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[PODCAST] EU Open Rundown 1st July 2019

  • US and China agreed to a temporary trade truce in which US will not levy new tariffs on China whilst also easing some Huawei restrictions
  • US President Trump had an impromptu meeting with North Korean Leader Kim Jong Un and agreed to resume stalled nuclear talks
  • Russia and Saudi Arabia have agreed to extend the OPEC+ output deal by 6 to 9 months
  • Asian equity markets began H2 with gains across the board as global sentiment was buoyed, gold fell below USD 1400/oz and WTI rose over 2%
  • Looking ahead, highlights include JMMC and OPEC meetings, EZ & US Manufacturing PMI (Final), German Unemployment Rate, UK Manufacturing PMI, ECB’s de Guindos, Lane, Knot, Rehn & de Cos, Fed’s Clarida, PBoC’s Gang & RBNZ’s Bascand

 

WEEKEND HIGHLIGHTS

US agreed to not levy new tariffs on Chinese goods following the Trump-Xi meeting at the G20, while the sides agreed to restart trade talks. Furthermore, US President Trump stated the he had an excellent meeting with Xi which was as good as it was going to be and thinks US is “back on track" with China, while he also commented that the US will ease restrictions on Huawei as long as the transactions won't present a "great, national emergency problem". (Newswires)

 

Chinese President Xi said talks should be held on equal footing, while China Global Times Editor tweeted that the “two sides agreed to restart trade consultations based on equality and mutual respect. This is important to Chinese side”

 

US President Trump met North Korean leader Kim Jong Un on Sunday and became the first sitting US President to step over to North Korea’s side of the border, while they agreed to resume stalled nuclear talks. President Trump later described the meeting as very good and very strong in which they agreed to work out details and added that “we’ll see what can happen”, while North Korea Leader Kim said it was good personal relations that made such a dramatic meeting possible at just one day's notice. (Newswires)

Russia and Saudi Arabia agreed to extend the OPEC+ output deal in which Russian President Putin said will be extended by 6 to 9 months at current levels, while there were separate comments from Russian Energy Minister Novak that the agreement to extend the oil cut deal is consolidated and other countries are backing an extension. (Newswires)

As a result, US equity futures gapped higher at the electronic open in which E-Mini S&P rose by around 1%, T-Notes fell lower by 12 ticks and gold declined 1.4% to below USD 1400/oz on safe haven outflows, while WTI rose over 2% on the risk appetite as well as reports Russia and Saudi agreed to extend the output cut deal.

 

ASIA-PAC

Asian equity markets began H2 with gains across the board as global sentiment was buoyed following the US-China trade truce at the G20, while President Trump also met with North Korea leader Kim at the Demilitarized Zone and became the first sitting US President to step into North Korean territory. ASX 200 (+0.5%) was lifted by the trade sensitive sectors, as well as energy names after oil prices were buoyed by news of a Russia and Saudi agreement regarding the output cut deal. Advances in Nikkei 225 (+2.0%)were exacerbated by favourable currency moves and the KOSPI (+0.1%) was subdued by domestic tech weakness amid a dispute with Japan related to wartime forced labour in which the latter is to restrict chip material exports to South Korea. Elsewhere, the Shanghai Comp. (+1.9%) was buoyed by the US-China trade truce and after comments from President Trump which raised hopes of a potential U-turn on Huawei. This underpinned tech and telecom stocks with mainland Chinese markets the regional outperformers despite the miss in Chinese Manufacturing PMI data and absence of Hong Kong participants for holiday. Finally, 10yr JGBs were lower as they mirrored the slump seen in T-notes and heavy losses across safe-havens, while the BoJ also recently announced its bond buying intentions last week in which it reduced the amounts of JGBs with 3yr-5yr and 10yr-25yr maturities.

