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[PODCAST] EU Open Rundown 20th March 2019

  • Asian equity markets lacked firm direction with the region cautious following a lacklustre lead from Wall St
  • US President Trump said talks with China are "going very well" and reports suggested that US-China talks are in final stages
  • Separate reports noted that some US officials see China walking back on some trade offers but suggested this is a normal procedure in trade talks
  • UK PM May requested to address the 1922 Committee at 1700GMT, while the PM’s office has indicated the Brexit extension letter will be sent to the EU today
  • Looking ahead, highlights include UK CPI, New Zealand GDP, FOMC Rate Decision & Press Conference, German EUR 4.0bln Bobl Auction

 

ASIA-PAC

Asian equity markets lacked firm direction with the region cautious following a lacklustre lead from Wall St and as global risk appetite was hampered by the looming FOMC meeting and ongoing US-China trade uncertainty. ASX 200 (-0.3%) and Nikkei 225 (+0.2%) traded mixed in which the former was pressured by weakness in financials and mining names, while Sony and Nintendo shares were among the biggest decliners in Japan following Google’s announcement of a cloud-based gaming service, although losses in the broader Tokyo market were later pared by favourable currency moves. Hang Seng (-0.2%) and Shanghai Comp. (-0.8%)conformed to the indecisive tone due to trade uncertainty following conflicting news flow in which US-China trade talks were said to be at the final stages with senior trade negotiators to meet from next week, although other reports noted expectations that China may walk back on some trade offers and that issues remained regarding data services and pharma. Finally, 10yr JGBs were restrained as they reflected the flat picture in T-notes and uneventful BoJ Minutes release, although prices were then pressured as Tokyo trade began to improve and following a tepid BoJ Rinban operation of JPY 500bln concentrated in the belly.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7101 (Prev. 6.7062)

US President Trump said talks with China are "going very well" and reports suggested that US-China talks are in final stages. Furthermore, the Trump administration confirmed US Trade Representative Lighthizer and Treasury Secretary Mnuchin plan to visit Beijing next week for further talks, while Chinese Vice Premier Liu He is also expected to visit Washington the week after. (Newswires/WSJ)

Some US officials see China walking back on some trade offers but suggested this is a normal procedure in trade talks, while reports added that USTR Lighthizer is said to seek details on China's revised IP offer and that issues remain on data services and pharma. (Newswires)

BoJ Minutes from January 22nd-23rd meeting stated that most members suggested it will take time to reach 2% inflation target and that it is appropriate to continue easing persistently. The minutes added that it was vital to communicate persistent easing stance and that one member said it was undesirable to create a situation where markets view excessively that there will be no policy changes in the near-term. (Newswires)

 

China restrictions on coal imports from Australia appear to be widening to other ports in China according to Australian press reports which mention the southern port of Fangcheng. (Newswires)

UK/EU

UK PM May requested to address the 1922 Committee at 1700GMT, while the PM’s office has indicated the Brexit extension letter will be sent to the EU today. Furthermore, there were separate reports that the EU is said to see mid-April as a deadline for the UK to decide on long or short delay to Brexit. (Newswires)

Backbench Tory Brexiteers reportedly made a behind-the-scenes bid to persuade EU leaders to veto any delay to Brexit at this week's Brussels summit. (Telegraph)

 

Chinese President Xi will sign agreements with France including energy, transport and agriculture during visit to Europe, while China will also sign trade and finance agreements with Italy. (Newswires)

 

FX

Price moves across FX markets were relatively tame overnight with the greenback eyeing the 96.50 level amid some pre-FOMC positioning. The greenback’s major counterparts were rangebound with EUR/USD and GBP/USD at the mid-1.13 and 1.32 handles respectively, with the latter consolidating ahead of a potential bout of more Brexit-related swings as PM May is indicated to send her Brexit extension letter to the EU today, although there was uncertainty on the length of the extension request and some Tory MP's reportedly warned a forced resignation as the price if UK PM May succeeds in seeking a long Brexit delay. Elsewhere, USD/JPY and JPY-crosses found support on a slight improvement in Japanese sentiment and touted Gotobi demand, while antipodeans were mildly pressured in which AUD/USD retreated further away from the 0.7100 handle as 3yr yields briefly slipped back below the 1.50% Cash Rate Target and amid iron ore price weakness.

COMMODITIES

Commodities were lacklustre overnight amid the indecisive risk appetite which sapped demand for oil, although WTI crude futures – which have recently rolled over to the May contract – held above the USD 59.00/bbl level as the backdrop of fundamentals remain supportive including a surprise draw in API crude inventories and unwavering OPEC commitment to supply reductions. Elsewhere, gold prices were steady in anticipation of the FOMC, while copper was subdued by an uninspiring risk tone and weakness in Dalian iron ore prices which slumped over 4% in early trade on returning supply after Vale was approved to resume operation at the Laranjeiras dam.

API Weekly Crude Stocks (15 March) -2.1mln vs. Exp. +0.3mln (prev. -3.9mln). (Newswires)

US President Trump granted Iraq a new 90-day waiver to purchase Iranian crude. (Newswires)

UAE Energy Minister Al Mazrouei said we are committed to deliver 100% of our oil supply cuts in the coming months, while he added that OPEC cannot end supply cuts as long as glut persists and that he expects OPEC to finalize charter with Non-OPEC in June. (Newswires) Brazil court gave approval for Vale to resume operations at Laranjeiras dam for its Brucutu mine. (Newswires) 

GEOPOLITICS

North Korean propaganda outlet Uriminzokkiri said South Korean military's Ssangyong and Ulchi Taegeuk exercises are a vicious challenge to hopes of peace and violate agreements made between North Korea and South Korea. (Newswires)

US

Early doors, the Tplex took its cue from a German ZEW report, after an upside surprise, and offering some hope that European survey data may begin improving (data surprises have been ticking up since end-Feb). Talk the ECB might have to broaden its asset purchases to include stocks lent some of a bid to the fixed complex. Also in the pre-market, there was a large 17k blocked seller of the June TY contract, reportedly real money, which piled pressure into the complex, helping rate differentials widen, and lifting USDJPY towards its 200-dma at 111.44. There were also reports of chunky put buying in the 10-year space, adding to the downside. After the equity complex stalled in afternoon trade, a slight bid returned in Treasuries, given a bit of a boost on newswire headlines questioning the progress of US/China trade, though subsequent reports painted a more optimistic picture. At settle, the curve was a touch narrower, though by less than 1bps. US T-note futures (M9) settled 2+ ticks lower at 122-24+.

US President Trump is to host Caribbean leaders at Mar-a-Lago on Friday where discussions will include China's predatory economic practices and Venezuela. (Newswires)

White House Economic Adviser Hassett said performance of the economy is the opposite of a sugar rush, while he added that the budget assumes tax cuts are permanent. (Newswires)

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