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[PODCAST] EU Open Rundown 15th November 2019

  • Asian equity markets traded mostly higher as sentiment remained at the whim of the temperamental trade rhetoric
  • White House Economic Adviser Kudlow suggested they are getting close to an agreement and the sides were on the short strokes of a phase 1 deal
  • However, Kudlow noted President Trump was not yet ready to sign off on a deal with the comments also following an FT report that suggested US and China were struggling to complete the Phase One trade deal
  • Looking ahead, highlights include EZ CPI (Final), US NY Fed Manufacturing, Import & Export Prices, Retail Sales, Industrial Production, Baker Hughes Rig Count, IEA Monthly Oil Report, BoC’s Polloz, ECB’s Mersch, BoC’s Lane
  • Earnings: Linde, AP Moeller Maersk, Leg Immobilien

ASIA-PAC

Asia equity markets traded mostly higher as sentiment remained at the whim of the temperamental trade rhetoric with risk appetite spurred after White House Economic Adviser Kudlow suggested they are getting close to an agreement and the sides were on the short strokes of a phase 1 deal, and although Kudlow noted US President Trump was not yet ready to sign off, his comments were at a sharp contrast to prior reports the trade teams were struggling to complete a deal. ASX 200 (+0.9%) and Nikkei 225 (+0.7%) are positive with Australia underpinned by the recent increase in rate cut bets after chances for a cut next month more than doubled to 29% according to ASX 30-Day Interbank Cash Rate Futures and with its implied yield curve heavily leaning towards a cut at the subsequent meeting in February, while a deluge of earnings has been a key driver in Japan alongside tailwinds from a weaker currency. Hang Seng (+0.1%) and Shanghai Comp. (-0.2%) were mixed as Hong Kong attempted some composure from this week’s protest-triggered declines, although the mainland was somewhat unconvinced by the conflicting trade headlines, as well as the PBoC’s tepid actions in which it skipped reverse repos and instead opted for its medium-term lending facility, albeit at half the amount of the prior operation. Finally, 10yr JGBs were choppy as they initially extended above the 153.00 level although prices then reversed from intraday highs amid the positive risk tone and after a relatively light BoJ Rinban operation for just JPY 130bln in longer-dated JGBs.

PBoC skipped open market operations but announced to lend CNY 200bln through 1yr MLF at 3.25% vs. Prev. CNY 400bln at 3.25%, while it noted the 2nd phase of its targeted RRR cut that took effect today released CNY 40bln. (Newswires)

PBoC set CNY mid-point at 7.0091 (Prev. 7.0083)

White House Economic Adviser Kudlow said we are getting close to a trade deal with China, while he added the mood music has been very good and talks have been very constructive. Kudlow also noted US President Trump is not ready to sign off, but suggested US and China are on the short strokes of a phase 1 deal. (Newswires/WSJ)

US trade sources confirmed there was another deputy level trade call between the US and Chinese trade teams, while talks were said to be progressing as the two sides try to get a phase 1 trade deal on paper. (Fox News)

US and China were reportedly struggling to complete Phase One trade deal according to sources, with the sides still jostling over IP provisions, agricultural purchases and tariff rollbacks. Furthermore, US officials are said to be frustrated that China has not offered enough concessions to justify a reduction in US tariffs. (FT)

US AG Barr said Huawei and ZTE cannot be trusted and labelled them a security threat as he backed a proposal to bar US rural wireless carriers from tapping an USD 8.5bln government fund to buy equipment or services from the Chinese firms. (Nikkei)

Chinese China House Prices (Oct) Y/Y 7.8% (Prev. 8.4%). (Newswires)

UK/EU

ITV's Peston tweeted the Brexit Party is compiling a dossier of complaints from its candidates of alleged inducements and bullying from senior Tories to persuade them to step down, which suggested could hurt PM Johnson’s election ambitions. (Twitter/ITV)

European Commission said it has opened a legal case against the UK for not naming a commissioner for the new EU commission. (Newswires)

ECB sources said policymakers told Chief Lagarde decisions should be made by consensus rather than a simple majority and that proposals should be distributed early and not front-run in public communications, while policymakers also disregard the idea of holding formal votes and publishing the tally. (Newswires)

FX

DXY was lacklustre after yesterday’s mild pullback. EUR/USD gently prodded above the recently reclaimed 1.1000 level and GBP/USD edged closer towards near-term resistance at 1.2900 where there is also a mid-size option expiry for today’s New York cut. Elsewhere, USD/JPY and JPY-crosses were underpinned by the improved risk tone, while antipodeans saw a mild rebound with NZD/USD supported after New Zealand PMI data returned into expansion territory. In addition, RBNZ Governor Orr suggested the central bank was comfortable with observing the data and although RBNZ Assistant Governor Hawkesby noted the February rate decision is live, he caveated that a cut would require a change to the outlook.

RBA Deputy Governor Debelle said monetary policy works with long and variable lags, while he added not much time has passed yet and more time is needed for policy to work. (Newswires)

RBNZ Governor Orr said the door is open for a rate cut if needed and we're in a nice position to observe data, while he added they are starting to see signs of a pick-up in activity. There were also comments from RBNZ Assistant Governor Hawkesby that a February rate decision is live but added that a rate cut in February would require the outlook to change and that they need to see how the outlook evolves heading into February. (Newswires)

New Zealand Manufacturing PMI (Oct) 52.6 (Prev. 48.4). (Newswires)

COMMODITIES

Commodities were mixed in which oil prices recovered some of the prior day’s losses that were triggered by a bearish EIA inventory report. Nonetheless, WTI crude futures have nursed losses overnight and just about reclaimed the USD 57.00/bbl level, underpinned by the constructive trade-related mood swing. Elsewhere, gold was subdued amid a lack of safe-haven demand but with losses stemmed by a subdued greenback, while copper prices gained on the improved risk sentiment which also coincided with early strength in Shanghai commodity prices. 

GEOPOLITICS

North Korea government reportedly warned South Korea of a last chance to remove their facilities before they demolish joint resort buildings near the border. (Newswires)

US

Yields were lower across the curve, with major curve spreads not deviating too much (+/- 1bps or so at settlement). The complex was rallying all day, reaching a peak after another article suggested that US/China trade talks are facing difficulties, but pared back as traders once again reasoned that there was little new substance in the report that shifts the narrative too much. US T-note (Z9) futures settled 14+ ticks higher at 129-11.

Fed’s Bullard (Voter, Dove) said Fed can reconsider whether to take back the recent insurance cuts if and when business adjust to new trade landscape, while he expects US job growth to slow,  forecasts growth of 2% or higher in the coming periods and suggested it is time for the Fed to wait and see the impact of the cuts made so far this year. (Newswires)

Fed's Williams (Voter, Neutral) said the US economy and monetary policy is in a good place and that the Fed will adjust policy if there is a material change to the outlook. Williams added reserves are now at an ample level, while he added monetary policy should not get involved with the volatility of trade and Brexit and instead should take a longer view. (Newswires)

Fed's Kaplan (Non-Voter, Dove) expects the US economy to grow at a bit more than 2% in 2019 even though growth is sluggish and doesn't expect a recession in 2020, while Kaplan also noted the consumer is solid and he does not think inflation is going to run away from us. (Newswires)

White House Economic Adviser Kudlow says working on second-term tax cut package geared to improve economic growth and help middle income earners, while he added that Fed policy is headed in the right direction. (Newswires)

Fox News Nevada Democratic primary presidential poll has Biden at 24%, Sanders at 18%, Warren at 18% and Buttigieg at 8%. (Fox News)

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