PBoC skipped open market operations. (Newswires)

PBoC set CNY mid-point at 6.8716 (Prev. 6.8747)

Chinese Manufacturing PMI (Jun) 49.4 vs. Exp. 49.5 (Prev. 49.4). (Newswires)

Chinese Non-Manufacturing PMI (Jun) 54.2 (Prev. 54.3)

Chinese Composite PMI (Jun) 53.0 (Prev. 53.3) Chinese Caixin Manufacturing PMI (Jun) 49.4 vs. Exp. 50.1 (Prev. 50.2)

Japan is to restrict chip material exports to South Korea amid dispute regarding South Korea’s ruling on wartime forced labour, while the South Korea Trade Ministry expressed regret over Japan's tighter curbs on tech material exports to South Korea and said it will firmly respond in accordance with local and international laws. (Newswires)

 

UK/EU

UK Foreign Secretary and PM candidate Hunt announced a GBP 20bln no-deal Brexit war chest to support industries. Furthermore, Hunt said that the EU will not get “a penny more than is legally required of us”, referring to the EU divorce bill. (Telegraph/BBC)

UK Brexit negotiator Olly Robbins is reportedly to leave position shortly. (Newswires)

EU leaders are still divided over who should get the EU’s top jobs. Centre-right leaders opposed a plan to give the post to Dutch politician Frans Timmermans, a candidate European Council President Tusk was reportedly proposing as part of a balanced package. (BBC/Guardian) 

Fitch affirmed Sweden at 'AAA'; Outlook Stable. (Newswires)

 

FX

In FX markets, the DXY was slightly firmer and its major counterparts traded mixed with EUR/USD subdued as leaders remain divided over the bloc’s top positions, in which the pair fell through near-term support at 1.1350 where the 10DMA and 200DMA lingered in close proximity, and GBP/USD was stuck around 1.2700 throughout most of the session before a bout of Dollar strength took the pair below the figure. Elsewhere, USD/JPY was spurred by the US-China truce and reclaimed the 108.00 handle to the upside but has pulled back from intraday highs after running into resistance at 108.50, while antipodeans have failed to hold on to early gains with AUD/USD barely holding onto the 0.7000 handle after Chinese Official Manufacturing and Caixin Manufacturing PMI data both showed a contraction and amid wide expectations for another rate cut by the RBA in tomorrow’s meeting, meanwhile late Dollar strength took the pair below 0.7000.

 

COMMODITIES

Commodities were mixed overnight with outperformance seen in oil prices after Russia and Saudi leaders agreed at the G20 to extend the output cut deal for up to 9-months which essentially makes today’s OPEC meetings a formality, although producers will still have to agree on the length of the extension and if there are any deeper cuts. WTI was boosted from the open and gained more than 2% to briefly test the USD 60/bbl level and recoup all losses late on Friday in which prices were pressured by news that a special EU channel to circumvent US sanctions on Iran was operational. Elsewhere, gold prices slumped below USD 1400/oz amid safe-haven outflows spurred by the US-China trade truce, while copper prices benefitted from the trade truce and gained more than 1% to a 6-week high.

Baker Hughes oil rigs +4 at 793, nat gas rigs -4 at 173, total rigs unchanged at 967; US drillers add oil rigs for the second week in a row. (Newswires)

EU Statement said Iran nuclear deal remains key element of global nuclear non-proliferation and that a special EU channel to allow trade with Iran and circumvent US sanctions is now operational. (Newswires)

 

GEOPOLITICS

Turkish President Erdogan said he has heard from US President Trump that there will be no sanctions regarding the S-400 missile defence system deal with Russia, although Trump did not explicitly say this at the press conference. Furthermore, a statement from the White House noted that “the President expressed concern” about the deal. (Newswires)

US President Trump reportedly asked US Treasury Secretary Mnuchin to study factors which hurt Russia trade, according to IFX citing Kremlin spokesman. (Newswires)

Israeli warplanes fired missiles on Syria military positions in Homs and outskirts of Damascus from Lebanese airspace, according to reports citing a military source. (SANA)

 

US

Anticipation around the meeting between President Trump and Xi overnight has kept trading cautious on Friday, which was also the last trading day before month/quarter/H1 end. The Treasury curve was mixed, but yields only deviated by around +/- 1bps at settlement, with major curve spreads little changed. US T-note futures (U9) settled 1 tick higher at 127-31.

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