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[PODCAST] EU Open Rundown 11th July 2018

  • US Trade Representative Lighthizer announced US will impose tariffs of 10% on additional USD 200bln of goods from China
  • Asian stocks slumped across the board. The risk averse tone spurred flows into safe-haven JPY which briefly dragged USD/JPY below the 111.00 handle
  • Looking ahead, highlights include US PPI, DoEs, BoC rate decision, supply from Germany and the US, ECB’s Draghi, Villeroy, Praet, Mersch, BoE’s Carney, BoC’s Poloz and Fed’s Williams

 

TRADE

US Trade Representative Lighthizer announced US will impose tariffs of 10% on additional USD 200bln of goods from China, while a senior administration official stated that China is not seriously negotiating on trade and the list of new tariffs will not be implemented for 2 months with the final decision expected after Aug 30th. Furthermore, the new list was said to include electric vehicle batteries, leather products, air conditioners, fridges, furniture, tv components and several metals. (Newswires)

China Assistant Commerce Minister said US is escalating trade tensions and that tariffs are a disruption to globalization and international order. The official stated that it is vital to send a positive signal of cooperation and stated ‘if they go low, we go high’ concerning trade. However, Mofcom later commented it strongly opposes US action and reiterated China will take countermeasures, while there were also later comments from China that the US putting out a list is unacceptable, and it will be forced to strike back. (Newswires)


ASIA

Asian stocks slumped across the board with sentiment spooked on increased trade concerns after the US announced a new tariff list on an additional USD 200bln worth of Chinese goods. The renewed US trade offensive picks up from Trump’s threats made last month and in turn weighed heavily on US equity futures as well as Asia-Pac bourses, while some commodities in Shanghai went into free fall alongside the broad risk-averse tone. ASX 200 (-0.7%) and Nikkei 225 (-1.0%) were lower with commodity-related sectors in Australia suffering after declines in the complex in which Shanghai Zinc fell 6% to hit limit down and copper fell to its lowest in about a year, while losses in Tokyo were exacerbated by safe haven flows into the JPY. Elsewhere, Hang Seng (-1.5%) and Shanghai Comp. (-1.9%) took the brunt of the increased trade tensions, although both were off the day’s lows after an initial composed response from China which stated it was vital to send a positive signal of cooperation and suggested that if the US will go low, it will go high. Finally, T-note futures traded higher overnight with prices spurred by the tariff list announcement, while 10yr JGBs were flat after they failed to benefit from the broad risk-averse tone, as well as the BoJ’s presence in the market for JPY 960bln in 1yr-10yr maturities.
 

PBoC skipped open market operations for a net daily drain of CNY 40bln. (Newswires)

PBoC set CNY mid-point at 6.6234 (Prev. 6.6259)


UK/EU

UK Conservative Party rebels are said to weigh voting against PM May's Brexit deal which reports suggest could bring down PM May's government later this year. (Newswires)

UK Conservative Party vice chairs Maria Caulfield and Ben Bradley quit roles due to government Brexit position. (Telegraph)
Separately, there were comments that UK PM May is to face more resignations over her Brexit plan, according to the Sun's political editor. (Sun)

German Chancellor Merkel said she wants to have a close relationship with UK after Brexit and that the EU is to give a common response to May's Brexit white paper. (Newswires)
 

FX

In FX markets, the risk averse tone from the increased trade tensions spurred flows into safe-haven JPY which briefly dragged USD/JPY below the 111.00 handle, while JPY crosses were similarly pressured. Elsewhere, AUD, NZD and CAD suffered due to their high beta properties and amid declines across commodities, while China’s currency was the worst performer in which CNH dropped as much as 500 pips against the greenback on the tariff threat and continued expectations the currency may be used as a future trade weapon. Conversely, the DXY was flat after it largely ignored the fresh tariff list announcement and with its main counterparts across the pond also unmoved.


COMMODITIES

Commodities were lower across the board with sentiment spooked by the announcement of a fresh tariff list on Chinese goods which weighed heavily on metals prices. As such, copper dropped over 3% to its lowest in around a year and Shanghai zinc fell limit down shortly after the open, while gold prices were pressured in tandem with the blood bath across the metals complex. Elsewhere, crude also declined in which Brent crude briefly fell below USD 78.00/bbl and WTI was also weaker as the risk averse tone overshadowed the initial support from a larger than expected draw in API crude inventories,

US API Weekly Crude Stocks (6 Jul) -6.795M vs. Exp. -4.500M (Prev. -4.500M). (Newswires)


UAE Energy Minister Al Mazrouei said he is concerned about supply and not about demand, while he added that demand will be robust over the next decade and that OPEC will fail if it targets an oil price. (Newswires)

US officials held discussions in Saudi Arabia to help partners find alternatives to Iranian oil and discussed maintaining a well-stocked oil market to guard against volatility. (Newswires)

EIA cut forecast for 2018 world oil demand growth by 80k BPD to a total 1.72mln BPD Y/Y rise, while it also cut forecast for 2019 world oil demand growth by 10k BPD to a total 1.71mln BPD Y/Y rise. (Newswires)

Credit Suisse raised 2018 WTI crude price forecast to USD 67.25/bbl from USD 66.00/bbl and raised 2018 Brent crude forecast to USD 73.50 from USD 71.00/bbl. (Newswires)

Chile government raised its view of 2018 copper prices to USD 3.12/lb from USD 2.88/lb and stated that copper price fall is transitory. (Newswires)

US

Despite thin volumes, the familiar theme of flattening was again seen on Tuesday; 2s30s and 5s30s printed fresh narrows not seen in a decade, while 2s10s narrowed further, and was beneath 28bps at settlement. US 10YR T-notes futures (U8) settled 3+ ticks lower at 120-00+. However, prices were then buoyed on safe-haven bids following the announcement of a fresh US tariff list on Chinese goods which saw T-notes higher by as much as 10 ticks overnight.

Fed Discount Rate Minutes stated that Fed directors reported solid economic activity and that some regional Fed directors were concerned by trade risks, while it also noted that 11 banks sought a hike to the discount rate in which all but the NY Fed voted for a hike. (Newswires)

Source: RANsquawk

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