Goldman Sachs revised its expectations for 2019 US oil supply growth to 1.4mln bpd from 1.2mln bpd and sees 2019 global oil demand growth of 1.4mln bbls vs. 1.3mln bpd in 2018, while expects Brent to average USD 60.00-65.00/bbl this year and next. (Newswires)
 

US

Yields were higher by 3-5bps across the curve, by settlement, with volumes picking up overnight following the FOMC meeting minutes, as well as news that the US and China were drafting agreements on issues related to their trade dispute. The European day lent further selling bias with traders optimistic that a no deal Brexit can be avoided. Once again, a corporate supply slate added some selling pressure, with some chunky investment grade deals launching on Thursday. The European close saw some profit taking, into the 30-year TIPS auction, which stopped through and saw better cover. The steepening continued into the close, with major curve spreads steepening. US T-note futures (H9) settled 8 ticks lower at 121-29.

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