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[PODCAST] EU Open Rundown 10th July 2019

  • Asian equity markets traded somewhat mixed following a similar lead from Wall St. as participants await fresh clues on Fed policy
  • USTR Lighthizer and Treasury Secretary Mnuchin conducted a phone call yesterday with China Vice Premier Liu He which was said to have gone well and was constructive
  • UK lawmakers voted in favour of a plan which might hinder government from suspending Parliament if it pursues a no deal Brexit
  • Looking ahead, highlights include UK GDP, output & trade data, BoC rate decision & press conference, DoE’s FOMC Minutes, Fed’s Powell (text 1330BST, hearing 1500BST), George, Bullard, BoE’s Tenreyro, 10yr supply from Germany and the US

 

ASIA-PAC

Asian equity markets traded somewhat mixed following a similar lead from Wall St. as participants await fresh clues on Fed policy from the upcoming Fed Chair Powell congressional testimony and FOMC minutes release. ASX 200 (+0.4%) was led higher by outperformance in the tech sector and as financials rebounded from yesterday’s capital buffer pressure with the Big 4 also helped after S&P provided more favourable outlooks on their credit ratings, while Nikkei 225 (-0.1%) was indecisive with sentiment at the whim of a choppy currency. Elsewhere, Hang Seng (+0.2%) and Shanghai Comp. (Unch.) lacked firm direction with initial upside seen after reports USTR Lighthizer and Treasury Secretary Mnuchin conducted a phone call with China Vice Premier Liu He which was said to have gone well and was constructive. However, the mainland briefly gave back the gains following liquidity outflows and as participants digested mixed inflation data in which PPI printed flat Y/Y which was softer than expected and lacked growth for the 1st time in nearly 3 years. Finally, 10yr JGBs were lower as they tracked the downside in T-notes and amid a lack of BoJ presence in the market today.

PBoC skipped open market operations for a net daily drain of CNY 20bln. (Newswires) PBoC sets CNY mid-point at 6.8856 (Prev. 6.8853)

Chinese CPI (Jun) Y/Y 2.7% vs. Exp. 2.7% (Prev. 2.7%). (Newswires) Chinese PPI (Jun) 0.0% vs. Exp. 0.3% (Prev. 0.6%)

USTR Lighthizer and Treasury Secretary Mnuchin spoke with China Vice Premier Liu He yesterday to continue negotiations aimed at resolving the outstanding trade disputes between the US and China, while talks will continue "as appropriate" according to a US official and an aide for President Trump also suggested that Lighthizer and Mnuchin may travel to China 'soon'. (Twitter/NYT)

White House Economic Adviser Kudlow said call between US and China officials went well and was constructive, while the sides are now talking about conducting a face-to-face meeting. (Newswires)

US President Trump reportedly softened criticism regarding China’s stance on Hong Kong protests in order to help trade talks progress. (FT)

South Korea Ambassador asked Japan to withdraw its trade restrictions at the WTO and stated that they will disrupt global value chains for electronic products as well as affect companies worldwide. In related news, South Korea President Moon later commented that Japan exports curbs could be prolonged, while he added that South Korea is preparing countermeasures and will assist firms to reduce reliance on Japanese suppliers. (Newswires)

UK/EU

UK lawmakers voted in favour of a plan which might hinder government from suspending Parliament if it pursues a no deal Brexit, as MPs approved Amendment 15 by 294 to 293 votes which requires fortnightly reports to be made after the conference recess until a Northern Irish Executive is formed, or until the December recess. (Newswires)

During last night’s televised Conservative Leadership debate, Boris Johnson refused to rule out suspending Parliament in order to secure the UK’s departure from the EU. (Newswires)

UK Brexit Secretary Barclay reportedly warned the EU that a no-deal Brexit will hurt Ireland more than Britain. (Telegraph)

US Commerce Department said the meeting between US Commerce Secretary Ross and UK International Trade Secretary Fox has been cancelled. However, reports suggest they are working to reschedule the meeting at an appropriate time. (Sky News)

Germany and France reportedly agreed some time ago to support BoE Governor Carney to lead the IMF, although the French Finance Minister was said to have refuted this claim. (FAZ)

FX

 

DXY consolidated around the 97.50 level with price action tentative as all focus remained on Powell’s testimony and the FOMC minutes later, while its major counterparts were also uneventful in which EUR/USD just about held on to the 1.1200 handle and GBP/USD languished around 1.2450 after having recently printed its lowest levels in more than 2 years. Elsewhere, USD/JPY largely reflected the indecisive risk tone although remained in close proximity to the 109.00 handle where there is a large option expiry of USD 1.8bln for today’s New York cut and antipodeans were subdued with AUD/USD dampened after Westpac Consumer Confidence slipped to a 2yr low and due to the soft Chinese producer inflation data. Meanwhile, NZD/USD showed some erratic behaviour as it dropped about 30 pips before it quickly faded the move, with the initial spike lower attributed to stops being hit below the 0.6600 level and as AUD/NZD surged above 1.0500. Significant weakness was also seen in MXNduring US trade with the currency pressured after the Mexican Finance Minister resigned citing conflicts of interests in the government and how administration decisions were made without sufficient backing, although the currency has since stabilized overnight.

