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[PODCAST] EU Open Rundown 13th November 2019

  • Asian equity markets were lower across the board and US equity futures pulled back from record levels
  • US President Trump’s speech failed to provide any fresh insight on US-China trade but continued to warn the US will substantially raise tariffs on Chinese imports if there is no deal made
  • US Trade Representative's Office will submit a report on possible tariffs on autos and auto parts to the White House by today
  • Looking ahead, highlights include German, Swedish, UK CPI, EU Industrial Output, US CPI, EIA STEO, APIs, Japanese GDP, Fed’s Powell, Barkin, Kashkari, RBNZ's Orr, RBA’s Bullock, Riksbank’s Floden, supply from Germany & Italy
  • Earnings: Bechtle, Deutsche Wohnen, Altice, ABN Amro, Lanxess, SSE, Cisco, Applied Materials

ASIA-PAC

Asian equity markets were lower across the board and US equity futures pulled back from record levels amid continued uncertainty and disappointment following US President Trump’s speech at the Economic Club of New York which failed to provide any fresh insight on US-China trade, with news the USTR office will submit a report on possible auto tariffs to the White House also clouding over the risk climate. ASX 200 (-0.8%) and Nikkei 225 (-0.8%) declined as weakness in the energy, mining and financials sectors weighed on Australia, while Tokyo was also subdued by underperformance in commodity stocks and detrimental currency inflows. Hang Seng (-2.1%) and Shanghai Comp. (-0.3%) conformed to the downbeat tone after US President Trump largely stuck to the script regarding US-China trade but also renewed his criticism on China and threatened higher tariffs if they fail to reach an agreement, with the losses in Hong Kong exacerbated again due to the current no end in sight for the disruption which has already plunged the city into a recession. Finally, 10yr JGBs were in recovery mode after the prior day’s slump with the rebound aided by support around 152.50 and the broad risk averse tone in the region.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 7.0026 vs. Exp. 7.0010 (Prev. 6.9933)

US President Trump said we are close to signing Phase One with China which could happen soon but will only accept it if it is good for the US and its workers. Trump reiterated that China has cheated the US since joining the WTO and has been manipulating its currency, while he added China is making large agricultural purchases and warned the US will substantially raise tariffs on Chinese imports if there is no deal made. (Newswires)

NEC Director Kudlow said he would not put a timeline on a China trade deal and noted that "close" means "close", while he reiterated lots of progress on IP theft, financial services, currency stability, commodities and agriculture. Kudlow added that neither side is going to agree to any tariff adjustments until a deal is reached and that it is possible tariff adjustments could be part of the deal. (CNBC)

China Global Times Editor stated there are quite a lot of criticisms and complaints from President Trump about China in his latest speech but there was hardly anything new and similar statements of senior US officials have bored people, while the editor added it seems the US administration believes a lie repeated a thousand times becomes truth. (Twitter) Tariffs are reportedly emerging as the main stumbling block for US and China to reach a limited trade deal, according to sources. Reports suggest that the disagreement stems on whether or not the US removes all existing tariffs in “phase one” or cancels the impending December 15th tariffs. (WSJ)

UK/EU

Brexit Party Leader Farage said 300 seat nominations have been signed off as part of its fight against the Labour Party. (Newswires)

YouGov Poll: Conservatives 42%, Labour 28%, Lib Dems 15%, Brexit Party 4%, Green 4%. This poll was carried out on November 11-12th (Newswires)

US President Trump criticized the EU for having "terrible trade barriers" which he suggested in some cases, can be worse than China. In other news, US President Trump and French President Macron had a call on Monday in which Trump stressed the need for a level playing field for US companies and they also reaffirmed their commitment to work together on Syria. (Newswires)

FX

DXY traded sideways within a tight range after the lack of fresh trade insight from US President Trump with the greenback’s major counterparts mixed with EUR/USD subdued as it just about held onto the 1.1000 handle following mixed German ZEW data and the lingering threat of auto tariffs stateside, while GBP/USD consolidated around 1.2850 amid very light pertinent newsflow and as the latest Survation and YouGov polls suggested the Conservatives remained ahead of the opposition Labour Party, albeit by a varying degree of 6-14 points. Elsewhere, USD/JPY briefly slipped below the 109.00 handle due to the subdued risk appetite and antipodeans outperformed with NZD/USD boosted after the RBNZ’s surprise decision to keep the OCR unchanged in which it stated it will act if needed but added that economic developments do not warrant a change to monetary policy at this time.

