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[PODCAST] EU Open Rundown 18th April 2019

  • Asian indices are weaker as the region follows the subdued lead from Wall St. and ahead of a long weekend
  • Reports suggest US & China have set a tentative trade talks timeline; with a deal potentially to be signed as early as late May
  • Looking ahead, French, German, EZ, & US PMI (Flash) UK & US Retail Sales, US Initial Jobless Claims & Business Inventories, US Philly Fed Business Index, Fed’s Bostic, Supply from France
  • Earnings: Phillip Morris, Union Pacific, HoneyWell, PPG, American Express, Saipem

 

ASIA-PAC

Asian equity markets were softer with the region tentative ahead of Easter closures and following a lacklustre performance on Wall St where a continued slump across the healthcare sector weighed across the major indices. ASX 200 (Unch) was choppy with the index initially dragged lower as health stocks tracked the underperformance of their counterparts stateside, although the index later recovered amid strength in miners and energy names following quarterly updates from the likes of Fortescue Metals, Santos and Woodside Petroleum. Meanwhile, Nikkei 225 (-0.7%) was weighed by a firmer currency, while Hang Seng (-0.7%) and Shanghai Comp. (-0.2%) also traded subdued despite further liquidity efforts by the PBoC, as hopes for a RRR cut fade and as Hong Kong participants took risk off the table ahead of a 4-day closure. Finally, 10yr JGBs were higher with prices supported by the cautiousness in the region and amid mild gains in T-notes, while today’s enhanced liquidity auction for longer-dated JGBs also attracted greater demand.

 

PBoC injected CNY 80bln via 7-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.6911 (Prev. 6.7110)

 

PBoC is reportedly unlikely to lower RRR in the short-term after recent liquidity injections and MLF announcement, while better than expected Q1 data also means there is less pressure for a RRR cut. (China Securities Journal)

US President Trump said China trade deal moving along nicely, while he suggested we will be hearing about China trade deal shortly and has a feeling the trade deal will be successful. In related news, reports suggested US and China have set a tentative timeline for next round of trade talks with USTR Lighthizer said to possibly to travel to Beijing during April 29th week, while the sides could sign a deal perhaps as early as late May.(WSJ)

BoK kept the 7-Day Repo Rate unchanged at 1.75% as expected with the decision made unanimously. BoK said South Korea economy to grow mid-2% level this year and hover below prior projections but won't significantly diverge from potential level, while it added that exports are to recover gradually. (Newswires)

 

UK/EU

Conservative MP Blunt has begun collecting names for a no-confidence vote against the Speaker Bercow, as the speaker is no longer impartial. (Guardian/Times)

A potential technological solution the to Irish border could be more than a decade away and in all likelihood is a very expensive prospect, according to a Home Office Document. (Sky)

 

FX

In FX markets, the DXY was stable and just about held on to the 97.00 level as most its major counterparts traded uneventful ahead of the upcoming holiday closures. EUR/USD was stuck near the 1.1300 level where it had meandered throughout the week and where a large option expiry of EUR 1.4bln is also located for today’s New York cut, while GBP/USD was uneventful as the 2-week parliament recess allowed the pair a breather from the Brexit-related chaos. USD/JPY softened amid the subdued risk tone but with downside limited as the 112.00 level continued to provide a magnet for price action, while antipodeans were relatively flat despite initial upside in AUD/USD following better than expected jobs data. The beat in headline Employment Change which was solely fuelled by Full-Time workers, pushed AUD/USD to within a whisker of the 0.7200 handle, where it then met resistance as some were also kept wary by the rise in the Unemployment Rate which was one of the conditions the RBA had recently outlined for a potential rate cut. Elsewhere, NZD/USD was quiet with interpolated OIS now pricing around 50% chance of a RBNZ rate cut next month vs. about 25% on Tuesday, although TD Securities suggested the recent CPI data was not a trigger for the RBNZ to ease next month and they also see a 'solid' floor at 0.6700 for the currency.

Australian Employment Change (Mar) 25.7k vs. Exp. 12.0k (Prev. 4.6k). (Newswires) Australian Full Time Employment (Mar) 48.3k (Prev. -7.3k) Australian Unemployment Rate (Mar) 5.0% vs. Exp. 5.0% (Prev. 4.9%) Australian Participation Rate (Mar) 65.7% vs. Exp. 65.6% (Prev. 65.6%) 

 

COMMODITIES

Commodities were uneventful overnight with WTI crude futures flat below the USD 64.00/bbl level after the prior day’s mild losses despite the surprise draw in DoE headline crude inventories, which was narrower than the headline draw in Tuesday’s API report. Recent comments from Russian Energy Novak also expressed caution regarding the extension of OPEC+ cuts as he said that it was too early to speak about preferable options for the output deal and will need to see how the market situation develops. Elsewhere, gold trickled further below the USD 1300/oz level to print a fresh YTD low, not helped by a stable DXY which remained above 97.00, while copper suffered from the risk averse tone across the region.

 

GEOPOLITICS

North Korea Leader Kim reportedly oversaw the test of a new tactical guided weapon. (KCNA)

US National Security Advisor Bolton said the US has imposed new sanctions on Venezuela's central bank to restrict US transactions and prohibit access to the USD. (Newswires)

 

US

Yields were slightly lower at settlement, paring the bear-steepening seen in early trade after an encouraging slate of China data, which stoked risk sentiment. There was some pause after it was officially confirmed that Germany cut its growth projection (the second time in months). However, the narrower trade balance saw sellers return. After the European close, action was slower as traders began eyeing the long weekend, and there were reports of profit-taking. Stocks couldn’t sustain the pre-market risk-on, and accordingly, Treasuries found demand in US trade. At settlement, major curve spreads were a touch steeper. US T-note futures (M9) settle 1 tick higher at 122-27+

Fed Beige Book said the US economy expanded at a slight-to-moderate pace in March and early April. Fed districts said growth continued at a similar pace as in the previous report and a few reported some strengthening, while employment continued to increase nationwide in which 9 districts reported modest or moderate growth and the others reported slight growth. Furthermore, reports on manufacturing activity were favourable but many Fed district contacts noted trade-related uncertainty. (Newswires)

Fed's Bullard (voter, neutral) said falling core inflation is a concern if it leads to falling expectations about future inflation, but also commented that he expects economy to do better in Q2 compared to first part of the year. (Newswires)

Fed's Harker (non-voter, dove) repeated view for at most one hike for 2019 and one in 2020, while he commented he is keeping an eye on yield curve but noted inversion is not an absolute predictor of economic downturns. (Newswires)

Herman Cain said he will not withdraw from consideration from the FOMC board, while he added he wouldn't 'tune out' presidential pressure if nominated and that it is perfectly OK for the president to have an opinion. Furthermore, he sees a 50/50 chance of being confirmed to the position. (WSJ)

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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