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[PODCAST] EU Open Rundown 11th March 2019

  • Asian equity markets traded somewhat indecisive as the region digested Friday’s mixed US jobs data, China outperformed on PBoC pledge to further support the slowing economy
  • China reportedly removed the trip to Mar-a-Lago from Chinese President Xi's calendar, US and China are still negotiating over the phone
  • Brexit talks between the UK and the EU remain at an impasse, Downing Street has said, talks are to resume today
  • UK PM May has reportedly been warned by MPs that the Brexit vote must be put on hold, meanwhile EU is preparing to impose punitive conditions on UK for agreeing a Brexit extension
  • In FX markets, the DXY stabilized from Friday’s data-induced brief pullback, GBP/USD was the underperformer on several bearish Brexit-related stories
  • Looking ahead, highlights include German trade balance, Norwegian inflation, US retail sales (Jan), BoE’s Haskel, US supply. Note: US clocks have changed (London-NY gap is now 4 hours)

 

ASIA-PAC

Asian equity markets traded somewhat indecisive as the region digested Friday’s mixed US jobs data in which NFPs severely missed expectations and although the declines across the major US indices were only mild, the S&P 500 still posted a 5th consecutive daily loss and its worst weekly performance YTD. ASX 200 (-0.4%) and Nikkei 225 (+0.4%) were mixed with Energy the underperformer in Australia which some attributed to news of Norway’s sovereign wealth fund exiting energy companies and with the Japanese benchmark reflecting a choppy currency. Elsewhere, Hang Seng (+0.6%) and Shanghai Comp. (+1.3%)eventually outperformed despite a steep drop in lending data over the weekend, as some attributed the sharp decline in New Yuan Loans and Aggregate Financing to seasonal factors, while the PBoC also reportedly pledged to further support the slowing economy by spurring loans and reducing the cost of borrowing. Finally, 10yr JGBs were subdued with price action contained by the indecisive risk tone and lack of BoJ presence in the market.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7202 (Prev. 6.7235)

China reportedly removed the trip to Mar-a-Lago from Chinese President Xi's calendar, while US NEC Director Kudlow said US and China are still negotiating over the phone and that a Trump- Xi meeting may happen late this month or next. (Newswires)

China Mofcom stated that US-China trade talks have made substantial progress and leaders have agreed to work towards removal of tariffs. (Newswires)

PBoC pledged to further support the slowing economy by spurring loans and lowering borrowing costs after data showed a sharp decline in lending data due to seasonal factors. Furthermore, PBoC Governor Yi Gang stated there is still some room for a RRR cut although the amount of room is less compared with a few years ago and there were also comments from PBoC Deputy Governor Pan that they will keep liquidity ample and set up counter cyclical adjustments, while a central bank official also noted that February money supply data is normal and inline with historical trends. (Newswires/Yahoo)

Chinese New Yuan Loans (CNY)(Feb) 885.8B vs. Exp. 975.0B (Prev. 3230.0B). (Newswires) Chinese Aggregate Financing (CNY)(Feb) 703.0B vs. Exp. 1300.0B (Prev. 4640.0B). Chinese Money Supply M2 (Feb) Y/Y 8.0% vs. Exp. 8.4% (Prev. 8.4%) Chinese CPI (Feb) Y/Y 1.5% vs. Exp. 1.5% (Prev. 1.7%). (Newswires) Chinese PPI (Feb) Y/Y 0.1% vs. Exp. 0.2% (Prev. 0.1%)

 

UK/EU

Brexit talks between the UK and the EU remain at an impasse, Downing Street has said. Talks between the two sides are to resume this morning with the aim of securing changes ahead of tomorrow’s meaningful vote. (BBC)

UK PM May has reportedly been warned by MPs that the Brexit vote must be put on hold if she fails to secure significant concessions from Brussels. (Times)

EU is preparing to impose punitive conditions on UK for agreeing a Brexit extension with EU member states said to be toughening their stance by demanding legal and financial conditions such as a higher divorce bill in return for an extension. (Telegraph)

Only two cabinet members reportedly still support PM May, according to a cabinet minister. (Telegraph)

Shadow Brexit Secretary Keir Starmer said the Labour party will not push for a vote on a second referendum even if PM May’s deal is defeated. (The Times)

Senior Brexiteers wanted PM May’s team that she will only get her deal passed if she offers to resign by June. (The Times)

