Original insights into market moving news

[PODCAST] EU Open Rundown 6th May 2019

  • Asia-Pac indices and US equity futures began the week with heavy losses as President Trump heightens tensions in the US-China trade war

· Subsequently, China is reportedly mulling cancelling trade discussions this week following US President Trump's tariff threats

·UK PM May remains optimistic that she is nearing a deal with the opposition Labour party on Brexit; MPs in her party and across the aisle are less upbeat about the prospects for a deal

· Looking ahead, highlights include EZ Services PMIs, ECB’s Lautenschlaeger, Praet, Fed’s Evans, Harker and BoC’s Poloz. UK markets closed


Asia-Pac indices and US equity futures began the week with heavy losses as US-China trade tensions flared up after President Trump tweeted that the US will raise the 10% tariffs on USD 200bln of Chinese goods to 25% and suggested they will soon extend 25% tariffs to an additional USD 325bln of Chinese goods which are currently untaxed. Furthermore, China’s potential cancellation of this week’s trade discussions in Washington added to the pressure for equity futures and in turn wiped out all of Friday’s gains from the Goldilocks jobs report. ASX 200 (-0.8%) was negative with the index led lower by underperformance in tech and with the top-weighted financials sector also pressured amid losses in ‘Big 4’ bank Westpac after it reported a 24% drop in H1 statutory profit. Elsewhere, all components in the Hang Seng (-3.5%) were negative and the Shanghai Comp. (-5.2%) slumped heavily due to the renewed tariff threats which reportedly could shed 1.5% of China’s GDP growth, while a PBoC liquidity injection and targeted RRR cut for small and medium-sized banks, as well as mixed Caixin Services and Composite PMI data did little to brighten the sentiment in China. As a reminder, Japan and South Korea remained shut for Children’s Day.

US President Trump stated over the weekend that the US will raise the 10% tariffs on USD 200bln of Chinese goods to 25% beginning on Friday and suggested that USD 325bln of additional goods from China which remain untaxed, will be shortly at a rate of 25%, while he suggested the trade agreement with China is proceeding too slowly and firmly rejects efforts to renegotiate. Furthermore, there were also reports that President Trump was told by aides that significant hurdles remain to reaching a trade agreement with China and a source familiar with President Trump’s thoughts on tariffs said that China have been backing away from agreements the US negotiating team believed they had already made. (Newswires/Twitter/Axios) This follows comments from President Trump on Friday that the US is doing fine with China regarding talks and that progress towards a deal are going "pretty well", while he added that a deal may happen in a couple of weeks although US will be fine if it doesn't happen. (Newswires)

China is said to be mulling cancelling trade discussions this week following US President Trump's tariff threats. It was also reported that some working level Chinese officials have postponed their flights to the US and may fly as late as May 8th which is the date of the negotiations and that Chinese Vice Premier Liu He is very unlikely to go to the US this week, However, reports later suggested that Vice Premier Liu could delay his trip by 3 days and shorten it to only 1 day for trade talks. (WSJ/Global Times/Twitter/SCMP)

PBoC is to set lower reserve requirements for small and medium sized banks effective May 15th which will release CNY 280bln of long-term funds. (Newswires)

PBoC injected a net CNY 20bln via 7-day reverse repos. (Newswires) PBoC set CNY mid-point at 6.7344 (Prev. 6.7286)

Chinese Caixin Services PMI (Apr) 54.5 vs. Exp. 54.2 (Prev. 54.4). (Newswires) Chinese Caixin Composite PMI (Apr) 52.7     (Prev. 52.9)


UK PM May is said to be optimistic she is nearing a deal with the opposition Labour party on Brexit, while Foreign Minister Hunt commented that there is a glimmer of hope the government can reach a Brexit compromise with Labour. It was reported that PM May’s officials were drafting a new law ahead of a potential Brexit deal with the Labour party in an attempt to break the ongoing stalemate; the move would help ensure a customs unions arrangement and guarantee that there are no checks on goods flowing between the UK-EU border. However, there were later reports that suggested PM May was warned that more than 100 MPs would attempt to block a soft Brexit. (Newswires/BuzzFeed)

UK PM May reportedly held secret discussions concerning a 3-way referendum in which she carried out scenario planning with aides and ministers in the event they cannot prevent a parliamentary vote on a 2nd referendum. (Telegraph)

UK Shadow Chancellor McDonnell poured cold water on PM May’s plan for a temporary customs union in exchange for Labour support and likened the cross-party discussions as similar to entering a contract with a company going into administration. In related news, Shadow Health Secretary Ashworth also dismissed talk of an early compromise and suggested that PM May’s proposals would risk US health giants getting their hands on the NHS, while it was also reported that Labour MPs will not back the Brexit deal without a 2nd referendum. (The Guardian/Independent)

UK Chancellor Hammond is mulling a significant hike to the minimum wage to GBP 9.61 per hour from current GBP 8.21 per hour.(The Guardian)

