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[PODCAST] EU Open Rundown 1st March 2019

Asian stock kicked the month off on the front foot, Nikkei 225 outperformed, Chinese Caixin Manufacturing PMI beat forecast but remained in contraction

UK Opposition Labour Party is reportedly moving towards a compromise plan which would allow PM May’s Brexit deal to pass in exchange for a 2nd referendum

In FX markets, DXY remained near post-GDP highs, AUD wobbled on China data, JPY weakened on risk appetite

Looking ahead, highlights include German Unemployment Data, EZ Manufacturing PMI (Final) & CPI (Flash), UK Manufacturing PMI, US Core PCE & Retail Sales, US ISM Manufacturing PMI, Canadian GDP, Fed’s Bostic

ASIA-PAC

Asian equities started the first trading day of the month on an optimistic note, despite a relatively downbeat session on Wall Street where the three main indices closed lower by around three-tenths of a percent. The Dow was weighed on by UnitedHealth shares which trimmed around 50 points off the index, meanwhile Nasdaq was pressured as heavyweights Facebook, Apple and Netflix all fell over 0.5%. In terms of February performance, Dow rose 3.7%, S&P gained 3.0% and Nasdaq advanced 3.4% in the month. ASX 200 (+0.4%) extended on opening gains as IT and healthcare names led the advances, whilst heavy-exporter Nikkei 225 (+1.1%) outperformed on the back of a weaker domestic currency. Elsewhere, Shanghai Comp (+0.1%) was choppy as the third straight month of contraction in China’s manufacturing sector capped upside in the index, despite MSCI quadrupling China A-share weightings in global benchmarks to 20%. Goldman Sachs estimates that the MSCI move would lead to a potential USD 70bln net buying in A-shares, skewed towards the healthcare and consumer sectors. Finally, Hang Seng (+0.3%) edged higher during the session as the index felt support from its heavy-weight financial and energy sectors.

PBoC set the CNY mid-point at 6.6957 (Prev. 6.6901) (Newswires)

PBoC drains a net CNY 40bln on the day

China Caixin Manufacturing PMI (Feb) 49.9 vs. Exp. 48.5 (Prev. 48.3); third month of contraction (Newswires)
China New orders 50.2 (Prev. 47.3); highest in three-months

MSCI are to boost China A-shares weighting in global benchmarks to 20% from 5% in three steps. (WSJ)

UK/EU

UK Opposition Labour Party is reportedly moving towards a compromise plan which would allow PM May’s Brexit deal to pass but makes it clear that Parliament “withholds support” until the deal has been put to a public vote; according to multiple party sources. (The Guardian)

USTR Office said it will ensure "fair, balance and reciprocal trade" with the UK by reducing or eliminating tariffs. US seeks "comprehensive market access" for agricultural goods, and comprehensive duty-free market access to the UK for US industrial goods and address non-tariff barriers. (Newswires)

European Commission said the best way to attend the Costa amendment is through the withdrawal agreement and added that it will not negotiate such mini-deals. Note: Costa amendment looks to secure the rights of EU citizens in a no deal Brexit. (Newswires)

In its annual report on the UK, the EU has accused Britain of enabling tax avoidance by large businesses, claiming the UK’s dividend tax arrangements may it attractive for “treaty shopping” and “aggressive tax planning”. (The Times)

The Independent Group has named Chuka Umunna as its spokesman. (Sky News)

FX

FX markets were quiet as DXY remained near post-GDP highs and was little moved by comments from Fed Chair Powell who reaffirmed the central bank’s patient stance and reiterated that the US economy is in a good place. As such EUR/USD was little changed after finding some support at 1.1365, albeit the pair remained below its 50 DMA at 1.1388 (ahead of EZ inflation data) and similarly, GBP/USD was uneventful above 1.3250. Elsewhere, the release of above-forecast China Caixin manufacturing PMIs gave the AUD/USD some impetus to rise to session highs, although gains were then pared back as China’s manufacturing sector failed to come out of contraction territory. USD/JPY and JPY-crosses edged higher and the former breached its 100 DMA (111.42) to the upside during the session as the overall risk appetite influenced an unwind in risk premium. In February. GBP was the best performing G10 currency against the greenback, +1.2%, whilst AUD was the worst performer, -2.5%.

