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[PODCAST] EU Open Rundown 5th March 2019

Asian stocks traded lacklustre following a disappointing lead from Wall Street. Mainland China maintained composure following the Chinese NPC announcement

China lowered its 2019 GDP growth target to the range of 6.0-6.5% from “around 6.5%” and maintained CPI target at 3.0%, both as expected, budget deficit for 2019 was set at 2.8% vs. 2.6% in 2018

The RBA left its Cash Rate unchanged at 1.50% as expected. The statement was relatively mixed but the last paragraph (often seen as the most important) remained unchanged

In FX markets, DXY gained more ground, AUD was dented by China Caixin Services PMI, TRY weakened on Trump’s GSP termination

Looking ahead, highlights include French, German, EZ (Final) & US Composite and Services PMI, EZ Retail Sales, US ISM Non-Manufacturing PMI, Fed’s Rosengren, Kashkari, Barkin, BoE’s Carney, RBA’s Lowe

ASIA-PAC

Asian stocks traded lacklustre following a disappointing lead from Wall Street after the Dow slipped 0.8%, weighed on by Boeing and Goldman Sachs shares, whilst the S&P shed 0.4% amid underperformance in healthcare names. Both indices marked their worst turnaround since early February. ASX 200 (-0.3%) extended losses from the open amid underperformance in the Consumer Discretionary and Material sectors, whilst Nikkei 225 (-0.6%) was weighed on by commodity exposed stocks. Elsewhere, Shanghai Comp. (Unch) nursed some opening losses following the release of the NPC work report which pledged to expand infrastructure investments and cut manufacturing VAT to 13% from 16%, whilst transport and construction VAT is to be reduced to 9% from 10%, although the release of dismal Caixin services PMI briefly dented the index. Finally, Hang Seng (-0.2%) conformed to the overall risk-averse tone with its heavy-weight financial sector as the marked underperformer.

China lowered its 2019 GDP growth target to the range of 6.0-6.5% from “around 6.5%” and maintained CPI target at 3.0%, both as expected. Budget deficit for 2019 was set at 2.8% vs. 2.6% in 2018. China stated that fiscal policy to be proactive and monetary policy to be prudent will not resort to flood-like stimulus, whilst also saying it will keep the Yuan basically stable at reasonable equilibrium and is to increase the flexibility of the Yuan exchange rate while keeping liquidity reasonably ample. China will expand infrastructure investments in 2019 and plans to cut manufacturing VAT to 13% from 16%, as touted, VAT for transport and construction sectors to be reduced to 9% from prior 10%. China will make economic policy for forward-looking, targeted and effective whilst maintaining pace and strength in risk prevention, and higher budget deficit ration will leave more policy room for resolving potential risks. China will also step up targeted RRR cuts for smaller and medium-sized banks to support private and smaller firms. Growth in M2 Money Supply and social financial to be in-line with nominal GDP growth and basically the same as in 2018. China is to implement consensus reached between US and Chinese leaders in Argentina, but said it needs to brace for a tough economic battle.

PBoC set CNY mid-point at 6.6998 (Prev. 6.7049) (Newswires)PBoC drained a net CNY 120bln on the day

Chinese Caixin Services PMI Feb 51.1 vs. Exp. 53.5 (Prev. 53.6) (Newswires)Chinese Caixin Composite PMI Feb 50.7 (Prev. 50.9)

US Secretary of State Pompeo said he believes US and China are “on the cusp” of a deal to end a trade war. (Newswires)

US President Trump plans to terminate India and Turkey as Generalised System of Preferences beneficiaries. The move comes as India has not assured the US that it will provide "equitable and reasonable" market access and Turkey is now “sufficiently economically developed”; according to US Trade officials. Indian Trade Ministry Official, in response, said US and India were able to work out an extensive and reasonable package which covered almost all US concerns, although the advantages under the US GSP are "minimal and moderate". (Newswires)

UK/EU

UK PM May has been warned that she must whip her MPs to keep a no-deal Brexit on the table, whilst Senior Eurosceptics are convinced PM May will lose the vote on her Brexit deal and they do not expect Attorney General Cox to win concessions on the Northern Irish backstop. (The Telegraph)

UK PM May is reportedly considering a parliamentary vote on the UK's future relationship with the EU, as per demands from Labour MPs. A source close to a cabinet minister also stated that there seemed to be “no chance” that her deal would pass next week. (The Guardian)

UK Trade Secretary Fox’s department has cancelled its regular meetings with business after the details of a prior meeting were leaked to the media. (FT)

Irish Foreign Minister Coveney is floating the idea of a "technical extension" to complete the ratification of the Withdrawal Agreement, as according to Sky's Reilly. (Newswires)

