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[PODCAST] EU Open Rundown 9th April 2019

  • Asian indices edged into positive territory, following a mixed performance on Wall St. and ahead of tomorrow’s risk events including ECB rate decision & FOMC minutes
  • Legislation avoiding no-deal and forcing an extension to Brexit has been written into UK law, while the EU want a 9/12-month extension if no agreement is reached by Friday
  • Looking ahead, highlights include US NFIB Business Optimism, Fed's Quarles & Clarida, Supply from Japan, UK & US

 

ASIA-PAC

Asian equity markets eventually turned mostly positive on what was a predominantly cautious session following a mixed performance on Wall St amid tentativeness ahead of upcoming earnings season and this week’s central bank activity including FOMC Minutes and ECB policy meeting. ASX 200 (-0.1%) andNikkei 225 (+0.1%) were indecisive but with losses in Australia stemmed by strength in the energy sector as the escalating conflict in Libya lifted oil prices, while Tokyo sentiment mirrored a choppy currency. However, the region was not without its success stories as Crown Resorts surged over 20% after it announced it was in discussions regarding a takeover approach by Wynn Resorts and with Sony higher by more than 7% on news Third Point was building an activist stake in the Co. and called for a review on ownership of several divisions. Hang Seng (+0.5%) and Shanghai Comp. (+0.1%) were also tepid amid a lack of any firm drivers and as trade-related news quietened down, while the PBoC also continued to refrain from open market operations. Finally, 10yr JGBs were lacklustre amid an indecisive risk tone and as participants awaited a 5yr auction, as well as Saudi Aramco’s USD 10bln bond offering which was more than 7x oversubscribed. Prices later recovered off their lows as the 5yr JGB auction later proved to better than previous with an improvement seen across most metrics including a higher b/c and accepted prices.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7142 (Prev. 6.7201)

UK/EU

UK Parliament approved the legislation forcing PM May to delay Brexit and avoid a no-deal Brexit on April 12th which later received Royal Assent and was signed into law. (Newswires)

UK PM May is reportedly considering giving MPs a free vote on whether to hold a second referendum, although reports also noted that the Brexit Chief Whip is confident the government has the numbers to defeat any vote on a second referendum. Elsewhere, UK PM May has been warned by some members of the 1922 executive that a customs union is unacceptable, according to BBC’s Nick Eardley with separate reports suggesting that the 1922 Committee want May to stand down with immediate effect. (Telegraph/Twitter)

EU wants UK to approve Brexit deal this week or face a long delay and are to consider 9-month (also suggested by a rumour in the Telegraph) or 12-month extension if a withdrawal deal isn't approved by Friday, while the reports noted the EU want to be able to end the extension period if a new Brexiteer PM tries to cause problems during a long extension. Furthermore, the EU is to set a high price for delaying Brexit including UK to give up rights in future EU budget and trade talks, while it will force the UK into a no-deal Brexit if it seeks to cancel election to European Parliament. (BuzzFeed/Newswires)

UK Conservative party spokesperson said it remains the government’s intention to ratify a deal that allows a Brexit before 23 May 2019, so that the UK does not need to participate in European elections. However, it was also reported that the Cabinet Office confirmed the government laid a Day of Poll Order needed for Euro elections and stated they have taken the necessary steps required by law should the UK have to participate. (Newswires/Twitter)

UK ministers are to resume Brexit discussions with opposition Labour Party today, while there were earlier comments from Labour leader Corbyn that the government does not seem to be moving from red lines and so far Labour has not seen the commitments it wanted to see. (Newswires) Sources indicate that UK PM May had not accepted Labour’s demand for a customs union, however, there was a move towards altering the non-binding political declaration. (BBC)

Sources suggest the most likely outcome of Wednesday's emergency Brexit summit is an extension of the Brexit deadline to the end of May, according to ITV’s Peston. (Twitter)

UK BRC Sales Like-For-Like (Mar) Y/Y -1.1% vs. Exp. -0.8% (Prev. -0.1%); largest decline since April 2018. (Newswires)

UK Barclaycard Consumer Spending (Mar) Y/Y 3.1% (Prev. 1.2%), while the report noted that 69% of consumers are not confident in the economy which is the highest since the survey began in 2014. (Newswires)

US Trade Representative Lighthizer released a list of EU products that could be subject to tariffs if the EU does not remove subsidies for Airbus (AIR FP) and said the US is seeking to place tariffs on USD 11bln of goods as a countermeasure. (Newswires)

FX

In FX markets, the DXY remained softer and tested the 97.00 level to the downside as its major counterparts held on to the prior day’s gains, with EUR/USDin the midst of a cluster of option expiries between 1.1250-1.1275 with a total value of over EUR 4.5bln which are set to expire at today’s New York cut and with GBP/USD mildly underpinned after both Houses of Parliament approved the Withdrawal Bill to extend Article 50 and avert the UK crashing out without a deal on April 12th. Looking ahead, UK ministers are to resume Brexit discussions with the opposition Labour Party today in attempt to solve the deadlock although the opposition party has suggested that the government has been unwilling to budge in talks so far, while the EU want the UK to approve the Brexit deal this week or face a long delay and will consider a 9-month or 12-month extension if a withdrawal deal isn't approved by Friday. Elsewhere, USD/JPY and JPY-crosses were choppy amid the indecisive risk tone, while better than expected Australian Home Loans and recent strength in commodities provided a base for antipodean currencies.

COMMODITIES

Commodities were positive with energy price remaining firm near fresh 5-month highs above the USD 64.00/bbl level on supply side risks mostly due to the escalation in Libya which also increases risks to supply from the country’s largest El-Sharara oil field which has a capacity of 315k bpd. Some have also suggested ongoing tensions with Iran and potential Saudi resentment after the US banned 16 Saudi nations from entering the US for involvement in the Khashoggi killing, were among other factors adding to the bias upside for oil. Elsewhere, gold prices only marginally benefited from a weaker greenback, while copper gained amid continued strength in Chinese commodity prices in which Dalian iron ore futures gained for a 7th consecutive session amid tightening supply.

GEOPOLITICS

Eastern Libyan forces confirmed they conducted airstrikes on Tripoli's Mitiga airport. (Newswires)

US State Department banned 16 Saudi nationals from entering the US due to role in Khashoggi murder. (Newswires)

Iran placed US Central Command on its terror list. (Newswires) 

US

US Treasury yields rose by 1.5bps-2bps at settlement. However, the day started off with a bid, and weak German data lent support. However, over the course of the session, the complex gradually eased, with some citing chunky supply this week out of the US Treasury, as well as the corporate slate (books on Aramco's USD 10bln M&A bonds are said to be above USD 60bln). Lower volatility in equities and generally stable S&P also left little need for the haven, while some also cited increased chatter about the reflation trade, too. Some suggest that the rate cut pricing in Fed funds might be a function of the Fed's independence under threat (Board nominee Moore has called for rate cuts recently, as has NEC director Kudlow), however, with optimism that a US/China trade deal can help boost global growth, and stabilising metrics in China too (which can feed through into Europe), there are certainly questions about the need for immediately looser policy. Ahead of FOMC minutes this week, money markets price under 50% chance of a rate cut in 2019 (vs over 50% at the end of last week). Major curve spreads were mixed at settlement. US T-note futures (M9) settled 4+ ticks lower at 123-14+.

US judge issued an injunction against President Trump administration's policy of returning asylum seekers to Mexico. (Newswires)

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