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[PODCAST] EU Open Rundown 29th April 2019

  • Asian equities traded mixed despite last Friday’s gains on Wall Street, Japanese markets were closed due to the Golden Week Holiday
  • Spain’s election showed that no party won a majority, but the Socialists emerged as the only party with a chance of forming a governing coalition
  • UK Labour is said to be prepared to sign up to a Brexit deal with the government without the promise of a referendum attached if cross-party talks make significant progress in the coming days
  • Looking ahead, highlights include EZ Consumer Confidence & Industrial Sentiment, US Personal Income & Consumption, US PCE Price Index & Dallas Fed and BoE’s Carney
  • Earnings: Alphabet, BBVA, Philips

ASIA-PAC

Asian equities traded mixed despite last Friday’s gains on Wall St where sensational Q1 GDP and soft Core PCE Prices suggested a Goldilocks economy and propelled US stock markets to fresh record closes, as this week’s looming risk events and holiday closures restricted upside for the region. ASX 200 (+0.5%) was the laggard amid losses in its largest-weighted financials sector and with energy names also downbeat after a pullback in oil prices, while this week’s array of key releases including Chinese PMI, US NFP, BoE and FOMC announcements also added to the tentative tone. Elsewhere, Hang Seng (+0.9%) was positive after data showed Chinese Industrial Profits recovered in March and with focus on earnings including Agricultural Bank of China which kicked off the Big 4 bank earnings with an improvement in Q1 net, while Shanghai Comp. (-0.1%) was less decisive after the PBoC refrained from liquidity operations and with the mainland only open for the first 2 days of this week. As a reminder, Japan is closed until May 7th.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7310 (Prev. 6.7307)

Chinese Industrial Profits (Mar) Y/Y 13.9% (Prev. -14.0%). (Newswires)

US Treasury Secretary Mnuchin said trade negotiations with China are in the final laps. (NYT)

UK/EU

UK opposition Labour Party accused the government of refusing to compromise on its red lines in cross-party talks. (Sky News)

Labour is said to be prepared to sign up to a Brexit deal with the government without the promise of a referendum attached if cross-party talks make significant progress in the coming days according to one of the party’s negotiators, while it was separately reported that Labour deputy leader Watson stepped up calls for his party to promise a referendum on any Brexit deal in its European elections manifesto. (Guardian/BBC)

Sources stated that PM May could be axed as PM by the end of June if cross-party talks with Labour break down. (The Sun)

The Conservative party can expect to lose 800 or more seats at this week’s local elections according to a leading Tory analyst. (Guardian)

Spain’s election over the weekend showed no party won a majority but the incumbent Socialists under PM Sanchez emerged as the only party with a chance of forming a governing coalitionwith 123 out of the 350 seats in parliament, while conservatives won 65 seats, centre right at 57 seats and far fright at 24 seats. (Newswires)

Fitch affirmed UK at AA; Outlook Negative and affirmed Netherlands at AAA; Outlook Stable, while S&P affirmed UK at AA; Outlook Negative and affirmed Italy at BBB; Outlook Negative. (Newswires)

FX

In FX markets, the DXY was lacklustre and just about relinquished the 98.00 level following the recent data releases in which a weak PCE inflation number somewhat overshadowed the strong GDP. The greenback’s major counterparts were mildly higher in which EUR/USD prodded above resistance at 1.1150 after the Spanish election results showed incumbent PM Sanchez’s Socialists party won 123 out of the 350 seats in parliament and despite failing to secure a majority, it emerged as the only party with a chance of forming a governing coalition. GBP/USD traded slightly firmer but with upside limited amid conflicting views on cross-party discussions which UK Chancellor Hammond described as productive and suggested optimism on reaching a common ground, while the Labour party accused the government of refusing to compromise on its red lines. Elsewhere, USD/JPY was uneventful amid the 10-day closure in Japan and antipodeans extended on Friday’s mild advances with AUD/USD benefitting as the ruling coalition narrowed the gap against Labor ahead of next month’s election and after the latest ASX 30-Day Interbank Cash Rate futures showed expectations for a rate cut next week slipped to below 50%.

Goldman Sachs sees EUR/USD declining to 1.10 in the next 3 months and DXY rising to 99.00, while it suggested global growth is unlikely to be strong enough to weigh on the greenback. Furthermore, Goldman Sachs forecasts USD/TRY at 6.25 in 3 months, 6.50 in 6 months and 7.00 in 12 months. (Newswires)

COMMODITIES

Commodities were subdued amid the mixed risk sentiment in which WTI crude languished below the USD 63.00/bbl level and with Brent crude closer to the USD 71.00/bbl level to the downside after having rolled over to the July contract during the weekend. The weakness in prices followed the recent pull back from around 6-month highs and after President Trump stated that he had been in touch with OPEC in which he told them to bring oil prices down, although OPEC Secretary General denied speaking to President Trump. Elsewhere, gold traded sideways amid tentativeness ahead of this week’s key releases including the FOMC and copper was also restricted by the indecisiveness in its largest buyer China.

Baker Hughes US Rig Count (26 April 2019): Total rigs -21 at 991 (Prev. 1012), oil rigs -20 at 805 (Prev. 825), gas rigs -1 at 186 (Prev. 187). (Newswires)

US President Trump said he called OPEC and told them to bring oil prices down. In other news, a Trump official said there is no wind down period or short-term waiver being contemplated for China's purchasing of oil from Iran and that it should be easy for China to comply with sanctions as doing business with the US is more important for China than Iran. (Newswires)

Eastern Libyan military forces have sent warships to the port of Ras Lanuf, according to a spokesman. (Newswires)

US

Despite a solid GDP headline, the Treasury complex caught a bid in wake of the Q1 report, with analysts suggesting some of the internals of the report were not as encouraging as the headline. Yields were lower across the curve, and by settlement, the curve had bull steepened. The focus now turns to next week's FOMC, (virtually no chance of a hike - will the Fed acknowledge upward data surprises, and recharacterize its view of the economy? as well as the April Employment Situation Report. US T-note futures (M9) settle 9 ticks higher at123-21+.

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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