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[PODCAST] EU Open Rundown 12th March 2019

  • Asian equity markets traded mostly higher as the region took impetus from the M&A inspired tech-led rally on Wall St
  • UK PM May has secured “legally binding” changes to her Withdrawal Agreement, however, she did not get the power to unilaterally exit the backstop, nor did she get a time limit placed on it
  • European Commission President Juncker said that the legal add-on to the Brexit deal stresses the temporary nature of the backstop and he warned if the deal is voted down, there was “no third chance”
  • In FX markets, GBP/USD remained in the limelight after PM May secured legally-binding assurances from the EU, whilst EUR/GBP was briefly dragged below 0.8500
  • Looking ahead, highlights include Swedish inflation, UK GDP estimate, US inflation, API crude inventories, UK House of Commons to vote on PM May’s Brexit deal

 

ASIA-PAC

Asian equity markets traded mostly higher as the region took impetus from the M&A inspired tech-led rally on Wall St and with sentiment also underpinned on Brexit related optimism after UK PM May’s last-ditch effort to reach an agreement with the EU resulted in legally binding changes that is said to strengthen and improve the withdrawal agreement. ASX 200 (+0.1%)was led higher by the energy sector following recent strength in oil prices but with gains eventually pared by weakness in gold miners and financials, while the Nikkei 225 (+1.9%) outperformed with the JPY-risk dynamic in full swing. Elsewhere, Hang Seng (+1.0%) and Shanghai Comp. (+1.8%) conformed to the heightened risk appetite and tech-kindled momentum, while China’s tax commissioner reiterated to enact significant tax cuts and there were also reports that top US and China trade negotiation officials discussed key issues and set the next steps in working arrangements over the phone. Finally, 10yr JGBs were initially subdued with demand sapped as focus was centred on riskier assets and with participants tentative ahead of a 5yr JGB auction, although prices then found mild support on return from the lunch break and after the auction results printed relatively inline with the previous. 

PBoC skipped open market operations for a net neutral daily position. (Newswires)

PBoC set CNY mid-point at 6.7128 (Prev. 6.7202)

Chinese Vice Premier Liu He conducted a phone call with US Treasury Secretary Mnuchin and Trade Representative Lighthizer in which they discussed key issues regarding ongoing trade talks and set the next steps in working arrangements. (Xinhua) 

 

UK/EU

UK PM May secured legally binding changes that strengthen and improve the withdrawal agreement, according to UK cabinet office minister Lidington who added that the whole UK cabinet approves of Brexit deal improvements. Lidington announced to lay a joint legally binding instrument and joint statement in parliament which provides confirmation EU cannot try to trap the UK in the backstop and if EU were to act with that intention, the UK could use it as basis for formal dispute through independent arbitration, while the joint statement said EU and UK commit to finding alternative arrangements to the backstop by 2020. However, PM May did not get the power to unilaterally exit the backstop, nor did she get a time limit placed on it. (Newswires)

European Commission President Juncker told reporters that the legal add-on to the Brexit deal which stresses the temporary nature of the backstop, complements the withdrawal agreement without reopening it. Juncker also warned if her deal is voted down, there was “no third chance”. Juncker said the EU wants the UK to exit an orderly way and we have a deal which does that. Juncker also commented there will be no new negotiations on Brexit and that it is this deal or Brexit may not happen at all, while he added that the UK must leave by May 23rd or hold elections for EU lawmakers. (Newswires/Guardian)

UK PM May said the UK will make a unilateral declaration that there will be nothing to stop UK from leaving backstop if talks break down and that we have secured what parliament has asked for regarding the backstop, while PM May added she stands by what Brexit deal achieves for Britain and that it sets us on course towards a good future relationship with the EU. Furthermore, the Times reported that PM May is understood to have discussed the possibility of extending Article 50 with EU’s Juncker. (Newswires/Times)

