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[PODCAST] EU Open Rundown 15th March 2019

  • Asian stocks traded mostly positive across the board as US-China trade optimism helped the region shake off the negative lead from the US
  • BoJ kept monetary policy settings unchanged with NIRP held at -0.10% and 10yr JGB target at around 0% as expected
  • US President Trump said we will have news on China trade deal in the next 3-4 weeks one way or the other
  • UK lawmakers voted (412 vs 202) to accept the government's motion to extend the Article 50 process beyond 29th March
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ASIA-PAC

Asian stocks traded mostly positive across the board as US-China trade optimism helped the region shake off the negative lead from the US, where sentiment was subdued by growth concerns following recent discouraging data from China and the reported delay in the Trump-Xi summit. ASX 200 (-0.1%) and Nikkei 225 (+0.8%) were mixed with upside in Australia capped as weakness in mining names and financials offset the continued outperformance in energy, while the Japanese benchmark coat-tailed on recent currency moves. Elsewhere, Hang Seng (+0.7%) andShanghai Comp. (+0.5%) were higher as overnight trade-related news flow spurred optimism including comments from President Trump that we will have news regarding a China trade deal in the next 3-4 weeks and although he included a ‘one way or the other’ caveat, he suggested that people will be talking about it for a long time and that China has been very reasonable. In addition, Chinese officials also contributed to the trade hopes after the NPC approved Foreign Investment law reforms dealing with forced tech transfers and IP theft which is seen as an attempt to appease US concerns, while Chinese Premier Li noted that China can use reserve requirements as well as interest rates to support the economy and confirmed VAT tax cuts will begin from next month. Finally, 10yr JGBs were relatively flat with demand dampened as focus centred on riskier assets and after the BoJ policy announcement proved to be a non-event in which it maintained policy settings and downgraded assessments on exports and output as expected.

PBoC injected CNY 20bln via 7-day reverse repos for a net weekly injection of CNY 20bln vs. last week's CNY 220bln net drain. PBoC set CNY mid-point at 6.7167 (Prev. 6.7009). (Newswires)

US President Trump said we will have news on China trade deal in the next 3-4 weeks one way or the other, while he added that China has been very responsible and very reasonable. In related news, there were also earlier reports which suggested China was proposing tying in an official state visit by President Xi to a US trade deal (Newswires)

Chinese Vice Premier Liu He conducted a phone call with US Treasury Secretary Mnuchin and Trade Representative Lighthizer in which China and US were said to have made further substantive progress on trade discussions, while Mnuchin had earlier commented that he is pleased with progress on trade talks with China and expects elements of Chinese trade talks to be resolved in the near future. (Newswires)

Chinese Premier Li said China faces new downward pressure but added they will not let growth slip out of reasonable range and that China can use reserve requirements as well as interest rates to support the economy. Premier Li added China will cut VAT tax from April 1st and will tighten its belt due to tax cuts, while he hopes US-China trade talks achieve results. (Newswires)

China NPC approved foreign investment law reforms which deal with forced technology transfers and intellectual property protections which will take effect from January next year. However, the American Chamber of Commerce in China said tweaks to FDI law only addresses small concerns. (Newswires)

Chinese House Prices (Feb) Y/Y 10.4% (Prev. 10.0%). (Newswires)

BoJ kept monetary policy settings unchanged with NIRP held at -0.10% and 10yr JGB target at around 0% as expected, while it also maintained forward guidance of keeping rates at current extremely low levels for extended period. Furthermore, the BoJ stated that Japan’s economy is likely to continue expanding moderately despite effects of overseas slowdown but lowered its assessment on exports and output. (Newswires)

UK/EU

UK lawmakers voted (412 vs 202) to accept the government's motion to extend the Article 50 process beyond 29th March. Furthermore, lawmakers rejected Amendments E (302 for vs. 318 against) which called on PM May to seek an Article 50 extension to avoid leaving the EU on 29th March without a deal and to provide parliamentary time for the HoC to find a majority for a different approach. Parliament also rejected Amendment I which proposed Parliament force a series of indicative votes on 20th March on the next Brexit steps and rejected Amendment H (85 for vs 334 against) which would have instructed UK PM May to request an extension of Article 50 of sufficient length for a referendum to be legislated for and held with options for leaving on terms determined by parliament or staying in the EU. (Newswires)

