Original insights into market moving news

[PODCAST] EU Open Rundown 4th October 2019

  • Asian equities traded with no firm direction after an upbeat performance on Wall Street, ahead of NFP
  • SCMP Editorial piece stated, "Beijing is in no hurry to forge a deal” with the US
  • EU’s Brexit Negotiator Barnier told a private meeting of EU diplomats that UK PM Johnson’s proposals fell far short of his conditions for a deal, sources stated
  • In FX, the DXY is flat, EUR and GBP moved in-step with the Dollar, Antipodeans outperformed
  • Looking ahead, highlights include US NFP and Trade, Baker Hughes, Canadian Trade, ECB’s de Guindos, Fed’s Powell, Rosengren, Bostic, Kashkari, Brainard, Quarles, Riksbank’s Jansson and RBI rate decision

ASIA-PAC Asian equities traded with no firm direction as the region derived little impetus from the upbeat performance on Wall Street ahead of the US labour market report, where stocks rose amid increased expectations for further Fed stimulus after this week’s ISM metrics declined to multi-year lows. ASX 200 (+0.4%) treaded water for most of the session and was little swayed by reports that Commonwealth Bank of Australia's life insurance arm has been charged with 87 counts of hawking life insurance products. Meanwhile, Nikkei 225 (Unch) remained within a tight range amid the cautiousness in the market and an uneventful domestic currency. Elsewhere, Hang Seng (-0.4%) was modestly softer ahead of an emergency meeting held by Chief Executive Lam which is anticipated to be on emergency regulation to ban protesters’ face masks, according to sources, although the enforcement of this law is still in question. Further, real estate stocks in the region underperformed as Hong Kong’s property market continues to bear the brunt of local riots, with reports stating that homeowners are slashing house prices by over 20% amid reluctant buyers and banks reducing property valuations due to the increasing violence. As a reminder, Mainland China remained closed due to its National Week holiday.

US President Trump told Chinese President Xi that he will stay quiet on HK amid trade talks. (CNN) White House Trade Adviser Navarro reiterated that there will be no small deal with China and added “we will get a great deal with China or no deal”. (Fox Business)

SCMP Editorial piece stated, "Beijing is in no hurry to forge a deal and the one struck between the US and Japan on September 25 is good reason for not rushing". The article noted that there was no agreement for the immediate removal of US penalties on Japanese vehicles and parts, but the accord referred to a levy elimination at a future date without specifying a time frame. (SCMP)

Japanese Foreign Minister Motegi said the US/Japan trade deal is to take effect in January. (Nikkei) Elsewhere, Japanese Finance Minister Aso said he does not see an immediate need to take stimulus steps. (Newswires)

Hong Kong government is said to be considering extending protesters' detention period, HK press reported. (Newswires)

HK Manufacturing PMI (Aug) 41.5 (Prev. 40.8) – Business confidence fell to the lowest level since September 2012. (Newswires)

Russian President Putin said China is prepared to buy as many soybeans from Russia as it can produce. (Newswires)


USTR plans no grace period for products that are already in transit when the EU tariffs go into effect on October 18th, according to Cheese Importers Association of America. (Newswires)

EU’s Chief Brexit Negotiator Barnier said the EU wants a withdrawal agreement with workable and effective solutions that create legal and practical certainty now. (Twitter) Meanwhile, reports noted that PM Johnson has one week to revise his Brexit deal or risk another Brexit extension. The sources added that Brexit Negotiator Barnier told a private meeting of EU diplomats that PM Johnson’s proposals fell far short of his conditions for a deal. (Newswires) UK PM Johnson reportedly has a plan B Brexit deal if the EU rejects the current one and has not ruled out a time limited backstop. Meanwhile, DUP's Foster said the UK Brexit proposal will not be amended. (Newswires) Elsewhere, The Sun reported that up to 30 Labour MPs have hinted that they could back UK PM Johnson’s deal in parliament despite backlash from Labour Leader Corbyn. (Sun)

Italy is ready to issue its first dollar bond since 2010 and an announcement could come as soon as next week, according to sources. (Newswires)


US Pentagon said the recent North Korea test was of a short-to-medium range ballistic missile fired from a sea-based platform. (Newswires) US and Japan have agreed that the North Korea missile test was provocative and should cease and added that it does not set the stage for diplomacy, according to Yonhap. Further, North Korea's official newspaper added that this week's test-firing of a submarine-launched ballistic missile (SLBM) represents a "grave statement" to hostile forces. (Yonhap)

US Department of Defense said Iran continues to represent a threat in the region and we have enough troops to protect our interests. (Newswires)

Saudi Vice Defence Minister Kahlid bin Salman called on Yemenis to stand with Saudi in the "face of the project of Iranian chaos". (Twitter)


DXY was initially modestly softer, albeit remained within yesterday’s range after this week’s duo of ISM misses took the index to a weekly low of 98.64 ahead of today’s NFP data (full preview available on the RANsquawk Research Suite). EUR/USD and GBP/USD derived mild upside from the initial weakness in the Greenback with the former firmly above 1.0950 and edging closer to 1.1000, whilst today’s options see 1.2bln expiring at strike 1.0925 and around 650mln at 1.1000. Cable hovered around 1.2350 throughout most of the session, with PM Johnson under a tight schedule to revise his Brexit deal or risk another extension to Article 50. Elsewhere, USD/JPY remained in a narrow intraday band under 107.00 and below its 50 DMA (106.97) in anticipation for today’s tier 1 US data release. Finally, antipodeans outperformed, more-so the Kiwi amid a defensive Dollar and with Central Bank activity out of the picture until next month. NZD/USD retained its 0.63+ status whilst AUD/USD largely side-lined a below-forecast August retail sales figure, whilst the RBA’s FSR stated that Australia’s financial system has improved but the spill over from tensions in Hong Kong, Middle East and Brexit could trigger a slowdown. AUD/USD traded around 0.6750 ahead of its 50 DMA at 0.6786.