RBNZ kept the Official Cash Rate unchanged at 1.00% vs. consensus for a 25bps cut, while it said it is prepared to act and will add further monetary stimulus if needed but noted economic developments do not warrant a change to monetary policy at this time and that low rates, as well as government spending will support domestic demand. RBNZ Governor Orr also commented there was no urgency to further ease at this point and suggested ups and downs in data since the August statement broadly offsets each other, while RBNZ's Hawkesby commented that data will determine what the RBNZ does. (Newswires)

COMMODITIES

 

Commodities were mostly lower with price action subdued by the broad risk averse tone which weighed on WTI crude futures towards USD 56.50/bbl where prices eventually found support. There were also recent comments from a Gulf OPEC delegate which suggested the unlikelihood for deeper production cuts as the resulting increase in prices from such action would spur a boost in US output and effectively nullify their efforts, while focus now shifts to the upcoming inventory reports which were delayed due to this week’s Veterans Day. Elsewhere, gold prices were marginally supported by safe-haven demand but with gains limited by a steady greenback, and copper languished at this month’s lows amid the widespread downbeat sentiment.

IEA said the world energy outlook central scenario is for global oil demand growth to rise 1mln bpd annually to 2025 then increase 100k bpd annually during 2030s, while it sees oil prices at nearly USD 90/bbl in 2030 and USD 103/bbl in 2040. (Newswires)

Port Hedland October iron ore exports to China 35.8mln tons vs. Prev. 36.05mln M/M and 32.8mln tons Y/Y. (Newswires)

 

GEOPOLITICS

Senior US administration official said President Trump's priorities in northeast Syria are to prevent IS resurgence and prevent atrocities in the region, while the official added the US has no intention to end alliance with Kurdish-led SDF militia and needs to resolve the issue with Turkey regarding the latter's purchase of the Russian S-400 system. (Newswires)

US

 

The TPLEX traded choppy and rangebound on Tuesday where Trump’s anticipated speech failed to provide key details on the trade fronts with both China and the EU. Meanwhile, AbbVie (ABBV) gained the title of the year’s largest issuer after its USD 30bln M&A bond for its acquisition of Allergan (AGN). Yields were little changed at settlement with the 2s10s still gravitating around 26bps. US T-note (Z9) futures settled 4+ ticks higher at 128-17.

US President Trump repeated familiar criticisms of the Fed and talked up his achievements on the economy since coming into office. Trump commented the US can bring taxes lower and talked up further regulation cuts, while he also called for passage on USMCA in which he noted that most democrats would vote for it if there were a vote today. (Newswires)

US Trade Representative's Office will submit a report on possible tariffs on autos and auto parts to the White House by today which could allow Trump to target specific countries and EU for auto-tariffs. Furthermore, the report is said to be separate from the Commerce Department Section 232 report on tariffs on autos and auto parts and the President has until today to decide whether to act or to delay action on that report, according to Fox's Lawrence. (Fox/Twitter)

NEC Director Kudlow said US President Trump has asked him to work on tax reform 2.0 but did not provide any details as it is too early, while Kudlow said he does not think the US needs negative rates right now as the economy is in a strong place and noted the yield curve is normalising which is a good thing. (CNBC)

White House Economic advisers are reportedly considering whether to campaign on a 15% tax rate proposal for middle class income earners. (Washington Post)

Fed's Barkin (Non-Voter, Hawk) said policy is in a mildly accommodative place after the rate cuts this year and current inflation is not the worst outcome given that expectations seem well anchored. Barkin added he does not expect rate cuts to make a big difference in investment and that weak investment is more a product of overall climate for business, uncertainty over trade, regulation and geopolitics. (Newswires)

Fed's Harker (Non-Voter, Hawk) said he was against the October rate cut and that by lowering rates further at this point the response won't be what is expected because the cost of capital is not holding businesses back, while Harker added he is currently not for raising nor lowering rates and that monetary policy is about neutral or slightly accommodative. Harker also suggested that in the case of a recession the best response is not negative rates but larger fiscal stimulus and the first line of defense would be bringing rates to zero as well as asset purchases. (Newswires)

Fed's Kashskari (Non-Voter, Dove) said he is feeling a little bit better about the US economy than a few months ago and there is a lot of consensus at the Fed that monetary policy is modestly accommodative, while he added that modestly accommodative policy is appropriate. (Newswires)

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EZ Markit Comp Final PMI (Jul) 54.9 vs. Exp. 54.8 (Prev. 54.8) https://t.co/Z2Rh8exYNP