UK BRC Retail Sales YY Feb -0.1% (Prev. 1.8%) (Newswires)

FX

In FX markets, the DXY gained more ground and briefly breached 96.750 to the upside, around 2-week highs, after recouping recent losses from US President Trump’s verbal intervention. As such EUR/USD languished further below the 1.1350 level whilst GBP/USD gave up more ground below its 100 WMA at 1.3207 before finding support at 1.3150. Elsewhere, AUD/USD was knocked lower after the China Caixin Services release showed that the measure for backlogs of work contracted for the second consecutive month, hitting its lowest level since February 2016 and in turn, reflecting downward pressure on overall orders. AUD/USD fell further below the 0.7100 and took the NZD down in sympathy. The Aussie experienced volatility at the release of the RBA statement but ultimately stabilised around pre-release levels as traders noted that the overall picture drawn by the Central Bank was little changed. In the EM FX space, TRY initially weakened on the back of reports that US President Trump is to drop Turkey’s long-standing preferential status when trading with the US against the backstop of strained relations between the US President and his Turkish counterpart. Furthermore, INR opened weaker amid Trump’s Generalised System of Preferences termination, but then pared losses after an Indian Trade Ministry official downplayed the consequences of deal ending. Finally, since February 25, Morgan Stanley positioning has shifted and within G10, the largest shorts are now in the CAD and CHF, whilst there are no significant longs, but JPY remains closest to long.

The RBA left its Cash Rate unchanged at 1.50% as expected. The statement which followed was digested as being relatively mixed but the last paragraph (often looked to as the most important) was unchanged. The statement noted that the slower pace of domestic growth has continued into 2019 whilst acknowledging the outlook for global growth remains a source of uncertainty and downside risks have increased. RBA said inflation remains low and stable and underlying inflation is expected to pick up over the next couple of years, with the pick-up likely to be gradual and to take a little longer than earlier expected. However, it highlighted that low level of interest rates continues to support the Australian economy and further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.

Australian Current Account Balance SA Q4 -7.2B vs. Exp. -9.2B (Prev. -10.7B, Rev. -10.8B) (Newswires)Australian Net Exports Contribution Q4 -0.2% vs. Exp. -0.1% (Prev. 0.4%)

COMMODITIES

WTI and Brent futures were lower during Asia-Pac trade as the energy complex conformed to the risk tone, rising Dollar and disappointing Chinese data. WTI futures stabilised below USD 56.50/bbl while the global benchmark lost the USD 65.50/bbl level in early trade. In terms of metals, spot gold steadied near 5-week lows despite a rising greenback amid the risk averse mood, whilst Shanghai base metal futures fell after China lowered its GDP growth target to 6.0-6.5% from “around 6.5%”. Thus, Shanghai nickel retreated from 5-month highs despite a decline in stocks and Shanghai copper fell as much as 1.5%.

Libya's NOC said it has lifted the force majeure at the El Sharara oilfield (300k BPD); production has resumed at 30K BPD but is expected to reach 80K BPD in one day; according to sources. (Newswires)

India raised its gold holdings by 6.532 tonnes to 606.992 tonnes in Jan; China raised its by 11.82 tonnes to 1,864.39 tonnes in Jan; according to IMF data. (Newswires)

GEOPOLITICS

US President Trump said military drills were not discussed at talks with North Korea's Leader Kim. (Newswires)

Rail services between India and Pakistan have now resumed after being halted amid the recent conflict; according to Indian press. (Newswires)

French President Macron said foreign powers should be banned from financing European political parties; calls for a European defence and security treaty to define obligations of EU members in coordination with NATO. (Newswires)

NORTH AMERICA

The US Treasury curve was flatter on Monday's trade, despite a heavy corporate supply docket for the week, where USD 40bln of corporate issuance is on tap, with USD 110-130bln expected through the course of March, analysts estimate. Real money was said to be putting through blocks on the long-end, taking cash yields down by around 3.5bps at settlement.

US Treasury Secretary Mnuchin has urged Congress to lift the debt limit as soon as possible and added that the new debt issuance suspension will be from March 4th to June 5th. (Newswires)

US House Judiciary Committee issues document requests to 81 agencies, entities and individuals in Trump probe focused on alleged obstruction, corruption and other abuses of power. (Newswires) US lawmakers requested documents and interviews on Trump's communications with Russian President Putin. (Newswires)

US House Speaker Pelosi said congressional Democrats are to unveil new legislation on Wednesday to reinstate US net neutrality rules that were repealed by the Trump administration. (Newswires)

Canadian PM Trudeau has accepted the resignation of Treasury Board Minister Philpott and names Qualtrough as acting Treasury Board President; according to a statement from the PM's office. (Newswires)

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