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[PODCAST] EU Open Rundown 17th May 2019

  • Asian indices were predominantly positive following a firmer close on Wall St.; although markets were afflicted by negative US-China updates
  • China's state media reported that China potentially has no interest in furthering talks with the US right now; little sincerity seen by China in US President Trump’s approach
  • Cross-party talks between Conservatives and Labour are near to drawing to a close without an agreement; focus now turns to Parliamentary voting options
  • Looking ahead, highlights include EZ CPI (Final), US University of Michigan Sentiment, Fed's Clarida & Williams, BoJ's Kuroda & ECB's de Guindos
  • Earnings: Deere, easyJet

 

ASIA-PAC

Asian equity markets were mostly higher as the region took impetus from the positive performance on Wall St, where all major indices notched a 3rd consecutive win streak with risk sentiment underpinned by encouraging earnings from Walmart and Cisco. ASX 200 (+0.6%) and Nikkei 225 (+1.1%)traded positive with Australia led by continued strength in tech and amid the growing list of calls for a rate cut next month including notorious RBA watcher McCrann, while Japanese exporters were buoyed by recent favourable currency moves and as Sony shares surged over 10% after the announcement of a JPY 200bln share buyback. Hang Seng (-0.9%) and Shanghai Comp. (-1.5%) were pressured after a lack of PBoC reverse repo operations throughout the week resulted to net weekly drain of CNY 50bln. In addition, China cancelled orders of 3247 tons of pork from US which was the largest cancellation in more than a year and was seen to be another fallout of the ongoing US-China trade dispute, while commentary in Chinese state media suggested China may have no interest in resuming trade discussions with the US for now. Finally, 10yr JGBs were lower amid the upbeat risk tone in Japan and on spill-over selling from the bear flattening stateside, while the BoJ’s Rinban announcement was for a reserved JPY 200bln of long to super-long JGBs.

PBoC skipped open market operations for a net weekly drain of CNY 50bln vs. last week's CNY 50bln net injection. (Newswires)

PBoC set CNY mid-point at 6.8859 (Prev. 6.8688)

China state media commentary said China may have no interest in continuing trade talks with the US for now and sees little sincerity in President Trump's approach. In related news, the NDRC said trade friction impact on Chinese economy is controllable, while it added that China is to study impact of tariffs and prop up growth when required.

BoJ Governor Kuroda said low rates must be maintained for a long period to achieve the price goal and that forward guidance is the framework in which BoJ will decide policy based on data and information available at the time. Furthermore, Kuroda said there is a good chance BoJ will keep current low rates past Spring 2020 if conditions warrant and suggested the BoJ is thinking of keeping rates low for quite a long time. (Newswires)

 

UK/EU

Cross-party talks between Conservatives and Labour are near to drawing to a close without an agreement according to the BBC. Talks will now move on to a second phase aimed at agreeing on a process for Parliamentary votes to find a Brexit consensus. There were separate reports that UK opposition Labour leader Corbyn is reportedly "inching" closer to getting behind a new Brexit referendum according to ITV. (BBC/ITV)

 

FX

The DXY held near the prior day’s highs after having found some support from stronger than expected US data, while its major counterparts failed to make any meaningful recovery from the prior day’s losses in which EUR/USD and GBP/USD gave up the 1.1200 and 1.2800 handles respectively with GBP/USD languishing at 3-month lows. USD/JPY attempted to surmount the 110.00 level on the back of USD strength and outflows to safe-haven JPY, where it eventually met resistance with the pullback aided by the pessimistic trade commentary in Chinese state media. Antipodeans were subdued in which AUD/USD traded sub-0.6900 after the prior day’s unemployment disappointment which spurred increased calls for the RBA to cut rates. As a reminder, Australia will head to the polls tomorrow to determine the country’s next PM with the opposition Labor party ahead across the opinion surveys on the back of a high-spending agenda including greater tax cuts, increased spending and a significant boost to the minimum wage.

White House issued notice on Turkey metal tariffs and said it is terminating preferential treatment of Turkey under Generalized System of Preferences effective on Friday, but also announced to lower ad valorem tariffs to 25% from 50% on steel imports from Turkey. (Newswires)

 

COMMODITIES

Commodities were mixed in which WTI crude futures marginally extended on the prior day’s gains above the USD 63.00/bbl level amid ongoing geopolitical risks and the predominantly positive global risk appetite. Elsewhere, gold languished after recent losses as the firmer greenback weighed across precious metals, while copper retreated overnight as sentiment in its largest buyer China soured amid ongoing trade uncertainty.

Production at oilfields that make North Sea Flotta crude grade has been shut down for repairs on a key pipeline, according to a spokesperson. (Newswires) 

 

GEOPOLITICS

US President Trump reportedly told Acting Defense Secretary Shanahan that he does not want to go to war with Iran. (NYT) Venezuela President Maduro alleged the US government has invaded Venezuela's embassy in Washington DC. (Newswires)

North Korea called UN an unfair organization and pledged to fight sanctions. (Yonhap)

Iran’s most prominent military leader has recently met Iraqi militias in Baghdad and told them to “prepare for proxy war”, according to The Guardian. (Guardian) 

 

US

At settlement, the curve had bear-flattened, though in early trade, there was a bid in the complex after news that Trump was going to take action on Huawei. The tough talk out of China’s MOFCOM also gave support to the complex in the European morning. However, after the European cash open, Treasury yields began to rise, and were booted higher further after a decent slate of US data. After that data, the drift has generally been horizontal. US T-note futures settled 8 ticks lower at 124-13+.

Fed’s Brainard (Voter, Dove) said the employment/inflation relationship has "broken down" and that weak inflation poses risks that households and businesses could set expectations in a way that makes it harder for the Fed to reach its inflation goal. Brainard also commented that low unemployment is helping the workers at the margin of the labour market, but low interest rates pose risks to financial markets. (Newswires)

Fed's Kashkari (Non-Voter, Dove) said wages are rising but not so fast to believe inflation will surge and rhetorically questioned why put the brakes on growth by raising rates but added that the Fed can always hike rates if wages start to rise too quickly. Furthermore, Kashkari said he would not prefer cutting rates as insurance and does not think it would do much for inflation expectations, while he thinks tariffs could boost inflation temporarily. (Newswires)

 

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