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[PODCAST] EU Open Rundown 24th September 2019

  • Asian equity markets traded indecisively following a similar close on Wall St where the major indices spent the day steadily recouping the opening losses
  • US Treasury Secretary Mnuchin stated Chinese VP Liu He will visit the US next week for discussions; however, later stated talks will resume in two weeks
  • US President Trump said we will have to see what happens regarding a meeting with Iranian President Rouhani and that he will discuss Iran in his UN speech today
  • UK PM Johnson has reportedly not ruled out proroguing parliament again if he loses the Supreme Court vote

ASIA-PAC

Asian equity markets traded indecisively following a similar close on Wall St where the major indices spent the day steadily recouping the opening losses brought on by weak Eurozone PMI data. ASX 200 (+0.1%) was choppy as outperformance in gold stocks and resilience in financials were counterbalanced by losses across the broader market, while Nikkei 225 (+0.1%) remained afloat on return from the extended weekend but with gains capped by a choppy currency and as officials scrambled to finalize a US-Japan trade deal amid uncertainty regarding auto tariffs. Elsewhere, Hang Seng (+0.8%) and Shanghai Comp. (+0.3%) traded positively after continued PBoC liquidity efforts and as the central bank suggested there was still ample monetary policy tools, although advances were initially limited by the trade-related overhang as participants mulled over the recent ebbs and flows of the US-China trade saga ahead of next month’s high level talks. Finally, 10yr JGBs gained on return from the holiday closure amid the recent temperamental US-China trade headlines and indecisive risk tone in the region, while the BoJ were also present in the market today for JPY 810bln of JGBs in the belly to the short-end.

PBoC injected CNY 40bln via 14-day reverse repos. (Newswires)

PBoC set CNY mid-point at 7.0729 vs. Exp. 7.0838 (Prev. 7.0734)

PBoC said interest rate levels are appropriate and that China has ample monetary policy tools as well as relatively big policy room. There were also comments from PBoC Governor Yi Gang that China will maintain prudent monetary policy and will not resort to flood-like stimulus, while he added there is in no rush to take big policy easing steps. (Newswires)

China’s Finance Minister Liu Kun said they will adjust policies on tax and fee cuts based on assessments, while he added China is aiming to allocate all local government bond proceeds to projects by end of next month. In related news, China NDRC Vice Chairman Ning stated that China will step up efforts to stabilize growth. (Newswires)

China has given new waivers to several domestic state/private companies for tariff free US soybean purchases. (Newswires)

US Treasury Secretary Mnuchin confirmed the Chinese delegation visit to US farm states was delayed at request of US and stated that China Vice Premier Liu He will visit next week for discussions, although Mnuchin later commented that he thinks talks with China will resume in 2 weeks. However, US Agriculture Secretary Perdue said the US asked China to purchase more than 20mln tonnes of soybeans but noted there were no commitments from China last week and that he did not know why the farm visits were cancelled. (Newswires/Fox Business News)

Japan’s Foreign Minister Motegi said trade deal negotiations with US finished and that he doesn't see much delay from goal of signing deal by end of the month, while a Foreign Ministry spokesman also said there is still have time to agree to a trade deal with US by end of the month. However, earlier reports suggested a deal may be delayed due to a disagreement regarding the auto tariffs and that an agreement will not be ready to sign when Japanese PM Abe meets US President Trump on Wednesday as it is still undergoing legal checks with the sides to sign separate documents confirming a final agreement. (Newswires)

UK/EU

UK PM Johnson has reportedly not ruled out proroguing parliament again even though he could potentially lose the Supreme Court battle for proroguing the first time; additionally, the PM has repeated that he will not resign if the Supreme Court rule against him. (Newswires/Times)

UK Opposition Labour Leader Corbyn won three votes at the Parties annual conference; as such, the Labour Party are now committed to opposing a general election, renegotiating a Brexit deal with the EU and then putting the deal to the public via a referendum. The party will determine whether to support the deal or not after negotiations have concluded. (Newswires/Times)

