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[PODCAST] EU Open Rundown 5th April 2019

  • Asian indices were cautious ahead of today’s key risk events and thinner trade amid market holidays
  • US-China trade narrative continues, with President Trump and USTR noting that progress has been made, but the deal is not there yet
  • UK PM May is drafting letters for EU’s Tusk and Labour’s Corbyn regarding an extension and an offer respectively
  • Looking ahead, highlights include German Industrial Output, US & Canadian Jobs Report, Fed's Bostic, ECB's Mersch

 

ASIA-PAC

Asian equity markets traded slightly mixed following a similar indecisive lead from Wall St. as US-China trade optimism was partially offset by pre-NFP caution and holiday thinned conditions from closures across the Greater China region. ASX 200 (-0.7%) was the laggard and extended on its pullback from 7-month highs, with the declines led by tech which mirrored the underperformance of the sector stateside. Nikkei 225 (+0.3%) was positive with the index underpinned by favourable currency moves and trade-related hopes, while the KOSPI (Unch.) remained afloat as index giant Samsung Electronics weathered a miss on its Q1 earnings guidance. Chinese markets were shut for national holidays although there was certainly no lack of relevant news flow with trade talks remaining in the limelight, in which leaders from both sides noted substantial progress was made and President Trump suggested that a deal could be announced in the next 4 weeks. Finally, 10yr JGBs were pressured amid spill-over selling from T-notes and as stocks in Japan remained afloat, while the BoJ were only present in the market today for T-bills.

US President Trump said rapid progress is being made in trade discussions with China and we're getting very close to trade deal, but added it is not yet made and could be announced in the next 4 weeks, maybe more or less. Furthermore, US President Trump said he will hold a summit with Chinese President XI in Washington if there is a deal and that he will discuss tariffs with Chinese Vice Premier Liu He, while he cited tariffs as well as IP theft when asked about sticking points. (Newswires)

US Trade Representative Lighthizer also noted that plenty of headway was made and the US has a good partner in China's Vice Premier Liu He but added there are still major, major issues remaining. (Newswires)

Chinese Vice Premier Liu He told US President Trump that the 2 sides reached a new consensus on key issues in text of trade agreement and will continue to work hard to conclude talks ASAP, while Liu also commented that Chinese President Xi hopes US and China can continue to make progress to address each other's concerns. (Newswires)

UK/EU

A letter from UK PM May's government to EU's Tusk requesting for an A50 extension is being drafted, with current debate in Cabinet on how long the extension should be. In related news, there were reports EU's Tusk is preparing to offer the UK a 12-month flexible extension,according to a senior EU source. (The Guardian/BBC)

UK Attorney General Geoffrey Cox admitted PM May will be forced to accept an extension to Article 50 of longer than 'just a few weeks or months', which reports suggested sets the stage for fresh cabinet infighting. (Independent)

A letter drafted to UK opposition Labour party from PM May's government is likely to include the idea that confirmatory referendum should be one option put to MPs. (The Guardian)

UK ministers have reportedly discussed a mass walkout in protest against a soft Brexit and long delay to Article 50, while it was also reported that some UK cabinet ministers are reportedly attempting to block a long Brexit extension. (Telegraph/Times)

REC survey showed UK firms' hiring of permanent staff declined by the fastest pace since August 2016. (Newswires) 

FX

In FX markets, the DXY was steady ahead of US NFP data and held on to most the prior day’s gains that had been attributed to a demise in its counterparts across the pond, in which EUR/USD fell towards 1.1200 following another bout of weak data from Germany. GBP/USD also relinquished the 1.3100 handle to the downside amid uncertainty heading into the current Brexit date of April 12th and amid scepticism regarding cross-party talks between the government and Labour. However, both pairs have found mild reprieve overnight and consolidated ahead of the US jobs data with EUR/USD centred between 2 large option expiries of EUR 871mln at 1.1200 and EUR 2.2bln at 1.1250. Antipodeans were mixed amid a lack of data and indecisive risk tone with AUD outperforming its counterpart across the Tasman following the recent surge in iron prices and due to US-China trade hopes, while Goldman Sachs also revised its 3-month forecasts for AUD/USD to 0.7400 from 0.7200 and sees the RBA to remain on hold citing a resilient economy and improving market sentiment on China. Elsewhere, USD/JPY and JPY-crosses were marginally higher amid trade-related hopes and touted Gotobi demand at the Tokyo open.

COMMODITIES

Commodities were uneventful overnight with price action restricted by the mixed risk tone and tentativeness ahead of the key US jobs data which kept WTI crude futures relatively sideways overnight after prices found a base at the 62.00/bbl level, while Saudi also mounted a defence against US anti-cartel intentions in which it discussed plans with other producers to drop USD from oil trades if US passes NOPEC. Elsewhere, gold prices were relatively unchanged as the greenback held on to its recent gains and copper was also flat amid the absence of its largest buyer China.

Saudi Arabia reportedly discussed plans to ditch USD from oil trades if US passes NOPEC. (Newswires)

Venezuela's PDVSA expects output from upgraders to remain below capacity for this month following blackouts. (Newswires) 

GEOPOLITICAL

North Korea has built a ballistic missile submarine, according to South Korean press reports. (Newswires)

US

According to the CME’s Fedwatch tool, the implied chance of a rate cut in 2019 still stands at over 50%. While this has certainly edged lower from periods in the last month where the chance was around 75% (implied by money market pricing), it still seems at odds with comments from Fed officials, who have generally been upbeat about the economy while acknowledging its slowing; many others have noted that as the tax-cut high fizzles out, growth was always expected to normalise. But there is still a lack of high profile Fed officials talking about cuts. Mester and Harker today both intimated the next move could be higher (non-voters). Perhaps the pricing is a result of comments from nominee Moore, who this week called for an immediate 50bps rate cut, and NEC director Kudlow, who echoed Moore’s remarks; then there is Trump's own preference for lower rates, and the criticism he often fires in the direction of the Fed. The latest on the Fed BOG, is that Trump is mulling nominating Herman Cain, who is a fan of former Fed chair Greenspan. In terms of the curve, action was very thin ahead of payrolls on Friday, and at settlement, curve spreads were a touch narrower. US T-Note futures (M9) settled 1+ higher at 123-17+.

US President Trump said he is giving Mexico a 1yr warning and that if that does not stop the illegal drugs coming in, US will tariff Mexican goods including cars and close the border. President Trump later commented that there would be a 25% tariff on car imports from Mexico if he decides to apply tariffs but also said that Mexico has done good regarding the border during past 4 days, while he added that he did not say the border would stay open for a year but that he would place tariffs first. (Newswires)

Fed's Harker (non-voter, dove) said he does not see a rate cut this year or next year and is still in "wait and see mode", while he expects one rate hike "at most" in 2019 and one in 2020. (Newswires)

Fed's Mester (non-voter, hawk) said she is biased to keeping rates where they are or moving them up a bit despite downside risks, while she added that it is possible FFR may need to move higher if the economy performs in line with Fed scenarios but also commented it is possible that the Fed is done with hikes for this cycle. (Newswires)

US President Trump confirmed he has recommended Herman Cain to the Fed board. (Newswires)

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Dominic Raab = The Turnip in Brussels via @Telegraph https://t.co/lf6JLRb6Pg