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[PODCAST] EU Open Rundown 18th November 2019

  • Asian equity markets partially resumed the momentum from last Friday’s record-setting performance on Wall St.
  • US Commerce Secretary Ross said the finish line is close regarding a China Phase One Trade Deal on paper
  • HK Police officers were said to threaten to use live rounds if rioters carry out more violence
  • UK election polling over the weekend has shown a trend towards the Conservatives increasing their lead over Labour
  • Looking ahead, highlights include ECB’s de Guindos, Lane & de Cos; Fed’s Mester; BoE’s Haldane

ASIA-PAC

Asian equity markets partially resumed the momentum from last Friday’s record-setting performance on Wall St. where all major indices notched all-time highs and the DJIA breached the 28000-milestone for the first time. Furthermore, the region also digested a cut in the PBoC’s 7-Day Reverse Repo rate but with gains limited as participants await the next developments on the trade front. ASX 200 (-0.4%) and Nikkei 225 (+0.3%) were mixed with Australia dragged by broad weakness across its sectors including underperformance in gold miners and losses for the top-weighted financials, while the Japanese benchmark was relatively quiet with mild gains spurred on the back of a weaker currency. Shanghai Comp. (+0.5%) was initially choppy with markets somewhat desensitized by the latest trade headlines including reports of a constructive call between US-China top trade negotiators and recent comments from US Commerce Secretary Ross that the finish line is close regarding a phase one trade deal. However, Chinese stocks were eventually supported after the PBoC injected liquidity through reverse repos for the first time in 3 weeks and lowered the rate by 5bps to 2.50%, while the Hang Seng (+0.8%) was resilient despite continued Hong Kong unrest with the index lifted by outperformance in property names and on touted short-covering following last week’s 5% slump, as well as reports of government rescue for mid-sized lender Harbin Bank. Finally, 10yr JGBs traded choppy amid the somewhat indecisive risk sentiment and mixed results from the enhanced liquidity auction, although prices have eked mild gains as it continues its rebound from support at 153.00. 

PBoC injected CNY 180bln via 7-day reverse repos and lowered the rate by 5bps to 2.50% from 2.55%. (Newswires) PBoC set CNY mid-point at 7.0037 vs. Exp. 7.0030 (Prev. 7.0091)

PBoC quarterly monetary policy report stated China’s economy faces increasing downward pressure and more uncertainties but remains under control. (Newswires)

US Treasury Secretary Mnuchin and US Trade Representative Lighthizer conducted a phone call with Chinese Vice Premier Liu He on Saturday in which they were said to have held "constructive discussions" on each other's core concerns and agreed to maintain close communication. (Newswires)

US Commerce Secretary Ross said the finish line is close regarding a China Phase One Trade Deal on paper, while he added the important thing is to make sure that the deal is what we think it is and make sure that it is consistent with the promises that they’ve made to us. (Fox/Twitter)

US government is reportedly preparing to extend licences to allow US companies to use Huawei equipment by 2 weeks, while a longer extension has not yet been finalized due to regulatory hurdles. (NYT)

Global Times tweeted China and the US may be deadlocked in a trade war, but dialogue is ongoing and 11th US-China Political Leaders Dialogue kicked off in Beijing on Monday with how to defuse trade and political tensions at the top of the agenda. (Twitter)

Further clashes were reported over the weekend in Hong Kong where police fired tear gas at protesters in the vicinity of a university campus and protesters set fire to the main entrance of the Polytechnic University as police attempted to move in. In related news, Police officers were said to threaten to use live rounds if rioters carry out more violence, while China sent PLA soldiers to the Hong Kong protest site with brooms to conduct a clean-up.  (Newswires) A Hong Kong court has ruled that the Government's ban on masks is unconstitutional. (Newswires) 

UK/EU

UK election Survation poll conducted November 14th-16th showed Conservatives at 42% (+7), Labour at 28% (-1), Lib Dems at 13% (-4) and Brexit Party at 5% (-5). (Twitter) UK election YouGov/Times poll conducted November 14th-15th showed Conservatives at 45% (+3), Labour at 28% (unch), Lib Dems at 15% (unch) and Brexit Party at 4% (unch). Mail on Sunday poll conducted November 14th-16th showed Conservatives 45% (+4), Labour 30% (+1), Lib Dems 11% (-5%), Brexit Party 6% (unch)

UK PM Johnson is to pledge tax cuts for businesses at the Confederation of Business Industry conference in attempt to ease Brexit related concerns. (Guardian) UK opposition Labour Party manifesto will include a windfall tax on oil companies as part of its attempts to shift the UK towards a low-carbon economy, according to the FT’s Chief Political Correspondent. (FT)