 

Australian Westpac Consumer Confidence Index (Jul) 96.5 (Prev. 100.7); 2-year low. (Newswires)

Australian Westpac Consumer Confidence (Jul) M/M -4.1% (Prev. -0.6%)

 

Mexico Finance Minister Urzua resigned as he felt forced to quit due to the conflicts of interests he has seen in government and how administration decisions were made without sufficient backing, while Deputy Finance Minister Herrera was later announced as the new Finance Minister. (Newswires)

COMMODITIES

Commodities were mixed with WTI crude futures underpinned by a bullish API inventory report which showed a larger than expected drawdown in headline crude stockpiles and US-Iran tensions lingered, while there were also reports of several evacuations and output curbs at offshore platforms in the Gulf of Mexico due to the high possibilities of a cyclone hitting the region within the next 48 hours. Elsewhere, gold prices were lacklustre and slightly eased further away from near-term resistance at the USD 1400/oz level with participants tentative ahead of Fed Chair Powell’s testimony and FOMC minutes release, while copper was relatively stable and continued to nurse its recent losses.

API Weekly Crude Inventories -8.129mln vs. Exp. -3.1mln (Prev. -5.0mln). (Newswires)

BHP, BP, Chevron and Shell began evacuating staff and shutting in production at offshore platforms in the Gulf of Mexico as a precaution, while NHC said that there is a 90% chance of a cyclone formation in the next 48 hours in the north-eastern Gulf of Mexico. (Newswires)

EIA Short Term Energy Outlook cut 2019 world oil demand growth view by 150k/day to 1.07mln BPD and 2020 world oil demand growth was cut by 20k BPD to 1.40mln BPD. EIA raised 2019 US output forecast to 12.36mln BPD (Prev. 12.62mln BPD) but forecasts US crude output to rise by 900k BPD in 2020 to 13.26mln BPD (Prev. forecast to rise 940k BPD). (Newswires)

 

GEOPOLITICS

 

Iraq PM Abdul-Mahdi said he has concerns over the potential disruption of navigation of oil exports through the Strait of Hormuz and that the government is looking at contingency plans to find an alternative route for oil exports if the Hormuz is disrupted. In related news, a top US General said the US is seeking to enlist allies in an effort to safeguard shipping in Strait of Hormuz and Bab el-Mandeb. (Newswires)

Several secret meetings between US and Iranian officials took place in Iraq last week, according to I24News, citing Iranian sources. (I24News)

Saudi released evidence that shows Iranian backed Houthi militants in Yemen attempted an attack on a merchant ship in the Red Sea yesterday using a remote-controlled boat filled with explosives. (Newswires)

US State Department urged Turkish authorities to halt drilling operations off the Cyprus coast. (Newswires)

US

 

Ranges were thin as traders wait on cues from Fed Chair Powell, who is due to testify to lawmakers on Wednesday. A 'double' rate cut of 50bps at the July FOMC has been priced out, and the question, analysts say is what is the Fed's conviction of the trajectory of rates through to the end of the year; currently around 2.5 rate hikes are priced in by money markets by the end of 2019; the median Fed 'dot' sees rates unchanged for the rest of the year. Ahead of the Fedspeak, the US Treasury sold 3-year notes at 1.857%, the lowest high yield since November 2017; the sale stopped through the screens by 0.1bps. Cover was soft, the lowest since March 2019. The breakdown, meanwhile, saw indirect participation pare back (48.5% vs 56.6% prior), with direct participation rising to 17.9% from 13.4%, and dealers taking from 30.0% prior. US T-note futures (U9) settled 6+ ticks lower at 127-09+.

Fed's Bostic (Non-Voter, Dove) said the Fed is debating the merits and risks of running a hot labour market, while he added there are risks of the labour market becoming too tight. (Newswires)

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China's Agriculture team getting as far away from the NYSE, just like us!! Hope you all have a good weekend, we'll… https://t.co/NsIJqCDJFE