UK Chancellor Hammond will reportedly offer Tory MPs a fund pump of GBP 20bln this week to “end austerity” if they support PM May’s deal. (The Times)

BoE reportedly tightened liquidity buffers ahead of Brexit in which it asked some UK banks to triple their holdings of easy-to-sell assets to cope in the event of a market crash from a potential no-deal Brexit. (FT)

UK Brexit Minister Barclay said on Friday that it currently isn't the time to rerun old arguments with a very real deadline looming and that the UK has put forward clear new proposals and now need to agree a balanced solution that works on both sides. (Newswires)

UK rejected the EU Brexit offer on Friday and a UK government source suggested they were not impressed by Barnier's tweets.  Furthermore, DUP’s Dodds said the EU offer was neither realistic nor sensible and that it disrespects the constitutional and economic integrity of the UK, while Dodd’s also suggested it was an attempt to get ahead in a possible blame game but added there is still time to get a deal. (Newswires)

ECB's Coeure (Neutral) said he does not see a need to restart asset purchases and added that the ECB does not see a recession at the moment. (Newswires) 

 

FX

In FX markets, the DXY stabilized from Friday’s data-induced brief pullback in which selling pressure from the worst NFP reading since September 2017, was suppressed by a decline in the Unemployment Rate and better than expected Average Earnings. The composure of the greenback and indecisive risk tone kept price action across most major currencies range-bound in which USD/JPY oscillated around the 111.00 level and with antipodeans tentative after a slowdown in lending and mixed inflation data from China, while EUR/USD was little changed at the 1.1200 handle amid light weekend news flow from the continent although Barclays had recommended shorting EUR/GBP with a target at 0.8400 and stop at 0.8760. Conversely, GBP/USD was the underperformer on several bearish Brexit-related stories including reports which suggested that only 2 cabinet members still support PM May and that she was warned by MPs to put the Brexit vote on hold, while the EU is also said to be preparing to impose punitive conditions on the UK including a higher divorce bill if the latter requests a Brexit extension. This saw the pair gap below several key technical levels including the psychological 1.3000 level, its 200 DMA and 61.8% Fibonacci retracement of the mid-to-late February rally. 

 

COMMODITIES

Commodities were mildly positive but with gains restricted amid an indecisive risk tone, with WTI crude futures marginally positive following a decline in the latest Baker Hughes rig count and reports China’s top oil firms are shutting down several refineries for overhauls. Elsewhere, a stable greenback kept gold prices in check and below the USD 1300/oz level, while copper also eked small gains as China bourses eventually outperformed their regional peers.

Baker Hughes (March 8) oil rigs -9 at 834, nat gas rigs -2 at 193, total rigs -11 at 1027. (Newswires)

US President Trump administration officials are reportedly divided over NOPEC legislation that would allow the government to sue OPEC nations for attempting to control oil prices. (Axios)

Sinopec and PetroChina are to shut down several refineries with tens of millions of tonnes of total capacity for several months due to overhaul work. (Newswires) 

 

US

As the Tsy complex wrapped up for the week, the T Note future added only 3+ ticks at settlement, despite the NFP headline mis which took the June contract to highs of 122-31, and then snap to lows around 122-19, before continuing its sideways grind at relatively unchanged levels. There was buying after the Europeans had left for the week, which took the contract form around 122-21 to around 122-26. At settlement, major curve spreads were slightly narrower, but under 1bps. US T-note futures (M9) settled 3+ ticks higher at 122-24+.

US President Trump will release the 2020 budget today (comes into effect in October) in which he is to request USD 8.6bln of funding for border wall and is to ask Congress to reduce non-defense spending by an average of 5% in fiscal 2020 budget. Furthermore, growth is exp. 3.2% in 2019, 3.1% in 2020, 3.0% in 2021 and a 10-year forecast of 3.0%, while the proposal will see a balanced budget in 2034 rather than the typical 10-year horizon that has been a goal for Republicans. (Newswires)

Fed Chair Powell (Neutral) commented that downside risks to the economic outlook have increased and that more economies began to slow 6 months ago, while he added that US economic outlook is still favourable but that trade talks have added to the uncertainty. Fed Chair Powell also stated the economy is in a good place and rates are appropriate considering muted inflation, while he added the Fed does not feel any hurry to change interest rates again and will wait to observe how global conditions evolve before making any changes. (Newswires)

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