Westpac Chief Economist sees a possibility of an RBA cut in December, reaffirms February 2020 forecast for a 25bps cut. (Newswires)

RBA's Assistant Governor (Economic Group) Ellis said the manufacturing sector has been performing strongly with exports increasing, Q2 public sector wages growth was boosted by one-off factor, expect rate of growth to fall back to recent averages. (Newswires)

Mexican Deputy Foreign Minister met with USTR Lighthizer, and said he sees significant progress regarding USMCA. (Newswires)

Brazilian Economy Ministry said government has surpassed privatization target of USD 20bln, has hit USD 23.5bln. Furthermore, Brazilian Privatization Secretary said all revenue from the government asset sale will be used to reduce debt. (Newswires)


WTI and Brent futures recouped yesterday’s losses as the softer Buck aided the benchmarks reclaim 52/bbl and 57/bbl to the upside with the latter now eyeing 58/bbl ahead its 200 WMA at 58.30/bbl. News flow for the complex remained light overnight, futures showed little reaction to reports that US Energy Sectary Perry is expected to resign next month, with reasons reportedly unrelated to US President Trump’s impeachment inquiry. Elsewhere, gold prices are supported by the weaker Dollar, prices traded in a tight range above 1500/oz with all eyes on the NFP release. Meanwhile, copper underperformed with reports noting that Antofagasta is seeking negotiations with workers at its Chilean Antucoya mine in an attempt to stave off a strike, albeit union leaders said there had been little progress.

US Energy Secretary Perry is expected to announce his resignation in November, Deputy Energy Secretary Dan Brouillette is expected to replace Perry, at least temporarily, according to sources cited by Politico. A source said that the US President Trump's impeachment inquiry is unrelated to Perry's departure. (Politico) SCMP later reported that Perry is planning to step down from his post by the end of the year and is likely to return to the private sector, citing sources. (SCMP)

Ecuador sees oil output rising to 590k BPD from 548k BPD after its exit from OPEC next year. (Newswires)


* US T-NOTE FUTURES (Z9) SETTLED 19+ TICKS HIGHER AT 131-24: The curve bull steepened following a poor ISM print, which sent 10y-year notes to session highs. There was a reversal seen in equities on the news, however, yields remained toward session lows for the remainder of the session, as market pricing for a 25bp cut at the October meeting jumped to a high of 92.5% from 77% yesterday; expectations pared to around 85% by settlement. The short-end of the curve immediately fell as markets now almost fully price in a cut at the next meeting, resulting in 2s10s curve widening to 15bp. Elsewhere, US treasury  is to sell 38bln in 3-year notes, 24bln in 10-year notes and 16bln in 30-year bonds next week, as expected.

Fed Vice Chair Clarida (Voter) said the US economy is in a good place, growth is solid, consumer is in a good place and when asked about an October rate cut, Clarida said the Fed takes each meeting one at a time and is not on a pre-set course. Clarida does not believe risk of a recession is particularly elevated and sees no evidence of an overheating labour market. He noted that it is important that inflation to be achieved on a symmetric basis around 2% target. Clarida was happy with the Fed’s July and September decision. He added the Fed will be discussing standing repo facility in future meetings. (WSJ)

Fed's Kaplan (Non-voter, Neural) said the Fed is allowing the economy to run hotter and the job market is tight although inflation is not running away. Kaplan added that two rate cuts this year (unclear if he meant additional rate cuts) reduce likelihood of a severe slowdown, does not eliminate it, adds watching services extremely carefully, should not overreact to one report. (Newswires)

White House is said to be planning to send Speaker Nancy Pelosi a letter as soon as today arguing that US President Trump and his team can ignore lawmakers' demands until she holds a full House vote formally approving an impeachment inquiry, sources stated. The letter has been drafted but has not been finalised or signed as of Thursday night. (Axios)

US President Trump reportedly ordered the removal of the ambassador to Ukraine after months of complaints from allies outside the administration and lawyer Giuliani, that she was obstructing efforts to persuade Kyiv to investigate 2020 Presidential Candidate Biden. WSJ reported citing sources. (WSJ) Further, NYT initially reported that US President Trump’s top envoys to Ukraine reportedly drafted a statement for the Ukrainian President in August that would have committed Ukraine to pursuing investigations sought by the US President into his political rivals, sources. (NYT) However, CNN later rebuffed the NYT report and stated that the Ukrainian government wrote a statement for public release committing to pursue investigations of corruption, not American diplomats. according to sources. Further, President Trump also raised 2020 Presidential candidates Biden and Warren in a call with Chinese President Xi. (CNN)

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