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[PODCAST] EU Open Rundown 17th June 2019

  • Asian equity markets began mixed with the region cautious ahead of the upcoming slate of key risk events
  • Price action in FX was relatively quiet amid a lack of tier 1 data releases, DXY slightly pulled back from Friday’s data-driven gains
  • Former UK Foreign Minister Boris Johnson’s plans to withhold Brexit bill payments could be thwarted by Attorney General Cox’s legal advice
  • Looking ahead, highlights include US NY Fed Manufacturing, ECB’s de Cos and Draghi

 

ASIA-PAC

Asian equity markets began mixed with the region cautious ahead of the upcoming slate of central bank activity and after last Friday’s losses on Wall St, where the tech sector underperformed as chipmakers suffered from losses in Broadcom. ASX 200 (Unch.) andNikkei 225 (+0.5%) were varied with Australia subdued by losses in telecoms, while Tokyo trade was underpinned as exporters benefitted from a weaker JPY. Hang Seng (+0.7%) and Shanghai Comp. (-0.1%)were both positive for most of early trade after the PBoC conducted a substantial liquidity injection and as the 2nd phase of its RRR cut took effect today which releases CNY 100bln of funds. However, momentum in the mainland eventually waned while Hong Kong outperformed after Chief Executive Lam postponed the extradition bill indefinitely. Finally, 10yr JGBs were lower amid the gains in Japanese stocks and following the bear flattening seen in US on Friday, with demand also dampened by the absence of BoJ Rinban operations in the market today.

PBoC injected CNY 150bln via 14-day reverse repos for a daily net injection of CNY 120bln. (Newswires) PBoC set CNY mid-point at 6.8940 (Prev. 6.8937)

Hong Kong Chief Executive Carrie Lam suspended the extradition bill indefinitely and stated that the bill has caused plenty of division, while around 2mln protesters were said to have demonstrated over the weekend calling for the complete withdrawal of the extradition bill and for Lam to resign. (Newswires)

UK/EU

Former UK Foreign Minister Boris Johnson’s plans to withhold Brexit bill payments could be thwarted by Attorney General Cox’s legal advice as he warned that linking Brexit bill payments to progress in trade talks would be illegal. In other news, UK Health Minister Hancock said he will be backing Boris Johnson in the leadership race. (Telegraph/FT)

Conservative Party donors have opened secret discussions with Nigel Farage about an electoral pact which would see the party not stand candidates against the Brexit Party in dozens of seats at a snap general election. (Telegraph)

Following the Conservative Party leadership debate, Sky News concluded that overall “there was probably no clear winner. Mr Johnson's supporters will no doubt claim it was him since he didn't get dragged into an unseemly row about Brexit or his character”. (Sky News)

British Chambers of Commerce said its survey showed UK firms look set to reduce 2019 investment by the most in a decade as Brexit drags on. (Newswires)

ECB’s Nowotny said ECB still has tools to support Eurozone economy in the event of a recession or deflation risk and suggested that additional instruments are not needed in the foreseeable future. (Newswires)

ECB’s De Guindos suggested that the ECB will take action in the event that inflation expectations are de-anchored. (Newswires)

Fitch affirmed France at 'AA'; Outlook Stable and Moody’s downgraded Turkey by one notch to B1 from Ba3; Outlook remains Negative. (Newswires)

UK Rightmove House Prices (Jun) M/M 0.3% (Prev. 0.9%). (Newswires) UK Rightmove House Prices (Jun) Y/Y 0.0% (Prev. 0.1%)

FX

Price action was relatively quiet amid a lack of tier 1 data releases and ahead of the central bank meetings from the BoJ, BoE and FOMC, in which the DXY slightly pulled back from Friday’s data-driven gains. As such, the greenback’s major counterparts found some mild reprieve from the recent selling pressure as EUR/USD rebounded from support around the 1.1200 level and the nearby 61.8% Fibonacci retracement of the late-May to early-June rally, while GBP/USD was also off worse levels but has so far failed to reclaim the 1.2600 handle. USD/JPYremained supported by the positive risk appetite in Japan and antipodeans nursed recent losses after NZD support near 8-month lows, while AUD/USD composed itself despite further dovish forecasts for rates with Macquarie now expecting the RBA to lower the Cash Rate to 0.5% by year-end.

 

An ally of Turkish President Erdogan has suggested that the nation needs to work on a ‘new and fair’ approach to controlling the FX rate that better suits the domestic economy and citizens. (Newswires)

COMMODITIES

 

Commodities were uneventful and reflected the indecisive risk tone overnight with WTI crude futures little changed throughout the session to hold on to Friday’s gains, as ongoing geopolitical tensions related to Iran provide a floor for prices and with a decline in the latest Baker Hughes rig count adding to the factors keeping crude afloat. Elsewhere, gold was steady ahead of this week’s FOMC meeting where participants eye whether the Fed will pave the way for a cut next month and with prices also contained after recent USD strength spurred a pullback in the precious metal, while copper attempted to recoup some on the recent losses but with the rebound limited by the overall cautious sentiment.

Baker Hughes Rig Count (14/June): oil rigs -1 at 788; nat gas -5 rigs at 181; total rigs -6 at 969. (Newswires)

Saudi Energy Minister Al-Falih stated that the OPEC meeting will likely be in the first week of July and hopes for the group to reach consensus to extend the oil output pact. (Newswires)

GEOPOLITICS

US Secretary of State Pompeo said the US is considering a full range of options regarding increasing tensions with Iran, including military options but added that President Trump does not want to go to war. (CNN)

Iranian fast boats were reportedly preventing tugboats from toeing the Norwegian damaged vessel according to a US official, while there were also reports the UK is almost certain that a branch of the Iranian military launched the tanker attack in the Gulf of Oman. (Newswires)

Arab League called for restraint in the Gulf and noted there are risks of a deepening confrontation, while it sees behaviour of a "certain party" as worsening the situation. (Newswires)

US

A solid batch of data out of the US saw the curve bear-flatten, with shorter-dated yields rising about 2bps (at settle) vs yields on 30s declining by around 1bps. Early trade was defined by risk-off type flows, which led to some concerns that the 10-year yield could breach the 2.00% mark. However, haven trade was usurped by decent fundamentals, with traders reducing bets that the Fed could cut rates next week in wake of the upbeat data. The implied probability of a June rate cut has fallen to around 25% from around 33% on Thursday, while July pricing eased slightly too. However, the TPLEX found buyers after the inflation gauges in the Michigan Sentiment data declined sharply, challenging Fed Chair Powell's view that inflation weakness was transitory, and perhaps giving further credence to the notion that the Fed has grounds to cut based on inflation alone, let alone for "insurance" reasons to guard against the fall-out from global trade tensions. At settlement, major curve spreads were narrower to the tune of 2bps. US T-Note futures (M9) settled 2 ticks lower at 126-30.

Mexican Economy Minister Graciela Marquez Colin said on Friday that a retaliation list is ready if the US raises tariffs. (Newswires)

 

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