UK Foreign Secretary Raab said he does not think it is remotely likely that the UK would Brexit without a Free Trade Agreement at the end of the transition period. (Newswires)

Incoming EU Council President Michel said EU is ready to negotiate with UK but declined to predict how long a trade deal between the EU & UK would take. (Newswires)

ECB’s Muller suggested the central bank could do take even more unconventional measures if the situation becomes severe. (Newswires)

Norwegian official said from what he understands following conversations with US Commerce Secretary Ross, the EU auto tariff decision has been delayed. (minE24)

UK Rightmove House Price Index (Nov) M/M -1.3% (Prev. 0.6%). (Newswires) UK Rightmove House Price Index (Nov) Y/Y 0.3% (Prev. -0.2%) 

FX

DXY was slightly subdued and trickled below the 98.00 level after the recent mixed data from the US. Pressure in the greenback was also a function of the upside in its European counterparts as EUR/USD prodded above 1.1050 and with GBP/USD at a firmer footing on the 1.2900 handle after the latest Survation election polls suggested an expanding Tory margin against Labour which more than doubled to 14 points from a prior 6-point lead. USD/JPY and JPY-crosses held on to Friday’s gains which were spurred by the record highs on Wall St, while antipodeans traded sideways on the mixed risk tone, lack of pertinent data and with CNY indecisive as a firmer PBoC reference rate was counterbalanced by a reduction in the 7-day repo rate for the first time since 2015.

COMMODITIES

Commodities were quiet overnight in which WTI crude futures held on to Friday’s 2% gains which had been spurred by the heightened risk appetite from trade optimism which fuelled Wall St to unprecedented levels, while the latest Baker Hughes Rig Count also showed a 4th consecutive weekly decline in the number of oil rigs. Elsewhere, gold was choppy amid a subdued greenback and indecisive risk tone, while copper edged mild gains as the mood in its largest China eventually brightened after the PBoC injected liquidity at a reduced reverse repo rate.

Baker Hughes (Nov. 15th) US rig count: oil rigs -10 at 674, nat gas rigs -1 at 129, total rigs -11 at 817. (Newswires)

Iran experienced widespread protests in more than 100 cities and towns following a 50% gas price increase. (Newswires)

GEOPOLITICS

US and South Korea postponed joint military drills to help provide an opportunity to bring North Korea back to negotiations, although other reports noted North Korea proceeded with air drills despite efforts by US and South Korea to reduce tensions. (Newswires/SCMP)

US Defence Secretary Esper met with Chinese Defence Minister Wei in Bangkok which experts described as significant in strengthening mutual military trust, while China was said to ask US to stop escalating the South China Sea situation. In related news, China's Defence Ministry spokesman said China will not tolerate any Taiwan independence incidents and a China Navy spokesperson confirmed a Chinese carrier sailed through the Taiwan Straits but note the passage is not directed at any target nor is it related to current situation. (Newswires/Twitter)

US

The TPLEX traded with mild losses to end the week, with the usual risk driver of positive US-China trade sentiment weighing on havens; yields were higher across the curve by approximately 2bps at settlement. On the week, yields have come off their recent highs, with the 10-year yield currently around 1.83%, compared to the 1.97% reached last week, where the yield rally has taken a breather this week, in addition to some more cautious trade updates providing some resistance to selling pressures. The slate of Fed speak has shown unanimous content with current policy and an FOMC on pause as it waits to see how the economy reacts to recent cuts; the 2s10s has narrowed from just shy of 27bps to 22bps. US T-note (Z9) futures settled 6+ ticks lower at 129.04+.

US President Trump reiterated they will be carrying out major middle-income tax cuts. Trump also commented on healthcare and stated that reforms will have a "tremendous impact" on health care pricing which will lead to more competitive pricing and greater transparency, while he will be giving the US the right to purchase prescription drugs from other countries. (Newswires)

Fed's Brainard (Voter, Dove) said risk appetite appears in the middle of its historic range with corporate debt loads remaining historically high, but the financial sector is resilient with low overall leverage and funding risk. (Newswires)

Fed’s Daly (Non-Voter, Dove) said low inflation despite low unemployment creates an opportunity for the economy, while she added that accommodative policy can bring more workers into the labour force and push inflation back towards 2% inflation target level. (Newswires)

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Asia equities begin mostly positive after the mild tailwinds from Wall St where markets were encouraged by a somewh… https://t.co/3S76pZPqQt