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[PODCAST] EU Open Rundown 29th March 2019

  • Asian equity markets were higher across the board, Shanghai Composite outperformed as US-China trade talks are underway
  • US Treasury Secretary Mnuchin said that US and Chinese negotiators had a productive working dinner last night in Beijing
  • UK House Speaker accepted a vote on the Withdrawal Agreement for today at around 1430GMT/1030EDT; Labour and DUP parties are set to vote against it
  • In FX markets, the DXY held steady above the 97.00 level following the prior day’s advances heading into month end and quarter end
  • Looking ahead, highlights include German Retail Sales & Unemployment Data, UK GDP, US PCE Price Index, Canadian GDP, Fed's Williams & Quarles, ECB's Coeure, HoC to vote on the Withdrawal Agreement, US-China trade talks continue in Beijing

 

ASIA-PAC

Asian equity markets were higher across the board as the region took impetus from the US, where all major indices finished positive and trade-sensitive sectors outperformed on optimism as US-China high-level talks resumed in Beijing. ASX 200 (+0.1%) eked mild gain as most sectors remained afloat heading into quarter-end although gold miners were heavily weighed after the precious metal succumbed to the pressure from a firmer greenback. Nikkei 225 (+0.8%) was driven by currency weakness with Daiichi Sankyo surging nearly 16% to hit limit up and a record high after it signed a USD 6.9bln collaboration and commercialization deal for its cancer drug with AstraZeneca in which it will receive an upfront payment of USD 1.35bln. Elsewhere, Hang Seng (+1.0%) conformed to the upbeat tone and the Shanghai Comp. (+2.6%) outperformed as trade discussions continued in Beijing and after China announced electricity and fuel costs reductions ahead of incoming VAT cuts. Huawei also supported the risk appetite after it posted a 25% increase in annual profits despite the ongoing US tiff, although not all stocks benefitted as some contended with disappointing earnings including China’s largest lender ICBC which fell short of FY net forecasts after flat Q4 profits. Finally, 10yr JGBs were lower as the fixed income complex eased from the rampant inflows seen this week and as gains in stocks dampened demand for safe-haven assets, although downside was limited with the BoJ also in the market for JPY 710bln of JGBs in the belly to super long-end.

PBoC skipped open market operations for a net weekly drain of CNY 110bln vs. Prev. CNY 90bln net injection W/W. (Newswires) PBoC set CNY mid-point at 6.7335 (Prev. 6.7263)

US President Trump said US is doing well with China in trade talks and other countries. Elsewhere, US Treasury Secretary Mnuchin commented that they had a productive working dinner last night in Beijing and was looking forward to today. (Newswires) Japanese Tokyo CPI (Mar) Y/Y 0.9% vs. Exp. 0.9%    (Prev. 0.6%). (Newswires) Japanese Tokyo CPI Ex. Fresh Food (Mar) Y/Y 1.1% vs. Exp. 1.1% (Prev. 1.1%) Japanese Tokyo CPI Ex. Fresh Food & Energy (Mar) Y/Y 0.7% vs. Exp. 0.7% (Prev. 0.7%)

UK/EU

UK government source confirmed they were laying a motion to give MPs a vote on the withdrawal agreement only for Friday without the political declaration on the future relationship between the EU and the UK, while a government source said the vote to approve the withdrawal agreement would meet the EU's test to extend A50 to May 22nd and is said to be substantially different to MV3. (Newswires/BBC/Twitter)

UK government ministers privately suggested a general election will be called if Friday's vote is rejected or things "fall apart", according HuffPost's Paul Waugh. Elsewhere, there were comments from House Speaker Bercow that the new government motion meets his tests and only covers withdrawal agreement, while Sun's Tom Newton Dunn reports it will occur at 14:30GMT/10:30EDT. (Newswires/Twitter/Huffington Post)

UK opposition Labour leader Corbyn told PM May he will not be voting in favour of the WA today, while DUP Deputy Leader Dodds said the DUP will not back the WA and that a softer form of Brexit is now possible but added the DUP's priority is ensuring no barriers between Northern Ireland and rest of UK instead of the form of Brexit. Furthermore, reports state that around 20 hard-line Tory Eurosceptics still oppose the deal. (Newswires/Telegraph)

EU will insist that Britain pays a GBP 39bln divorce bill and implements the Irish backstop before beginning emergency talks to prevent an economic crash in the event of a no-deal Brexit. Furthermore, there were also reports that Britain faces staying in the EU another year if the withdrawal agreement is voted down today. (Times)

At least 10 cabinet ministers are considering putting themselves forward as PM May's replacement following her promise to step down if her Brexit deal goes through. (Newswires)

