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[PODCAST] EU Open Rundown 14th June 2019

  • Asian indices are mixed, pulled between the positive Wall St. lead and impending Chinese data at 08:00BST
  • US Secretary of State Pompeo formally blamed Iran for the Oman tanker attacks
  • NEC Director Kudlow states that China has broken WTO terms on trade, as such US President Trump is taking action
  • Looking ahead highlights include, Chinese Industrial Output & Retail Sales, EZ CPI (Final), US Retail Sales, Industrial Production, Business Inventories, University of Michigan Sentiment, IEA Monthly Report, ECB’s Lautenschlager & BoE’s Carney

 

ASIA-PAC

Asia equity markets traded mixed as looming Chinese Industrial Production and Retail Sales data clouded over the lead from US, where the energy sector outperformed on geopolitical concerns after a suspected Iranian attack on oil vessels in the Gulf of Oman. ASX 200 (+0.2%) was lifted by strength in commodity-related stocks but with gains capped due to weakness in the largest weighted financials sector amid anticipation of a lower rate environment and with AMP shares heavily pressured after it received compliance orders from the financial regulator APRA. Nikkei 225 (+0.4%) was also underpinned by the mining sectors which saw Chiyoda as the biggest gainer, while Sony shares were also bolstered after activist investor Loeb called on the Co. to spin off its semiconductor business. Elsewhere, Hang Seng (-0.4%) was subdued and Shanghai Comp. (-0.3%) was indecisive amid trade uncertainty, cautiousness heading into the key Chinese data and after the PBoC’s efforts resulted to a net weekly injection of CNY 65bln vs. last week’s CNY 320bln net drain. Finally, 10yr JGBs followed suit to the recent upside in T-notes, while the BoJ was also present in the market with today’s Rinban operation heavily concentrated in the belly of the curve.

PBoC injected CNY 100bln via 28-day reverse repos for a weekly net injection of CNY 65bln vs. last week’s CNY 320bln net drain. PBoC set CNY mid-point at 6.8937 (Prev. 6.8934)

US NEC Director Kudlow said China has broken WTO terms on trade and that President Trump is taking action, while he also commented that the White House intends for Trump to meet Xi at the G20 although it is not yet formalised. In related news, an administration spokesman also suggested "it looks like we're moving that way" regarding a Trump-Xi meeting at the G20. (Newswires)

UK/EU

UK Chancellor Hammond said more money will be available for the future PM to spend in a smooth and orderly Brexit. (Newswires)

DUP’s Donaldson said Dublin is driving the UK towards a no deal Brexit and is using the border as a bargaining chip. (Newswires)

UK Tory leadership rivals are said to be mulling an alliance to block Boris Johnson from becoming PM. However, Johnson’s supporters have called on 'vanity candidates' to drop out of the Conservative leadership race in order to speed up the process of appointing a new PM. (The Guardian/Telegraph)

Former UK Leader of the House Leadsom could support Sajid Javid in the leadership race. Separately, Health Secretary Hancock is reportedly considering pulling out of the Tory leadership race, after receiving 20 votes in round one; having discussed a potential alliance with Michael Gove and Sajid Javid’s teams, with a decision expected shorty. For reference, candidates who wish to drop out of the leadership contest have been asked by the 1922 Committee to do so by Friday lunchtime. (Times/BBC/Guardian)

French Finance Minister Le Maire said EU ministers reached an agreement on Eurozone budget, while reports later stated that Le Maire commented that progress has been made but Eurozone budget deal still has a long way to go. (AFP/Newswires))

FX

In FX markets, the DXY was steady and held above the 97.00 level following the prior day’s safe-haven support and as its transatlantic counterparts languished after EUR/USD recently failed to reclaim the 1.1300 handle and with GBP/USD at a sub-1.2700 level following the First Ballot of the Tory leadership race. Elsewhere, JPY remained bolstered by recent geopolitical concerns and antipodeans were softer ahead of the key China data, with AUD/USD also subdued by further dovish RBA calls in which NAB now forecast a total of 3 cuts this year vs. Prev. 2 and with RBC expecting the Cash Rate to be lowered to as low as 0.50% by May next year, while NZD/USD underperformed following soft New Zealand Business PMI data.

New Zealand Manufacturing PMI (May) 50.2 (Prev. 53.0, Rev. 52.7). (Newswires)

COMMODITIES

Commodities were mixed with WTI crude futures marginally higher as it resumed its geopolitical-fuelled advances following the oil tanker attack which the US have blamed on Iran, while the US have also deployed a US Navy Destroyer to the region in what is viewed as a deterrence to further attacks. Elsewhere, gold prices edged mild gains amid safe-haven demand but with gains capped by a sturdy greenback, while copper was lacklustre amid the indecisive tone in the region which was at a contrast to the early surges in Chinese benchmark iron ore, which rose to fresh record highs once again.

Saudi Energy Minister Al Falih said Saudi will take all measures to protect itself and is committed to providing guaranteed oil supplies to international markets, while he added that Aramco has increased readiness to deal with attacks. (Newswires)

 

GEOPOLITICS

US President Trump said Iran is not ready to make a deal with the US and Secretary of State Pompeo stated that Iran is responsible for today's tanker attacks, while Pompeo added that Iran continues to actively work to interrupt flows of oil and have rejected Japan PM Abe's outreach for diplomacy. (Newswires)

US Military said Navy Destroyer USS Mason is en route to the area where the 2 oil tankers were attacked, while it added it has no interest in engaging in new conflict in the Middle East and that it is ready to defend US interests as well as freedom of navigation. Furthermore, the US released video footage of Iranian military removing an unexploded mine from the Japanese tanker that was attacked in the Gulf of Oman. (Newswires)

White House official said the US is discussing options with allies on the protection of international shipping to the Gulf and want to ensure freedom of navigation, while an official also suggested that more tanker attacks could ensue and does not think it is over. (Newswires)

US Senator Rubio said the attacks in the Gulf of Oman today by Quds Force of the Iranian Revolutionary Guard has created a very dangerous situation in the region. (Newswires)

Iran categorically rejected the US unfounded claim regarding tanker attacks according to Iranian mission to the UN, while there were also comments from Iran Foreign Minister Zarif that US allegations against Iran without evidence shows the B team is moving to Plan B of sabotaging diplomacy. (Newswires/Twitter)

US

The Treasury curve bull-steepened after geopolitical tensions in the Middle East, while traders also cited increasing expectations of Fed rate cuts pushing shorter-dated yields lower. 2-year yields came in by over 6bps, while longer-dated yields were around 2.5bps lower. The US Treasury auctioned 30-year debt, stopping through the screens by 0.4bps, while cover rose vs recent averages and the prior auction; the foreign bid remained (as was seen in all auctions this week), with indirect participation remaining above the previous auction as well as recent averages. Friday’s retail sales data is the final piece of the data puzzle ahead of next week’s FOMC meeting; markets are pricing a 28% chance of a rate cut at the June meeting (which comes ahead of the G20 on 28-29th June, which will set the tone for trade wars, and global growth expectations); accordingly there is more aggressive pricing for a July rate cut, which is now over 100% implied, according to money markets, suggesting that the market is increasingly pricing in the possibility of a 50bps rate cut, instead of the ‘usual’ 25bps. At settlement, major curve spreads were wider, with 2s30s steepening by 3.5bps. US T-note futures (M9) 11+ ticks higher at 127-00.

Over 600 US companies urged US President Trump to resolve the China trade dispute, with Walmart and Target among the signatoriesin the letter to the White House. (Nikkei)

White House Press Secretary Sarah Sanders is to leave her position at the end of the month. (Newswires)

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