COMMODITIES

WTI and Brent futures gained more ground during Asia-Pac trade wherein the former advanced further above USD 57.00/bbl while the latter traded higher just above USD 66.50/bbl, although there was little in the way of newsflow for the complex. Elsewhere, gold was steady around two-week lows as the USD recouped recent losses. Meanwhile, copper saw some downside following the third month of manufacturing contraction from its largest consumer, China, although the red metal bounced off lows amid the overall positive risk-sentiment. Finally, China’s top steelmaking city, Tangshan has issued a level 1 smog alert from March 1st to 6th, which requires steel mills to cut output by 40-70% or stop production altogether, depending on their emission scale. Steel prices, alongside Dalian iron ore futures rose for a third consecutive day amidst supply worries and strong demand expectations.

Nigerian Energy Minister Kachikwu said Nigeria complied with OPEC+ cuts deal in February. (Newswires)

Canada's Alberta has increased April oil production limit to 3.66mln BPD from 3.56mln BPD in January. (Newswires)

GEOPOLITICS

US President Trump said he believes a good deal with North Korea will happen and added that North Korea did not want to fully denuclearise. Meanwhile, North Korea Foreign Minister said if US lifts sanctions, North Korea will denuclearise, whilst adding that Pyongyang will not change its stance even if the US seeks further talks. US Secretary of State Pompeo said that North Korea basically asked for all sanctions to be lifted. (Newswires/BBC/Fox News)

US President Trump reportedly told North Korea to "go all in" on their commitment to denuclearise, but North Korea reportedly asked for all sanctions to be lifted apart from armaments; according to a senior state department official. (Newswires)

South Korean President Moon said the Trump-Kim Summit made meaningful progress. Furthermore, US President Trump told President Moon and Japan's PM Abe that the US will continue to communicate with North Korea. (Newswires)

Russia and China have vetoed US-drafted UN Security Council resolution calling for free and fair elections, and unhindered aid access in Venezuela. (Newswires)

Four Chinese navy ships have been spotted near the China-Taiwan-Japan disputed Senkaku islands; according to NHK. (NHK)

NORTH AMERICA

Yields were higher across the curve, led by the belly; decent GDP data helped selling action, as well as a beat from the Chicago PMI. * US T-Note futures (H9) settled 5+ ticks lower at 121-24.

Fed Chair Powell (Neutral) said signs of upward pressure on inflation is muted whilst reiterating that the US economy is in a good place and that the Fed remains patient. Powell also urges policies to boost labour force participation and productivity and noted that the recent rise in productivity leaves room for wages to rise without increasing inflation concerns. (Newswires)

Fed's Kaplan (Dove, Non-voter) said balance sheet decision is "in particular" a group effort, need the balance sheet as a tool in the event of a downturn. Furthermore, Kaplan stated that the Fed should not be taking any action with rates through June; will take some months to evaluate US growth deceleration. He believes that US growth in 2019 will be slower given a fall in fiscal stimulus and higher rates; looking at global growth, interest-rate sectors and credit spreads for effects on corporate profits and the job market and added said current interest rate is in the neutral range. (Newswires)

Fed's Harker (Non-voter, Dovish) said one hike in 2019 and one in 2020 is appropriate. (Newswires)

White House Economic Advisor Hasset said they are looking at 3% domestic growth rather than 2% due to the tax bill. (Newswires)

US President Trump said the Republicans who vote against the Mexican border wall are putting themselves in great jeopardy. (Fox News)

US President Trump said he will fight the Mueller report if it is not honest. (Fox News)

US President Trump reportedly commanded his former Chief of Staff, John Kelly, to grant Senior Presidential Advisor and son-in-law Jared Kushner a top-secret security clearance, ignoring concerns from intelligence officials; according to New York Times citing sources. (New York Times)

Canadian PM Trudeau is expected to announce a Cabinet reshuffle later today; according to local media. (Newswires)

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