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[PODCAST] EU Open Rundown 12th June 2019

  • Asian indices are mixed, following on from Wall St. finishing flat, breaking its week-long win streak
  • In FX, the USD is little changed ahead of US CPI; with main G10 counterparts relatively steady as well
  • US President Trump says he is the one holding up the US-China trade deal, and that he expects to meet President Xi at the G20 summit
  • Looking ahead highlights include, US CPI, ECB’s Draghi, de Guindos & Coeure. Supply from Germany & US

 

ASIA-PAC

Asian equity markets traded mostly subdued after the flat lead from Wall St where the relief rally stalled, and the major indices finished flat to snap a 5- and 6-day win streak for the S&P 500 and DJIA respectively. ASX 200 (+0.2%) and Nikkei 225 (-0.1%) were mixed with Australia kept afloat by mining names as iron prices in China surged to fresh record highs, while the Japanese benchmark mirrored the indecisiveness of its US peers amid a firmer JPY and with SoftBank among the laggards as a group of US states attempt to block the Sprint and T-Mobile merger. Elsewhere, Hang Seng (-1.6%) and Shanghai Comp. (-0.6%) were negative following another net liquidity drain by the PBoC and pessimism regarding the ability to reach a US-China trade deal at the G20, with underperformance in Hong Kong amid increases in money market rates and mass protests outside government buildings in opposition against the controversial extradition bill. Finally, 10yr JGBs kept rangebound with price action hampered by the indecisiveness in the region and amid a lack of BoJ presence in the market today.

PBoC injected CNY 15bln via 7-day and CNY 20bln via 28-day reverse repos for a net daily drain of CNY 25bln. (Newswires) PBoC set CNY mid-point at 6.8932 (Prev. 6.8930) Chinese CPI (May) Y/Y 2.7% vs. Exp. 2.7% (Prev. 2.5%).(Newswires) Chinese PPI (May) Y/Y 0.6% vs. Exp. 0.6% (Prev. 0.9%)

US President Trump said China wants to make a trade deal "very badly" and that the US will not do a deal with China unless it is a great deal, while he added that he is the one holding up the trade deal and expects to meet President Xi at the G20. (Newswires)

US NEC Director Kudlow said once US President Trump and Chinese President Xi meet at the G20 "we can pick up where we left off" on the trade deal. Kudlow also commented that the US economy is in good shape and still thinks it is possible to get 3% growth, while he thinks the USMCA deal could add 0.5% growth. (Newswires)

White House Chief of Staff Mulvaney said Mexico deal will embolden US President Trump to be tougher on China. (Newswires)

China Global Times Editor said there is no sign that China is relaxing countermeasures against the US and that China has no trust in mild signals the US sometimes send, while he suggested to be unoptimistic for a deal at G20. (Twitter)

UK/EU

UK Business Secretary Clark said he is supporting Foreign Minister Hunt in leadership race, while UK Brexit Minister Barclay supports Boris Johnson for next PM in the leadership race according to Daily Mail's Political Editor. (Newswires/Twitter)

Polls suggested that Boris Johnson could win a 140-seat majority for the Tory party at the next general election if he becomes party leader. In other news, Remain MPs are reportedly plotting to thwart Boris Johnson’s plans for a no-deal Brexit on the day he launches his leadership campaign. (Telegraph)

Italy are ready to back a French candidate to succeed ECB's Draghi according to sources, while there were separate reports that European Deputy Finance Ministers back the European Commission view that disciplinary action over Italian rising debt is warranted. (Newswires)

FX

In FX markets, the DXY was uneventful and traded sideways despite the recent softer PPI data as well as renewed criticism by US President Trump on the Fed for rates being too high and for quantitative tightening, as participants look ahead to CPI figures later today. The greenback’s major counterparts were also steady with EUR/USD contained near a large option expiry for today’s New York cut at 1.1325 and as GBP/USD held on to the prior day’s employment- and wage-driven gains. In UK politics, polls have suggested the Tory party could win a 140-seat majority at the next general election under the leadership of the bookie favourite. Elsewhere, the cautious risk tone kept USD/JPY subdued and antipodeans were lacklustre due to their high-beta statuses as well as weaker Westpac Consumer Confidence in Australia, while HKD continued to strengthen and printed its best levels against USD since early January as money markets rose with the 1-month and 2-month HKD HIBOR at their highest in more than a decade. 

COMMODITIES

Commodities were mixed in which WTI crude futures slipped below USD 53.00/bbl following an unexpected build in API headline crude inventories and a downgrade in world oil demand growth in the EIA’s Short-Term Energy Outlook, while comments from UAE Energy Minister and OPEC President Al-Mazrouei that OPEC+ is very near an extension agreement failed to spur a recovery. Conversely, gold was marginally supported, and copper was subdued amid the cautious risk tone, while iron ore outperformed in which Dalian futures surged by 4% at the open to hit a fresh record high amid dwindling stockpiles and anticipation of increased demand as well as tight supply.

API Crude Inventories +4.9mln bbls vs. Exp. -0.5mln bbls (Prev. +3.55mln bbls). (Newswires) UAE Energy Minister Al-Mazrouei said OPEC+ is very close to an agreement for an extension, while he added that current inventories suggest curb should remain in place and that the deal should be extended at least until the end of the year. (Newswires)

US EIA Short-Term Energy Outlook report cut forecast for 2019 and 2020 world oil demand growth by 160k BPD and 110k BPD, respectively and now sees 1.22mln BPD and 1.42mln BPD Y/Y increases. (Newswires)

CME raised NYMEX Crude Oil July futures margins by 9.5% to USD 3450/contract and raised NY Harbor Heating Oil July futures margins by 7.9% to USD 3775/contract. (Newswires)

Alberta Premier said the government may have to consider extending oil curtailments into next year due to the delay of the line three pipeline. (Newswires)

China NDRC, industry ministry and natural resources ministry launch survey on rare earths in which the regions surveyed must provide specific data and cases on major issues in protecting, developing and applying the resources. (Newswires)

GEOPOLITCAL

US President Trump said he received a "beautiful" letter from North Korean Leader Kim which was "very warm", while he added that North Korea has tremendous potential and thinks something positive will happen. (Newswires)

Japanese PM Abe said he will exchange options with Iran's leaders to ease tensions, while there were also reports that Iran officially announced its Khordad 15th surface-to-air missile system. (Newswires)

US

A roller-coaster session saw the T-Note future slip to 126-07 in European trade, after China stimulus measures stoked risk sentiment; however, the risk tone became more neutral (some desks cited "fading trade optimism", although a more distinct and convincing reason for the Treasury bid and the equity downside was more ellusive), the complex slowly grinded its way up towards flat levels by settlement. The 3-year auction was solid, stopping through the screens by 0.6bps on cover above recent averages. Crucially, the indirect bid (a proxy for foreign participation) actually rose to 56.6% from 37.9% (average 44.7% over the previous six), which was a relief to the analysts that had expected a weak showing after recent data showed foreign central banks reduced their UST holdings in the latest week by the most since April 2018. Some have speculated that the recent foreign cbank selling might be linked to China selling Treasuries to stem the slide in the yuan since May. At settlement, major curve spreads were narrower, with 2s30s coming in by around 3bps, 2s5s flatter by around 2bps. T-note futures (M9) settled unchanged at 126-14.

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