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[PODCAST] EU Open Rundown 13th March 2019

  • UK PM May lost the Brexit deal vote by 391 against vs. 242 for (149 vote margin). Lawmakers will now vote on the possibility of accepting a no deal Brexit
  • Asian equity markets traded mostly lower following the mixed lead from Wall St and after UK PM May’s Brexit defeat and soft data releases
  • In FX, the DXY traded uneventfully overnight with price action stuck at the 97.00 level as EUR/USD flatlined
  • Looking ahead, highlights include, EZ Industrial Production, US Durable Goods & PPI, Construction Spending, HoC Vote on no-deal, ECB's Mersch & Coeure, Supply from Italy, German and US
  • Earnings: Adidas, E.ON, Prudential & Innogy

 

ASIA-PAC

Asian equity markets traded mostly lower following the mixed lead from Wall St and after UK PM May’s Brexit deal was voted down in parliament, while soft data releases also contributed to the subdued tone. ASX 200 (-0.2%) and Nikkei 225 (-1.1%) declined at the open as broad weakness and poor Westpac Consumer Confidence data weighed on Australia, while the Japanese benchmark underperformed on currency effects and after a larger than expected contraction in Machine Orders. Hang Seng (-0.4%) and Shanghai Comp. (-0.3%) conformed to the negative tone but with losses stemmed as the region digested some corporate updates. Finally, 10yr JGBs tracked the recent upside in T-notes which were lifted after soft US CPI numbers, while prices were also supported on safe-haven demand and with the BoJ in the market for JPY 710bln of JGBs in the belly to the super long-end.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7114 (Prev. 6.7128)

 

China’s stats bureau chief said the economy achieved a good start to the year despite recent decline in mobile phone and car sales, while he added industrial production is stable and employment steady in first 2 months of 2019. (Newswires)

 

UK/EU

UK PM May lost the Brexit deal vote by 391 against vs. 242 for (149 vote margin). PM May later said she is committed to holding other votes this week and that if the House votes for an extension, the government will seek to agree it with the EU. Elsewhere, a spokesperson said PM May has not discussed resigning which followed reports that some Tory lawmakers were said to be mulling approaching UK PM May in a delegation to ask her to resign, while it was also reported that May will hold an emergency cabinet meeting at 0800GMT today. (Newswires/Twitter)

Brexiteers were considering laying down a Malthouse Plan B amendment for the no-deal motion, according to ERG’s Baker. It was then later reported that the group of UK lawmakers proposed an amendment for today’s vote that the government should seek Article 50 extension until May 22 in order to prepare for a no-deal exit and that the government should offer mutual standstill agreements with the EU for an agreed period finishing by end-2021 at the latest. Furthermore, UK PM May was warned that as many as a dozen Eurosceptic ministers are prepared to quit in order to support the Malthouse Plan B amendment. (Newswires/Telegraph)

ERG’s Rees-Mogg suggested the UK is heading for a no-deal Brexit without extension, while there were separate reports that UK cabinet minister Cairns doesn't think this is necessarily the end of the deal. (Twitter/Sky News)

EU Council President Tusk spokesperson said it is difficult to see what more the EU can do without solution to the impasse in London, while the spokesperson added that the result of the vote has significantly increased likelihood of a no-deal Brexit and EU will decide unanimously on any request to delay Brexit. Elsewhere, German Foreign Minister Maas also said we are getting closer to a no-deal scenario but added that Germany still hopes a no-deal Brexit can be avoided. (Newswires)

UK does not intend to have any controls at the Irish border in the event of a no-deal Brexit. (BBC)

                                                                                                    

FX

In FX markets, GBP/USD stabilized below 1.3100 following yesterday’s Brexit-related pandemonium in which PM May’s Brexit deal was rejected via 391 vs. 242 votes or by a 149 margin. The declines in the currency began long before the parliamentary vote as the key findings from the Attorney General on the legally binding changes that PM May secured in her 11th hour dash to Strasbourg, failed to appease the ERG and DUP. Nonetheless, the actual results of the vote saw a positive knee-jerk reaction for GBP which was attributed to the implication that a cliff-edged Brexit was less likely with parliament to vote on a no-deal Brexit today and on an Article 50 extension tomorrow, although the support was only brief amid the mass uncertainty. Furthermore, MPs have already proposed amendments for today’s vote including a Malthouse Plan B amendment for the government to seek an Article 50 extension until May 22 in order to prepare for a no-deal exit and which calls for mutual standstill agreements with the EU until December-2021 at the latest, while there was also an amendment from the remain camp calling for a no-deal Brexit to be ruled out. Elsewhere, the DXY traded uneventful overnight with price action stuck at the 97.00 level as EUR/USDflatlined, and risk-sensitive pairs were mostly dictated by the lacklustre sentiment which kept USD/JPY pressured for most the session before finding support near Tuesday’s lows. Antipodeans were also pressured due to their high-beta characteristics with AUD dampened from another round of disappointing data, although Commerzbank is anticipating a recovery for the currency and there were also forecasts from ANZ which defied the recent dovish views as it sees the RBA on hold for this year and next.

Australian Westpac Consumer Confidence Index (Mar) 98.8 (Prev. 103.8). (Newswires) Australian Westpac Consumer Sentiment (Mar) M/M -4.8% (Prev. 4.3%)

COMMODITIES

Commodities were mixed in which WTI crude futures outperformed with prices back above the USD 57.00/bbl following a slew of bullish oil news including reports that the OPEC+ pact extension for H2 2019 could made in April and with UAE overcompliance on output curbs, while the latest API inventory report also showed a surprise draw in headline crude stockpiles. Elsewhere, gold mildly extended on gains after its recent breakout to above the USD 1300/oz with the precious metal also underpinned by safe-haven demand, and copper bucked the trend as the risk averse tone kept prices in check.

API Crude Inventories -2.6mln vs. Exp. +2.7mln (Prev. +7.3mln). (Newswires)

GEOPOLITICS

Iran Defence Minister said Tehran will respond firmly if Israel Navy acts against Iran oil sales. (Newswires) 

US

The bid in Treasuries were particularly strong on Tuesday, despite equities trading higher. Further upside was seen in the complex after a solid 10-year auction, which stopped through the screens by 0.8bps. Analysts noted that real yields came in after a soft CPI report, with many suggesting that there isn't anything to suggest we are facing a spike higher in price pressures any time soon. Additionally, one trader noted that banks were said to be receiving in size, and corporate issuance was being swapped into floating rates, with the perception that yields will continue to fall. 10-year yields dropped beneath 2.60% - we haven't had a close beneath that level since early January. At settlement the cure bull-flattened. US T-note futures (M9) settled 7+ ticks higher at 122-28.

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