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[PODCAST] EU Open Rundown 15th October 2019

  • Asian equity markets traded mixed following the lacklustre lead from Wall St where the recent US-China trade optimism receded
  • US-China talks are to resume next week and the Phase 1 deal could be wrapped up in November according to Chinese press
  • Brexit deal hopes are reported to have increased as sources in both sides of the channel stated there was cautious optimism, according to the Telegraph
  • US President Trump is to authorise sanctions against Turkish officials, immediately stop negotiations with Turkey on a USD 100bln trade deal and reintroduce steel tariffs back at 50%
  • Looking ahead, highlights include UK Employment, German ZEW, US NY Fed Manufacturing, NZ CPI, Fed Discount Minutes, Fed's Bullard, Bostic, George & Daly, BoE's Carney & Vlieghe, US Coupon Settlement, supply from UK and Germany
  • Earnings: Blackrock, JP Morgan, Wells Fargo, Goldman Sachs, Citigroup, J&J

ASIA-PAC

Asian equity markets traded mixed following the lacklustre lead from Wall St where the recent US-China trade optimism was tempered by discrepancies in language between the sides and with China wanting more discussions before signing the deal, while looming earnings added to the tentativeness as the large US banks are to begin announcing Q3 results today. ASX 200 (+0.2%) was choppy with the index pressured by underperformance in the commodity-related sectors and Nikkei 225 (+1.9%) outperformed as it played catch up on return from the extended weekend with Japanese officials willing to consider an additional budget for the typhoon recovery if required. Hang Seng (Unch.) and Shanghai Comp. (-0.5%) were indecisive after the trade exhilaration faded, with the HKMA’s announcement of a countercyclical capital buffer reduction and influx of CNY 40bln from the PBoC’s previously announced targeted RRR cut, doing little to spur risk appetite. The latest inflation figures from China were also somewhat inconclusive as CPI topped estimates to print its highest since 2013 although PPI declined at its fastest pace in more than 3 years. Finally, 10yr JGBs traded subdued as demand was dampened amid the strength in Japanese stocks but with downside also restricted by the BoJ’s presence in the market for JPY 1.21tln of JGBs heavily concentrated in 1yr-10yr maturities.

PBoC skipped open market operations for a net neutral daily position, although it was noted that CNY 40bln was being released from the previously announced targeted RRR cut. (Newswires)

PBoC set CNY mid-point at 7.0708 vs. Exp. 7.0676 (Prev. 7.0725)

Chinese CPI (Sep) Y/Y 3.0% vs. Exp. 2.9% (Prev. 2.8%); highest since 2013. Chinese PPI (Sep) Y/Y -1.2% vs. Exp. -1.2% (Prev. -0.8%); steepest decline since 2016.

US-China talks are to resume next week and the Phase 1 deal could be wrapped up in November according to China press, while it was also reported that China thinks Phase 1 of the deal was not balanced. (SCMP/CNBC)

China Global Times Editor tweeted that China has the market demand to buy USD 40bln-50bln worth of US farm products and that China won't make a commitment that it cannot honour in which he added that once it promises, it will fulfil. (Twitter)

UK/EU

There could be a second special European Council before the end of October and an agreement this week is unlikely with the summit more likely to focus on extension to 31st January 2020 or later according to a diplomatic note, while it was also reported that Irish Foreign Minister Coveney hinted an agreement may not be reachable at the EU summit this week. (BuzzFeed/RTE) Separately, Brexit deal hopes are reported to have increased as sources in both sides of the channel stated there was cautious optimism that a narrow path to a deal could now be appearing. (Telegraph)

FX 

DXY was relatively flat below 98.50 as participants second-guessed the recent trade developments and amid sideways price action across most major counterparts in which EUR/USD has stuck to a thin range, with the single currency also nearing an option expiry at 1.1020 for today’s New York cut. GBP/USD has been more turbulent amid the Brexit-related uncertainty as the earlier pressure from doubts on reaching an agreement, was eventually alleviated by reports there was cautious optimism from both sides of the channel that a narrow path to a deal could be appearing and with the EU mulling an emergency summit to get the Brexit deal done, which helped GBP/USD reclaim the 1.2600 handle. Elsewhere, USD/JPY was steady despite the outperformance of Japanese risk sentiment, while antipodeans conformed to the uninspiring picture after the RBA minutes provided little in terms of new information in which it reiterated the board is prepared to ease policy further if needed and that it is reasonable to expect that an extended period of low rates would be required.

RBA Minutes from October 1st meeting stated the board judged case for easing at October meeting outweighed arguments against a move and that it is prepared to ease policy further if needed. RBA also reiterated that it is reasonable to expect that an extended period of low rates would be required, while board members noted global trend of lower rates and discussed the possibility rate cuts could have less impact than in past but judged lower rates will still have an effect through AUD. (Newswires)

COMMODITIES

Commodities were lacklustre with WTI crude futures mildly pressured as the US-China trade optimism waned which pressured WTI back towards the USD 53.00/bbl level and Brent below USD 59.00/bbl, while participants will also have to wait an extra day this week for the latest inventory reports due to the Columbus Day holiday. Elsewhere, gold prices were little changed due to the uneventful greenback with the precious metal biding its time just south of the USD 1500/oz level and copper mirrored the indecisive risk tone due to the tempered trade hopes which had subsequently pressured Chinese commodity prices from the open.

GEOPOLITICS US President Trump is to authorise sanctions against current and former Turkish officials, while the US will immediately stop negotiations with Turkey on a USD 100bln trade deal and are to reintroduce steel tariffs back at 50%. (Newswires) US Treasury Secretary Mnuchin said the US sanctioned Turkey’s Ministers of Interior, Defence and Energy but added the US will issue license to continue to let Turkey buy fuel and will remove sanctions based on Turkey's actions. (Newswires)

US VP Pence said President Trump spoke with Turkish President Erdogan and asked him to halt incursion into Syria, while Erdogan gave assurance that Turkey will not attack the city of Kobani. Furthermore, Pence said he will visit the region to seek a ceasefire and that no decision has been made on whether the scheduled Trump-Erdogan meeting next month will take place. (Newswires)

US

Conditions were thin in the North American trade, with many players away on US Columbus Day and Canadian Thanksgiving. However, the positivity seen on Friday has been faded, as desks re-evaluate the optimism over US/China trade talks and challenges around the course for Brexit deal emerge. With that said, the usually hawkish Global Times editor has tried to explain away some of the differences in language used by the US/China over the weekend, while many Brexit watchers were never truly convinced that UK PM Johnson's plan would be able to fly in its current form. And then on the margin, geopolitics around Turkey/Syria have been at the forefront of traders’ minds which left the equity complex which largely flat, while T-Note futures finished up (settling 11 ticks higher at 130-07, though off the pre-market highs seen after reports that China wanted more discussions before signing the phase one trade deal).

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