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[PODCAST] EU Open Rundown 18th June 2019

  • Asian equity markets mostly saw cautious gains ahead of this week’s key risk events and following the marginal gains in the US
  • Boris Johnson allies reportedly plan to rig the leadership contest by ‘lending’ votes to Jeremy Hunt
  • DXY continued on from the prior day’s swings and slipped back below 97.50 amid tentativeness heading into the key central bank meetings
  • Looking ahead, highlights include German ZEW, EZ CPI, US Building Permits, Housing Starts, APIs, Tory Leadership Vote, ECB’s Draghi, de Guindos, Lane, BoE’s Carney

 

ASIA-PAC

Asian equity markets mostly saw cautious gains ahead of this week’s key risk events and following the marginal gains in the US where trade was otherwise uneventful aside from the strength in tech and telecoms. ASX 200 (+0.5%) and Nikkei 225 (-0.8%) were mixed with Australia led higher by tech and commodity related sectors, in which government plans to introduce a AUD 158bln income tax cut package, as well as anticipation for further RBA policy easing, added to the optimism. Tokyo sentiment was hampered by a firmer currency. Hang Seng (+0.8%) outperformed as business returned to normal following the recent protests and the Shanghai Comp. (+0.1%) was indecisive despite continued PBoC liquidity efforts, as trade uncertainty lingered after economic regulators refused to rule out using rare earths in the trade dispute and the Global Times Editor suggested the potential for a protracted trade war. Finally, 10yr JGBs initially traded steady amid the indecisiveness in the region but were later supported as sentiment in Japan further deteriorated and after the 5yr auction results showed a decline in yields and higher accepted prices from the prior month.

PBoC injected CNY 90bln via 14-day reverse repo for a daily net injection of CNY 80bln. (Newswires) PBoC set CNY mid-point at 6.8942 (Prev. 6.8940)

Chinese House Prices (May) Y/Y 10.7% (Prev. 10.7%). (Newswires)

China April UST holdings at USD 1.113trln (prev. USD 1.121trln in March); 2yr low. (Newswires)

China's Global Times Editor suggested that there is a lot of criticism in China's state media against the US at the moment which serves to mobilise Chinese society for a protracted trade war, while he added that the mutual hostility of public opinion makes a compromise more difficult. (Twitter)

UK/EU

UK Chancellor Hammond is said to be prepared to resign over PM May's legacy spending plans. (Daily Mail/ITV)

Boris Johnson allies reportedly plan to rig the leadership contest by ‘lending’ votes to Jeremy Hunt so that he faces off against Hunt, who is seen to be struggling, and avoid Michael Gove. (The Sun)

Up to a third of PM May's top team could be replaced by a new group of up and coming politicians being lined up to sit in a Boris Johnson Cabinet, according to reports. (Telegraph)

The sticking point in Italy's budget fight with the EU is regarding 2020 as the Treasury sees 2020 deficit at around 1.8% of GDP and ruling parties want it higher. (Newswires)

Italian League lawmaker Centemero said there are banks in Southern Italy that could default and that the parliamentary committee is set to approve tax measures to ease mergers for the banks. (Newswires)

FX

DXY continued on from the prior day’s swings and slipped back below 97.50 amid tentativeness heading into the key central bank meetings and as its major counterparts traded mixed with EUR/USD firmer after having broken above its 20- and 50- DMAs. GBP/USD printed fresh 6-month lows after reports that UK Chancellor Hammond was said to be prepared to resign over PM May's legacy spending plans and there were also reports Boris Johnson allies plan to rig the leadership contest by lending votes to Jeremy Hunt in an effort to avoid a run-off against Michael Gove. USD/JPY and JPY-crosses were subdued as a lack of risk appetite in Japan spurred flows into the safe haven JPYand with the downside also triggered by declines in antipodean-related crosses after the RBA Minutes stated the board agreed more likely than not further policy easing would be appropriate and that factors limiting inflation, as well as wage growth are likely to remain for some time.

RBA minutes from the June 4th meeting stated the board agreed more likely than not that further policy easing would be appropriate, and the labour market would be particularly important on deciding further easing. The board also judged that the rate cut would help reduce spare capacity in the labour market, while it noted that factors limiting inflation and wage growth are likely to remain for some time. (Newswires)

Australian House Price Index (Q1) Q/Q -3.0% vs. Exp. -2.5% (Prev. -2.4%). (Newswires) Australian House Price Index (Q1) Y/Y -7.4% vs. Exp. -6.9% (Prev. -5.1%)

COMMODITIES 

Commodities were uneventful as price action reflected the sideways trade seen across most asset classes with WTI crude futures little changed below the USD 52.00/bbl level after geopolitical tensions failed to lift prices and as the expiration of July WTI options contributed towards the prior day’s mundane tone. Elsewhere, goldwas equally unexciting with focus fully centred on the upcoming FOMC although minimal upside was seen in the precious metal due to a slightly softer USD, while copper also flatlined as it held on to Monday’s gains amid an ongoing strike which reduced output to 50% at Codelco’s Chuquicamata copper mine which is the largest open pit copper mine in the world.

Oil production at Libya's Gialo oilfield (130k BPD) is expected to be halted for ten days due to pipeline maintenance, according to NOC. (Newswires)

Chile's Codelco said the Chuquicamata copper mine maintained output capacity at 50% due to the 4th full day of a union strike. (Newswires)

GEOPOLITICS

US is preparing to send additional troops to the Middle East due to Iran threat according to officials. In related news, there were comments from Iran's ambassador to the UK who suggested Iran is unfortunately heading towards a confrontation. (Newswires)

North Korea may have produced around 12 more nuclear weapons over the past year, according to reports citing speculation by a Swedish think tank. (Chosun/Twitter)

US

Monday’s uneventful session was evident in the Tplex too, which saw US 10 years move sideways. Early on USTs moved in sympathy with the Bund, which saw fresh record low yields, before catching some mild bidding on the back of the disappointing US NY Fed manufacturing data. At settlement yields were mainly unchanged aside from the front-end, where the 2-year yield rose by c. 1.5bps, which saw the 2s/10s flatten by c. 2bps. US T-note futures (M9) settled 1 tick higher at 126-31.

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