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[PODCAST] EU Open Rundown 28th February 2019

  • Asian stocks were mixed following a similar lead from Wall Street, China Manufacturing PMI contracted for a third-straight month
  • PM May avoided a Parliamentary showdown yesterday by agreeing to hold a vote on March 14th on whether to delay Brexit, if Parliament has rejected her deal and leaving without a deal
  • UK government is reportedly mulling bringing the Brexit meaningful vote forward to next week; according to rumours cited by BBC’s Chief Political Editor
  • In FX markets, DXY traded in a tight range, EUR moved sideways, NZD and AUD were briefly dented on data
  • Looking ahead, highlights include Swiss GDP, French GDP, French & German Preliminary CPI, US GDP & Chicago PMI, Fed’s Clarida, Bostic, Harker & Kaplan
  • Earnings: Marriott, JD.com, Carrefour, Adecco, Rolls Royce, Ferrovial, International Consolidated Airlines, British American Tobacco

ASIA-PAC

Asian stocks were mixed following a similar lead from Wall Street wherein the Dow and S&P fell for a second consecutive day as investors digested key testimonies from US Trade Representative Lighthizer and Fed Chair Powell. The Dow was also weighed on by shares from UnitedHealth which closed lower by almost 5% whilst the S&P was pressured by the telecom and healthcare sectors. ASX 200 (+0.3%) was kept afloat by its pharma and energy names, while the Nikkei 225 (-0.9%) felt pressure from its heavyweight industrial and machinery sectors. Elsewhere, Shanghai Comp (-0.6%) and Hang Seng (-0.1%) initially traded choppy although the latter recovered from opening losses as pharma and finance stocks led the gains. Finally, South Korea’s KOSPI (-0.6%) slipped after index heavyweights Samsung Electronics (-1.8%) and SK Hynix (-4.2%) succumbed to the semiconductor weakness experienced stateside.

USTR Lighthizer said the US would reserve the right to retaliate if China violates the pact. He added that China is probably not intervening in markets to make its currency weaker but is probably manipulating currency to strengthen it right now. Lighthizer said US-China enforcement mechanism if agreed, will entail monthly, quarterly and six-month review meetings. (Newswires)

US Agricultural Secretary Perdue said a China-US trade deal could be made when Chinese President Xi visits Trump in March. (Newswires)

BoJ Board Member Suzuki says it is important for the BoJ to maintain powerful monetary easing but there is no need to ease further, BoJ must be mindful of a sustainable framework as inflation may remain subdued for a prolonged period. Suzuki said the BoJ does not intend to raise rates now but will act swiftly through market operations if yield rise sharply, he added that overseas tail risk appear to be heightening. (Newswires)

BoJ and RBI have signed a bilateral swap agreement, effective immediately. The agreement would allow Japan and India to swap their domestic currencies against the USD for an amount of up to USD 75bln. (Newswires)

Japan will go ahead with arranging a US-Japan trade talk schedule; according to the Japanese Chief Cabinet Secretary Suga. Furthermore, there were reports that US and Japan are to hold their first meeting on a Trade Agreement on Goods in April. (Newswires)

Bank of Korea maintained its 7-day repo rate at 1.75% as expected, the decision was unanimous. The KRW immediately experienced marginal weakness as policymakers kept in mind the country’s declining exports, rising unemployment and the slowdown in Chinese growth. At the press conference, Governor Lee the central bank is to maintain accommodative rate policy although it is not time to consider easing policy rates. (Newswires)

PBoC set CNY mid-point at 6.6901 (Prev. 6.6857) (Newswires)
PBoC skipped open market operations for a net neutral daily position

Chinese NBS Manufacturing PMI (Feb) 49.2 vs. Exp. 49.5 (Prev. 49.5). The third consecutive month of contraction. (Newswires)

UK/EU

BREXIT AMENDMENTS:

UK Brexit Cooper (F) amendment accepted - 502 lawmakers vote for it, 20 against it - which would note May's commitment to hold a vote on March 14th on whether to delay Brexit, if Parliament has rejected her deal and leaving without a deal. (Newswires)

UK Brexit amendment Costa (B) has been approved without a formal vote; which would have called for more protections regarding the rights of EU citizens living in the UK in a no-deal scenario. (Newswires)
 

Blackford (K) and Corbyn (A) amendments have been rejected while Spelman-Dromey (C) was withdrawn. (Newswires)

UK opposition lawmaker Starmer said Labour will either put forward or support an amendment in favour of a second referendum. (Newswires)

UK government is mulling bringing the Brexit meaningful vote forward to next week according to BBC's Laura Kuenssberg who is citing rumours, including a government minister who believes it is definitely true. (Twitter)

UK PM May is to formally announce a series of new pledges workers’ rights and easing of trade union restrictions in a bid to get Labour backing for her deal. (The Guardian)

Norway’s GBP 740bln wealth fund has taken a 30-year bet that the UK will emerge stronger post-Brexit. The fund said it would increase exposure to UK companies, property and bonds regardless of the outcome of Brexit dialogue. (The Times)

UK Business Secretary is set to make it easier for unions to strike as he steps up efforts to woo Labour MPs to back Theresa May’s Brexit deal. (Times)