UK PM Johnson is to tell US and Canadian business leaders that post-Brexit Britain will roll out the red carpet for investors and will take advantage of post-Brexit freedoms including new tax allowances on investment, according to speech extracts. (Newswires)

UK government official said PM Johnson was clear in meeting with EU's Tusk that a Northern Ireland only backstop was not a solution the UK could accept, while the official added we believe we have put forward detailed proposals to get the process moving along and want to see that the EU are ready to engage seriously with the ideas we put forward. (Newswires)

FX

In FX markets, the DXY was marginally higher following the prior day’s gains on the back of recent weakness in EUR/USD as the single currency slipped below 1.1000 following disappointing European PMI data. GBP/USD was subdued amid a continued lack of progress in Brexit discussions as the UK remained adamant it cannot accept a Northern Ireland only backstop and with EU Brexit Negotiator Barnier equally opposed to the UK’s proposals. Elsewhere, USD/JPY traded indecisive alongside a similar risk tone across the region and antipodeans were also choppy as initial downside in AUD/USD was later reversed following a firmer than expected CNY reference rate, with participants now looking ahead to RBA Governor Lowe’s speech later where there are wide expectations he could signal a rate cut for next week’s meeting.

COMMODITIES

Commodities were lacklustre overnight with WTI crude futures subdued amid the indecisive risk sentiment in the region and after the choppy price action seen yesterday early downside seen as weak EU PMI data stoked demand concerns, while there were also source reports which suggested Saudi’s facilities are to fully restore oil production by early next week. Elsewhere, gold traded relatively flat and held on to its recent gains above the USD 1500/oz level despite a firmer greenback and copper prices were also relatively unchanged amid the non-committal tone seen across the complex.

GEOPOLITICS

US President Trump said we're getting along well with North Korea and maybe we will be able to make a deal or maybe not. South Korea spy agency said US-North Korea working level talks will take place in 2-3 weeks and a summit is possible by year-end, while it added North Korea’s leader Kim could attend Korea-ASEAN summit in Busan in November. (Newswires)

US President Trump said we will have to see what happens regarding a meeting with Iranian President Rouhani and that he will discuss Iran in his UN speech today, while he added the US have a lot of pressure on Iran and that he is not looking for a mediator on Iran. (Newswires)

US Envoy to Iran said the US seeks comprehensive negotiations with Iran that include discussions on missiles and terrorism. In related news, UK, Germany and France announced in a joint statement it is clear Iran is behind the Saudi Aramco attacks and reiterated their backing of the 2015 nuclear deal as well as their call on Iran to return to full compliance. (Newswires)

Iran President Rouhani said our message to the world is peace and stability, although there were earlier comments from a senior official that Iran will never yield to the US and the US should lift sanctions if it wants to reduce tensions. In other news, the Iranian Ambassador to the UK confirmed that the British tanker Stena Impero is free to leave Iran.  (Newswires)

US

The dismal EZ PMIs saw a flight into Treasuries and EGBs, afterwards mixed US PMIs failed to change the dial, however, going into the tail-end of the session yields did come off their lows and settled not far over 1bps lower across the curve. US T-note futures (Z9) settled 12+ ticks higher at 130-02+.

Fed’s Bullard (Voter, Dovish Dissenter) said rate cuts and shifts in Fed’s tone has made policy more accommodative for now and that he is not seeing an intensification of yield curve inversion likely because the market sees more rate cuts ahead. Bullard also stated that rate cuts should help to lift inflation back to target and that decisions at the FOMC will be made meeting-by-meeting, while he added it is unclear whether other colleagues will support more rate cuts. (Newswires/WSJ)

Fed's Daly (Non-Voter, Dove) said the US economy is in a good place and that economic growth is being propelled by consumers. The case for keeping rates unchanged include concern over financial imbalances and expectations of rising inflation but cited the need to reach the inflation target as a reason why she supported the rate cut. (Newswires)

House Democrat leaders have reportedly called for a caucus meeting today at 1600ET to discuss questions of impeachment. (Newswires)

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