UK GfK Consumer Confidence (Mar) -13 vs. Exp. -14.0 (Prev. -13.0). (Newswires) UK Lloyds Business Barometer (Mar) 10 (Prev. 4)

FX

In FX markets, the DXY held steady above the 97.00 level following the prior day’s advances and as its main counterparts remained subdued including EUR/USD which languished near 2-week lows as some suggested the ECB’s consideration of tiered-deposit rates could be an intention to keep rates lower for longer. Meanwhile, GBP/USD composed itself following the Brexit-related bedlam and ahead of today’s watered-down vote in which MPs will decide on the withdrawal agreement only, and not the political declaration on the future relationship with the EU, to secure a Brexit date extension. Elsewhere, USD/JPY and JPY-crossesbenefitted from safe-haven outflows, while antipodeans were somewhat choppy as support from the heightened risk appetite was counterbalanced by the dovish views for their central banks with JP Morgan now forecasting the RBNZ to lower rates in May and June this year, and as some suggested potential ramifications this could have for the RBA ahead of next week’s policy meeting.

RBNZ Governor Orr commented on the market reaction to the recent policy review in which he is said to be pleased markets have shown they understand what the central bank is focused on, while he also commented that the bank’s easing bias is a starting point for the incoming MPC. (Newswires)

SNB's Maechler said CHF remains highly valued and currency remains fragile, while Maechler added that negative rates and currency interventions remains necessary where required. (Newswires) 

COMMODITIES

Commodities were mixed with WTI crude futures were supported by the risk appetite and following the prior day’s rebound through the USD 59.00/bbl level, although the gains were mild amid mixed news flow including Mexico ports reopening and the US further tightening the noose on Venezuela. Elsewhere, gold prices remained subdued after it recently gave up the USD 1300/oz due to the stronger greenback, while copperbenefitted from the elevated risk appetite and outperformance in China.

Russia Energy Minister denies report that Russia will only agree to extend output cut deal by 3 months and said Russia and Iran potential extension of OPEC+ deal. (Newswires) This follows source reports yesterday that OPEC and Russian could agree to a 3-month extension of the current agreement at the June meeting.

US instructed foreign trading firms and refiners to stop direct and indirect oil swap deals with Venezuela and warned a continuation would be seen as a sanction breach according to sources. Furthermore, reports added that only deliveries of jet fuel and diesel can continue for humanitarian reasons, while the US government reportedly asked OPEC behind closed doors to remove Venezuelan official from OPEC presidency. (Newswires)

US President Trump is to issue an Executive Order to speed up pipeline development. (Axios)

China Q2 copper treatment and refining costs floor was lowered to USD 73/ton vs. Prev. USD 92/ton Q/Q. In addition, China is to reduce electricity tariffs for industrial and commercial use, as well as lower retail prices of gasoline by CNY 225/ton and diesel by CNY 200/ton from April 1st due to VAT cuts. (Newswires)

CME lowered May 2019 NYMEX crude oil futures margins by 8.1% to USD 3400 per contract and raised NYMEX palladium futures margins by 25% to USD 10313 per contract. (Newswires)

Rio Tinto declared a force majeure on some iron ore shipments and is assessing damage at its Cape Lambert port in Western Australia. (Newswires)

US

The curve was mixed at settlement, with 2s5s a touch steeper, though other major curve spreads narrowed (5s30s by as much as 5bps). There was optimism about US/China trade talks, which saw some flattening in European trade. Treasuries took some influence from the Bund after German inflation was short of expectations. There was little reaction after data showed US GDP in Q4 was revised lower. The Treasury's 7s auction was decent, stopping through by 0.9bps, with cover above recent averages; there was reported short-covering after the auction. Fed's Williams -- like the Fed's Daly earlier in the week -- suggested that the yield curve inversion might not necessarily portend a recession; previously some FOMC members have argued that the size of the Fed's balance sheet makes presents challenges for this signal as portending a recession. US T-note futures (M9) settled 6 ticks lower at 124-16.

Fed's Bullard (voter, dove) said normalization process in US is at an end and suggested they have gone as far as they can. Bullard also commented that it is premature to consider a rate cut now and that he sees a likely rebound in economic growth during Q2 and the rest of 2019. (Newswires)

Fed's Williams (voter, hawk) said the US economy is in a very good place and there is a reality it is slowing but to a sustainable pace. Williams also commented that he is not as worried about the chances of a recession as some in the private sector and that yield curve inversion has historically pointed to a recession but that may not be the case today, while he also doesn't believe governments can run large deficits indefinitely without consequences. (Newswires)

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China's Agriculture team getting as far away from the NYSE, just like us!! Hope you all have a good weekend, we'll… https://t.co/NsIJqCDJFE