UK Lloyds Business Barometer (Feb) 4 (Prev. 19) (Newswires)
UK GfK Consumer Confidence* Feb -13 vs. Exp. -15.0 (Prev. -14.0)

ECB's Villeroy (Dovish) said the ECB should study how to ease possible adverse effects of negative rates if they must be used longer than expected; still believes policy normalisation is desirable. (Newswires)

Fitch affirmed European Union at 'AAA'/Outlook Stable; says Brexit has no immediate implications on the EU. (Newswires)

FX

In FX markets, DXY remained tentative above 96.000 ahead of the release of US prelim Q4 GDP figures. As such EUR/USD traded sideways below its 50 and 100 DMAs both around 1.1387-89, meanwhile GBP/USD held onto most of its recent gains and moved sideways just above 1.3300 throughout most of the session before drifting lower to test the figure. SocGen FX analysts note that it is dangerous to chase Cable higher as it tests 1.3300, although the bank still expects the pair to be at 1.4000 this time next year, citing an absence of a no-deal Brexit, but should a no-deal scenario play out, the analysts expect Cable to drop to 1.2000.

Meanwhile, Goldman Sachs expects GBP to rally further as foreign investors who bought hedges during the 2016 Brexit vote will need to trim those positions amidst the increasing probability of an Article 50 extension. Elsewhere, the antipodeans felt pressured amid the release of mostly downbeat data. NZD and AUD both fell following a deterioration in New Zealand Business Outlook, although the Aussie felt some reprieve following optimistic Australian CAPEX numbers, but the release of a third straight contraction in Chinese Manufacturing PMI sent the antipodeans to session lows. Finally, it is also worth noting that Westpac downgraded its Australia Q4 GDP forecasts in light of yesterday’s construction activity, which fell by 3.1% and turned out to be a material downside surprise for the bank. Finally, the INR was volatile but ultimately firmer at the open amid reports that the BoJ and RBI signed a bilateral swap agreement which allow Japan and India to swap their domestic currencies against the Dollar for an amount of up to USD 75bln.

Australian Capital Expenditure Q4 2.0% vs. Exp. 1.0% (Prev. -0.5%) (Newswires)

New Zealand NBNZ Business Outlook Feb -30.9% (Prev. -24.1%) (Newswires)
New Zealand NBNZ Own Activity Feb 10.5% (Prev. 13.6%)

Westpac cut Australia Q4 GDP estimates to +0.2% Q/Q (Prev. +0.5%) and +2.4% Y/Y (Prev. +2.7%) (Newswires)

COMMODITIES

WTI and Brent futures took a breather from the prior day’s advances which was spurred by a significant surprise decline in US crude stocks. WTI futures roamed just below USD 57.00/bbl whilst Brent futures drifted marginally lower at the open as the Chinese manufacturing sector fell deeper into contraction. Elsewhere, spot gold hovered near two-week lows following the cautious comments from USTR Lighthizer, while copper was relatively steady as supply concerns balanced the three-month back-to-back contraction in Chinese manufacturing PMI. Finally, Dalian iron ore crept higher despite supply glut worries, with traders expecting demand for the base material to pick up as better weather paves the way for more construction activity.

USTR Lighthizer says US President Trump wants a deal with Mexico and Canada on steel. (Newswires)

Libya's NOC spokesperson says there is no technical obstacle to restarting the El-Sharara oilfield although security is "the issue". (Newswires)

GEOPOLITICS

US President Trump said the speed of North Korean denuclearisation is not important to him, he is more concerned on getting a good deal. Meanwhile, North Korean Leader Kim Jung Un said it is too early to say whether he is confident, but he feels a good outcome will come from meeting with US President Trump. Furthermore, US is reportedly no longer demanding North Korea to disclose full accounting of nukes and ballistic missiles; according to NBC citing current and former US officials. (Newswires/NBC)

North Korean Leader KIm Jung Un said if North Korea was not ready to denuclearise, then he would not have met with US President Trump; and added that they are discussing steps for that. US President Trump and North Korean Leader Kim Jung Un both said that a diplomatic office exchange is a good idea. (Newswires)

Airlines have reportedly rerouted flights from East Asia to European destinations to avoid flying over Pakistan and Northern India amid the rising tensions between the two countries. (BBC)

US

The US curve bear steepened on Wednesday. There was speculation as to what the trigger of today’s downside was, with the most convincing explanation that accounts were putting on steepeners to hedge the upcoming IG supply in the long-end, which in turn set-off sell programmes. The steepeners were said to be inspired by Powell’s rhetoric, though his comments over the last two day’s have not really provided all that new to the FOMC narrative; it seems traders have been comforted by his continuing talk of pause. * US T-Note futures (H9) settled 13 ticks lower at 121-29+

Fed Chair Powell (Neutral) said unrealised losses on the balance sheet do not affect monetary policy; in no sense is the Fed functionally insolvent. (Newswires)

Goldman Sachs cuts its GDP tracker (Q4) to 1.7% (prev. 2.1%), due to a record high goods trade balance in December and the downward revisions to core CAPEX shipments. (Newswires)

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Asia begins subdued amid headwinds from US where the majors pulled back from record levels as they digested the fir… https://t.co/2FoQ94zNdl