UK PM May spokesperson said May has given commitment to bring forward legislative measure required to change the exit date in law. The spokesperson also stated that A50 delay would not result in a transition period extension if a deal is reached but added that the government is still preparing for no-deal and that Parliament will discuss next steps on March 25th if Brexit deal fails. (Newswires)

UK Attorney General Cox is reportedly attempting to win over Tory Brexiteers and the DUP with new legal advice which will state Britain will be able to break off from backstop under terms of the Vienna Convention. (Telegraph)

EU's Verhofstadt said EU can only agree to Brexit delay if parliament makes it clear what it will support. In related news, ITV's Peston suggested If UK PM asked EU for an extension to the Article 50 process, EU might not make the decision at the 21st March summit and may schedule an emergency EU summit for a few days before the 29 March exit date. (Newswires/ITV) 

FX

In FX markets, the DXY was indecisive and predominantly stuck within the prior US session’s tight range amid a mixed picture across its major counterparts in which EUR/USD nursed losses after finding support around the 1.3000 level and GBP/USD consolidated following this week’s parliamentary bedlam. Furthermore, brief support was seen in GBP on reports Attorney General Cox is attempting to win over Tory Brexiteers and the DUP with new legal advice that Britain will be able to break off from the backstop under terms of the Vienna Convention, which also followed parliamentary approval of the government's motion to extend the Article 50 process. Elsewhere, antipodeans were marginally positive as they benefitted from their high-beta characteristics, as well as the improved risk tone which also helped validate Gotobi demand advocates in USD/JPY although some of the moves were later faded on news that North Korea is considering suspending nuclear discussions with the US.

BoC Deputy Governor Wilkins said underlying vulnerabilities means there will still be headwinds to growth even after trade war is resolved, while she added that interest rate changes will have stronger impact then in the past as people are more indebted and that high debt could mean move to neutral could be longer. (Newswires)

COMMODITIES

Commodities were somewhat mixed with WTI crude futures flat as prices took a breather from its recent rally as upside was limited by demand side factors including ongoing growth concerns and after global oil demand growth was cut in the latest OPEC monthly report. Nonetheless, prices remained at multi-month highs in the aftermath of this week’s supportive inventory data and prospects of an output cut extension, while Goldman Sachs also affirmed a bullish view on prices. Elsewhere, gold attempted to make the most of a lacklustre greenback and nursed some of its recent losses before it met resistance at the USD 1300/oz level, and copper also staged a mild recovery as risk appetite improved during the session.

Saudi and Russia energy delegates are to meet in Baku on Sunday. (Newswires)

US extended sanctions waivers for Venezuelan-controlled Citgo by over a year. (Newswires)

Goldman Sachs said it sees scope for Brent to rally to above USD 70/bbl in the near-term as it sees current fundamentals to tighten physical markets and in turn driving the Brent forward curve into further backwardation. (Newswires)

GEOPOLITICS

North Korea is considering suspending nuclear discussions with US and does not intend to yield to US demands, while leader Kim is set to make an official announcement of his position, according to the Deputy Foreign Minister Choe Son Hui. Elsewhere other reports also noted that Kim Jong Un may rethink moratorium on missile launches and that the US threw away a golden opportunity at the Hanoi summit. (TASS/AP)

 

GLOBAL NEWS

New Zealand police reportedly have 4 suspects in custody including a suspected shooter following a deadly attack on a Mosque involving multiple fatalities at 2 locations in Christchurch, New Zealand. (Newswires)

US

Treasuries edged slightly lower on Thursday, with the T-plex ran into the session on a downward path where hedge funds were reported to be selling at the long-end, causing the curve to steepen. Although this was supported by CTAs covering their shorts just before the US equity open, with some block buyers in the front end, but this trend halted as Europeans began leaving their desks, keeping any price rallies limited. Going into the settlement, yields rose across the curve, long-end saw yields rose the most prolific with the 30-year up by c. 3.5bps. Spreads also widened further, where the 5s/30s at the greatest in 13 months and the 2s/30s greatest in 9 months. US T-note futures (M9) settled 5 ticks lower at 122-22+.

US Senate voted 59-41 in favour of the proposal to reject President Trump’s national emergency declaration on the US-Mexico border, although President Trump tweeted “VETO!” shortly after. (BBC)

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