Portuguese PM Costa said the motion passed on Thursday is financially unsustainable and that they always balanced budget consolidation with other measures, while he warned that the government would be forced to resign if Parliament gives final approval to the budget. (Newswires)



In FX markets, the DXY was flat around 97.50 following its retreat from the 98.00 level in the aftermath of Friday’s US jobs numbers. EUR/USD gapped below the 1.1200 handle and GBP/USD was weaker as senior figures in the opposition Labour party casted doubts on a cross-party deal to break the Brexit deadlock, while reports also noted that Labour MPs will not back the Brexit deal without a 2nd referendum. The risk averse tone from Trump’s tariff offensive spurred safe-haven flows with the downside in USD/JPY and JPY-crosses exacerbated by the absence of participants in Japan, while CNH weakened by 5 points in the fallout of the return of the ‘Tariff Man’. Elsewhere, antipodeans were also pressured with AUD/USD below 0.7000 and NZD/USD briefly tested the 0.6600 level to the downside due to their high-beta statuses and China exposure, as well as the potential ramifications trade uncertainty could gave at the upcoming ‘live’ rate decisions from both sides of the Tasman this week.



Commodities were mostly weaker amid the increased US-China trade tensions which weighed heavily on WTI crude futures as they fell towards the USD 60.00/bbl level where it eventually found some mild support to help recoup some of the intraday losses of more than 3.0%. Elsewhere, gold was underpinned by the risk averse tone and extended on Friday gains which were spurred by a weaker greenback after soft wage growth data, while copper was pressured amid heavy losses in it largest buyer China and after Shanghai metal prices fell around 3% shortly after the open.

Baker Hughes (May 3): oil rigs +2 at 807, gas rigs -3 at 183, total rigs at 990. (Newswires) Iron ore port holdings in China fell 1.8% to 133.6mln tons which is the lowest since October 2017. (Newswires) 


US President Trump tweeted that North Korea leader Kim knows that “I am with him & does not want to break his promise to me”, while he added a deal will happen. In related news, there were reports over the weekend that North Korea test fired several short-range missiles which travelled 70km-200km eastwards. (Newswires/Twitter)

US National Security Adviser Bolton said US is deploying a carrier strike group and bomber task force to US Central Command region to send a clear message to Iran that any attack on US interests or allies will be met with unrelenting force. (Newswires)

US renewed sanction waivers allowing UK, Russia, China and France to continue non-proliferation work with Iran, although it could place sanctions if Iran exchanges enriched uranium for natural uranium and will permit a continuation of projects that restrict Iran's ability to restart its defunct nuclear weapons program. (Newswires)

Eastern Libya forces led by Khalifa Haftar conducted airstrikes on targets in Tripoli and said they have destroyed the Government of National Accord's operation headquarters. (Newswires) 


UST futures closed out the week lower on the day after a blow-out headline figure for NFPs, which saw some volatile action upon the release as average hourly earnings missed on their 0.3% and 3.3% forecast (0.2% and 3.2% respectively). Thus, 10yr yields didn’t sustain their initial bid and failed to break its 50DMA, with the bounce linked a block of 6k TYM9 supposedly lifted by a hedge fund. Thereafter, 7k USM9s were bought ahead of the ISM results, with the fixed income complex gaining speed afters some disappointing results. Fed speakers then took centre stage, with a largely neutral tone exhibited that fell in-line with FOMC guidance, ex-Evans, which kept T-notes within ranges heading to the close. US T-note futures (m9) settled 13 ticks higher at 61.94.

Fed's Bullard (Voter, Dove) said he is open to rate cut if inflation is still low after the summer, while he added that Fed policy is a little tight and that low inflation as well as inflation expectations are concerning. (Newswires)

Fed's Clarida (Voter, Neutral) said inflation is muted but sees inflation expectations as stable, while he described the US economy as being at, or close to, the Fed's objectives on both inflation and unemployment. Furthermore, Clarida suggested the economy is in a "very good place" and the Fed can afford to monitor incoming data. (Newswires)

Fed's Kaplan (Voter, Neutral) said the Fed is in the neighbourhood of neutral rates and that he views economic growth at roughly 2.25% this year, while he is worried about weak growth in the Eurozone and its effect on the US. (Newswires)

Fed’s Daly (Non-Voter, Dove) said inflation has consistently fallen below the Fed target and stated the economy is in a good state so now is the time to examine the Fed framework, while she added that an average inflation target would be a more attractive option. (Newswires)

Fed's Mester (Non-voter, Hawk) said she does not believe in a rate cut yet. (Newswires)

Thomas A. Roe Institute for Economic Policy Studies Director Paul Winfree is being considered for the Federal Reserve, according to sources. (WSJ)

Fitch Maintains the UK on Rating Watch Negative https://t.co/QuZXLMFNoR