ERG's Rees Mogg said it was too early to say if this is enough but it’s a move in right direction, while ERG's Baker suggested it was not the first time the UK government has had to put a very good gloss on something which falls short of what was expected. Elsewhere, UK MP Collins said he will be voting against the government's motion on EU withdrawal and the DUP said it will study the detail of the latest EU-UK agreement, while UK opposition Labour Party Leader Corbyn said PM May's negotiations have failed and agreement with EU does not contain changes PM May promised parliament. (Newswires/BBC)

BBC Newsnight political editor tweeted 'Leading Brexiteer tells me: PM’s agreement with EU tonight just about looks OK. All down to Geoffrey Cox. If can provide robust legal advice that the UK can get out of the NI backstop, then this should go through'. (Twitter)

EU is said to be preparing for a delay to Brexit of at least a year, according to senior officials. (Times)

                                                                                                    

FX

In FX markets, GBP/USD remained in the limelight after PM May secured legally-binding assurances from the EU regarding the Northern Ireland backstop. The currency had already been advancing the prior day to reclaim the 1.3000 handle and move back above its 200DMA with the gains later exacerbated on hopes as PM May travelled to Strasbourg for 11th hour talks with the EU. The news of an agreement then fuelled a rally to within a whisker of the 1.3300 level although GBP/USDhas since pulled back from its highs, as some remained pessimistic considering the existing wording of the Withdrawal Agreement which was said to be unchanged with the EU just offering legal assurances to back it up. Furthermore, ERG’s Baker suggested the agreement fell short of what was expected and Labour Leader Corbyn also deemed the negotiations as a failure with PM May not delivering what she promised parliament, while focus shifts to Attorney General Cox’s legal advice on whether the UK could be trapped forever in the backstop which is seen to likely influence the outcome of tonight’s vote and with CBA warning a potential 8% drop in the currency if the deal gets rejected. The breakthrough initially dragged EUR/GBP to below the 0.8500 level where it eventually found support, while the greenback was the main fallout from the GBP strength in which the DXY briefly gave up the 97.00 level to the benefit of its major counterparts. Elsewhere, antipodeans are firmer but with upside capped in AUD/USD after NAB Business Confidence and Home Loans added to Australia’s recent cold streak of data releases, while USD/JPY and JPY-crosses were elevated as risk sentiment spurred outflows from Japan’s haven currency. 

Australian NAB Business Confidence Feb 2 (Prev. 4). (Newswires) 

Australian NAB Business Conditions Feb 4 (Prev. 7) 

COMMODITIES

Commodities were marginally higher amid the heightened risk appetite in which WTI crude futures reclaimed the USD 57.00/bbl in a continuation of its recent rebound and after OPEC reiterates to maintain cuts and reduce global inventories. Elsewhere, gold was also supported overnight but with the advances only marginal as the lack of safe-haven demand counterbalanced the effects of a weaker greenback, while copper outperformed on the firm risk sentiment.

OPEC official said OPEC will maintain cuts to reduce global inventories and will talk about demand and supply balance, while the official added OPEC will continue cutting production and wants to see commercial stocks down. Furthermore, there were also comments by OPEC Secretary General Barkindo that the oil market rebalancing continues to be a work in progress and supply adjustments will continue this year. (Newswires)

US Secretary of State Pompeo said US is to withdraw all remaining diplomatic staff from Venezuela this week. (Newswires)

US

The upbeat risk sentiment resulted to slight steepening in the Treasury curve (though 2s5s and 2s10s were a touch narrower). Analysts cited Powell’s positive comments on Friday (economy healthy), which contributed to some of the downside, though the main catalyst was likely equities bouncing back despite heavyweight Boeing trading red (see stock specifics). The Treasury sold new 3-year notes today at the lowest yield in a year; but although cover was in line with recent averages, the auction tailed by 0.4bps (average over the last six was 0.2bps tail). There wasn’t too much to take from the internals; indirect takedown rebounded on the month to the highest since December. US T-note futures (M9) settled 4 ticks lower at 122-20+.

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