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[PODCAST] EU Open Rundown 13th August 2019

  • Asian equities followed suit from the losses on Wall St with sentiment sapped by the continued overhang from the US-China trade war and disruptions in HK
  • UK PM Johnson believes EU will cave in at the last minute to save Ireland from a no-deal Brexit, according to reports citing a Downing Street source
  • Italian Senate is to meet today at 1700BST to decide when to debate the League no-confidence motion in government
  • Looking ahead, highlights include German CPI & ZEW, UK Employment, US CPI, UK 2049 Gilt Auction
  • Earnings: JD.com, Henkel, Swiss Life Holding

ASIA-PAC

Asian equity markets followed suit from the losses on Wall St with global risk sentiment sapped by the continued overhang from the US-China trade war and after the disruption in Hong Kong where there are growing fears of Chinese intervention. ASX 200 (-0.4%) was subdued but with losses stemmed by strength in tech and mining related sectors, while Nikkei 225 (-1.8%) was among the underperformers as participants returned from the extended weekend and reacted to recent flows to the currency. Chinese markets also traded lower after Chinese Lending/Financing data disappointed and with heavy losses in Hong Kong after its airport was shut by a mass sit-in and although flights have since resumed, hundreds remained cancelled as they try to deal with the back log from the disruption. Furthermore, increased concerns China may intervene as the People's Armed Police were reportedly gathering and heading towards the bordering city of Shenzhen, has added to the pressure for the Hang Seng (-1.5%) which declined to its weakest since early January, while losses in the Shanghai Comp. (-0.7%) were somewhat cushioned after the PBoC set a firmer than expected reference rate and continued its liquidity injections. Singapore’s STI (-0.9%) suffered from a double-whammy in which Q2 GDP missed estimates and the MAS dashed easing hopes by not considering an off-cycle policy meeting. Finally, 10yr JGBs were marginally higher and the 30yr yield dropped to 0.2% for the first time in 3 years amid the risk averse tone and following the bull flattening in the US, although upside was capped amid lack of BoJ presence in the market and given that prices were already at record levels.

PBoC injected CNY 60bln via 7-day reverse repos. (Newswires) PBoC set CNY mid-point at 7.0326 vs. Exp. 7.0421 (Prev. 7.0221); weakest since March 2008.

US National Security Advisor Bolton said the US was expecting a Chinese delegation in September, but the Chinese have not said yes or no. (Newswires)

Hong Kong flight have resumed but with hundreds of flights said to remain cancelled, while the Hong Kong Airport Authority noticed calls online for public assembly at the airport on Tuesday afternoon. (Newswires)

Singapore GDP (Q2 F) Q/Q -3.3% vs. Exp. -2.9% (Prev. -3.4%). (Newswires) Singapore GDP (Q2 F) Y/Y 0.1% vs. Exp. 0.2% (Prev. 0.1%) Monetary Authority of Singapore said monetary policy is unchanged and it is not considering an off-cycle policy meeting. 

UK/EU

UK PM Johnson believes EU will cave in at the last minute to save Ireland from a no-deal Brexit, according to reports citing a Downing Street source. (The Sun)

ComRes poll showed 54% support PM Johnson delivering the Brexit by any means including suspending Parliament. (Telegraph)

UK MPs are attempting to get the Court of Session in Edinburgh to rule that suspending parliament to force through a no-deal Brexit is “unlawful and unconstitutional”. The move is backed by over 70 MPs and peers including Lib Dem leader Swinson. (BBC)

UK Shadow Home Secretary Abbott has signalled that the Labour Party could be planning a vote of no confidence against PM Johnson once parliament returns in September. Abbott said Labour MPs are in talks with other parties on how best to proceed. (Guardian)

US National Security Advisor Bolton said he conveyed the message to UK PM Johnson that President Trump is supportive of Britain's efforts to leave the EU and wants to have a comprehensive trade agreement as soon as possible, while he believes there will be overwhelming bipartisan support for a trade deal with the UK. (Newswires)

Italian Senate is to meet today at 1700BST to decide when to debate the League no-confidence motion in government, according to PD. In related news, Italian Deputy PM Salvini’s push for lower taxes and infrastructure spending could reportedly put the country at odds with the EU and rattle markets due to Salvini’s willingness to run a larger budget deficit. (Newswires/WSJ) 

FX

DXY was off the prior day’s lows but remained uneventful with price action stuck just below the 97.50 level following the recent decline in yields. The greenback’s major counterparts were mixed in which EUR/USD broke through 1.1200 to the downside, while GBP/USD was also subdued after a failed attempt to reclaim the 1.2100 handle and with UK PM Johnson looking to play chicken with Brussels as reports noted he believes the EU will cave in at the last minute to save Ireland from a no-deal Brexit. Elsewhere, USD/JPY and JPY-crosses recouped some of their recent losses but have far to go to fully recover from this month’s slip, while antipodeans marginally benefitted after a firmer than expected PBoC reference rate and slight improvement in Australian Business Confidence data, as well as comments from RBA Assistant Governor Kent who stated that it is unlikely negative rates will be needed in Australia although some unconventional policies are possible.

RBA Assistant Governor Kent said lower rates are easing financial conditions in usual way and that recent broad-based easing will support demand, while he also noted the RBA is not targeting unemployment rate with policy and it is unlikely that negative rates are needed in Australia but added some unconventional policies are possible. (Newswires)

Australian NAB Business Confidence (Jul) 4 (Prev. 2). (Newswires) Australian NAB Business Conditions (Jul) 2 (Prev. 3)

COMMODITIES

Commodities were mixed in which WTI crude futures traded sideways after having recently been tempered by resistance at USD 55.00/bbl and amid a lack of overnight drivers for the energy complex overnight, with participants now looking ahead to today’s API inventories for want of a better catalyst to spur prices. Elsewhere, gold saw mild gains amid the risk averse tone and as silver prices surged to test 2-year highs, while copper was lacklustre and reflected the broad risk averse sentiment across asset classes.

Goldman Sachs said iron ore market remains tight and sees iron ore prices to rebound to USD 115/ton in 3 months, while JPMorgan have a different view and see 2019 iron ore prices at USD 93/ton. (Newswires)

US

The T-plex continued its march higher to start the week, with ongoing Hong Kong tensions being the latest catalysts for bulls. The upward momentum in Treasuries and EGBs, specifically in the belly- to front-end, was spurred by the further weakening of the Chinese yuan in the earlier European session, and then was extended through till settlement as fears grew of further escalation in Hong Kong as Chinese military forces close in on the nation. By settlement the curve had considerably bull flattened, with the 10-year yield down by 9bps, and the 2-year yield down by about 4bps; the entire curve had flattened by 6bps whilst newswires highlighted that the 2s10s was at its narrowest since 2010. US T-note futures (U9) settled 22 ticks higher at 130-12.

Categories:
MOC: * SPX 850mln to sell (vs at 650mln to sell at 1549 EDT) * Dow 50mln to sell (vs 100mln to buy at 1549 EDT)