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[PODCAST] EU Open Rundown 15th May 2019

  • Asian indices were firmer after positive comments from US President Trump regarding China trade; although, gains were capped by poor earnings and data
  • UK PM May’s government has confirmed that the Withdrawal Agreement will be put to Parliament in the first week of June
  •  Looking ahead, highlights include EZ GDP, US NY Fed Manufacturing, Retail Sales, Industrial Production, Manufacturing Output, Business Inventories, NAHB, Canadian CPI, IEA Monthly Oil Report, Fed’s Quarles, Barking, Rosengren & George; ECB’s Lane, Coeure & Praet, German 30yr
  • Earnings: Cisco, Bouygues, Credit Agricole, RWE, British Land, Compass Group

ASIA-PAC

Asian equity markets eventually traded mostly higher following the positive lead from the US where sentiment was underpinned by President Trump's optimism regarding a US-China trade deal, but with gains in the Asia-Pac region capped as participants digested earnings, as well as disappointing Chinese Industrial Production and Retail Sales data. ASX 200 (+0.8%) was led higher by strength in tech as the sector tracked the outperformance of its counterpart stateside, while Nikkei (+0.2%) mirrored a somewhat indecisive currency with heavy losses seen in Takeda and Nissan shares post-earnings. Hang Seng (+0.7%) and Shanghai Comp. (+1.1%) were positive after President Trump’s encouraging rhetoric and with the first phase of the PBoC’s targeted RRR adjustment taking effect today which would release around CNY 100bln of long-term funds and resulted to a decline in Chinese money market rates, although the gains across the region were somewhat capped by disappointing Chinese Industrial Production and Retail Sales data. Finally, 10yr JGBs were flat with price action hampered by the ambiguous risk tone in Japan and with today’s BoJ Rinban operation at a relatively paltry JPY 505bln concentrated in the belly.

PBoC skipped open market operations for a net daily drain of CNY 10bln, although the first phase of its targeted lower RRR adjustment is effective today which would release around CNY 100bln of long-term funds. (Newswires) PBoC set CNY mid-point at 6.8649 (Prev. 6.8365); weakest fix since December 27th.

Chinese Industrial Production (Apr) Y/Y 5.4% vs. Exp. 6.5% (Prev. 8.5%). (Newswires) Chinese Retail Sales (Apr) Y/Y 7.2% vs. Exp. 8.6% (Prev. 8.7%); weakest growth since May 2003

Chinese President Xi said the international situation is more volatile and uncertain, while he called on nations to promote openness and trade. (Newswires)

China People's Daily commentary suggested US deceives itself by thinking that tariffs are benefiting it, while China Global Times Editor expects the trade conflict to last longer than many people think. (Newswires)

US President Trump is expected to sign an executive order this week to ban US companies from using telecommunications equipment posing national security risks, which is aimed at perceived risks from firms such as China's Huawei. (Newswires)

 

UK/EU

UK Government confirmed it will put the Withdrawal Agreement to parliament in the first week of June. UK PM May will tell opposition Leader Corbyn that she intends to hold a 2nd reading vote on the Withdrawal Agreement Bill in the week of June 3rd whether or not a deal with Labour has been reached, setting an effective deadline to the negotiations, according to The Sun's Tom Newton Dunn. However, there were also reports that UK opposition Labour party leader Corbyn reiterated to PM May that they will not back her Brexit plan without concessions. (Twitter/Newswires) This comes amid reports that cross-party talks between the UK government and Labour may collapse on Thursday, according to ITV's Peston. (Twitter)

Italy Deputy PM Salvini said they are planning to introduce tax breaks on VAT for the auto-sector in the next budget. (Newswires)

 

FX

 

In FX markets, the DXY was flat overnight but remained near the prior day’s highs above the 97.50 level as its major counterparts languished in which EUR/USD tested the 1.1200 level to the downside while GBP/USD sat near 3-week lows around 1.2900 as PM May faces increasing pressure to step down. Furthermore, the latest reports suggested PM May will put the Withdrawal Agreement to parliament in the first week of June, although many are doubtful of the chances of its success and Labour party leader Corbyn also reiterated to PM May that they will not back her Brexit plan without concessions. Elsewhere, USD/JPY was choppy amid indecisiveness in Tokyo and antipodeans slightly weakened following the miss on Australian Wage Price Index, as well as disappointing Chinese Industrial Production and Retail Sales data in which the latter grew at the weakest pace since May 2003.

Australian Wage Price Index QQ (Q1) 0.5% vs. Exp. 0.6% (Prev. 0.5%). (Newswires)

 

COMMODITIES

 

Commodities were mixed with WTI crude futures lower following a surprise build in the latest headline API crude inventories and with all the components showing builds which was mostly unexpected, while the prior day’s attack on 2 Saudi Aramco pumping stations also failed to impact Saudi oil exports which continued as normal. Gold prices were relatively unchanged with price action restricted by a steady greenback, while copper saw mild gains as it benefitted from the mostly positive overnight risk tone.

API Crude inventories (14 May) +8.6mln vs. Exp. -1.3mln (Prev. +2.8mln). (Newswires)

OPEC SecGen Barkindo said it is too early to talk about extending output cuts, while he added that the Middle East has seen enough turmoil and that stability is needed. (Newswires)

 

GEOPOLITICS 

US President Trump denied the recent NY Times report that US officials mulled sending as many as 120,000 troops to the Middle East if Iran were to attack US forces, while US Secretary of State Pompeo said the US does not seek war with Iran but will respond appropriately to any Iranian attacks on US interests. However, reports in Newsweek suggested the Trump Administration was preparing multiple military options for Iran, including airstrikes and setting-up ground invasion. (Newswires/Newsweek)

US National Security agencies now believe proxies sympathetic to or working for Iran may have attacked tankers near UAE rather than Iran themselves, according to a US official. (Newswires)

US

Treasury yields rose by around 2bps across the curve, as risk sentiment stabilised on Tuesday, following Monday’s risk-off induced by trade war anxieties; however, the complex is yet to completely pare Monday’s rise. (It is also worth noting that, earlier in the session, the Treasury complex once again took its cue from EGBs; Italy's Deputy PM Salvini said he was “willing to break EU fiscal rules,” which added some positive ticks in the bond complex.). As on Monday, the complex saw a more risk-friendly configuration following (another batch of) optimistic comments from US President Trump, later in the US session, having previously criticised China on Twitter earlier in the day. Attention will at least focus on the US data slate for Wednesday, which includes US retail sales, industrial production, NAHB, and the Empire State manufacturing survey. At settlement, major curve spreads were flat-to-very-slightly steeper. US T-notes (M9) futures settled 3 ticks higher at 124-10+.

Fed's George (Voter, Hawk) said current low level of inflation does not demand a response and that the Fed's current patient stance is appropriate, while she does not see any arguments at the moment to justify a rate cut and suggested the Fed must keep an eye on the long run. (Newswires)

Fed's Daly (Non-Voter, Dove) said US economic recovery and expansion doesn't appear as sluggish in context of financial crisis and aging population. (Newswires)

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