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[PODCAST] EU Open Rundown 19th November 2019

  • Asian equities eventually traded mostly higher but with gains capped after an initial lack of commitment due to the ongoing US-China uncertainty
  • EU's Trade Chief Weyand warned UK PM Johnson will either only get a “bare bones” trade deal from Brussels next year or none at all due to time constraints
  • In FX markets, the majors mostly consolidated overnight amid a light calendar and as participants await the next developments of the US-China trade saga
  • US President Trump tweeted that he told Fed Chair Powell the Fed rate is set too high relative to the interest rates of other competitor countries
  • Looking ahead, highlights include US Building Permits, Housing Starts and APIs, Japanese Trade, PM Johnson vs UK Labour Party Leader Corbyn UK Election debate, Fed’s Williams, Norges Bank’s Matsen, BoC’s Wilkins

ASIA-PAC

Asian equity markets eventually traded mostly higher but with gains capped after an initial lack of commitment due to the ongoing US-China uncertainty triggered by contrasting trade headlines, including reports of a pessimistic mood in Beijing about a deal being passed. ASX 200 (+0.7%) and Nikkei 225 (-0.5%) were mixed with Australia lifted as gains in the defensive sectors and recovery in financials superseded the heavy losses in tech, while Tokyo sentiment was snagged by detrimental currency flows and with SoftBank pressured by further WeWork troubles as the New York Attorney General was said to be investigating the embattled workspace company. Elsewhere, Hang Seng (+1.2%) and Shanghai Comp. (+0.5%) began indecisively but gradually improved as reports of Beijing trade pessimism was offset by a 90-day license extension for US firms to continue doing business with Huawei, while the PBoC also continued its liquidity efforts with another firm injection of CNY 120bln through 7-Day Reverse Repos. Finally, 10yr JGBs were mildly higher as they tracked recent upside in T-notes and amid weakness in Japanese stocks, while demand was also supported by the BoJ’s presence in the market for over JPY 1.1tln of JGBs in 1yr-10yr maturities.

PBoC injected CNY 120bln via 7-day reverse repos for a daily net injection of CNY 120bln. (Newswires) PBoC set CNY mid-point at 7.0030 vs. Exp. 7.0061 (Prev. 7.0037)

About 100 protesters were still barricaded in Polytechnic University in Hong Kong as the stand-off with police continued, while there were also comments from Hong Kong Chief Executive Lam that she hopes the campus standoff can be solved peacefully and she told police to handle protesters leaving the campus in a humane way. China's Hong Kong Affairs Office expressed strong concern over Hong Kong Court decision to overturn mask ban and China’s Parliament Law Committee said Hong Kong Courts have no power to rule on constitutionality of the face mask ban law. (Newswires)

UK/EU

EU's Trade Chief Weyand warned UK PM Johnson will either only get a “bare bones” trade deal from Brussels next year or none at all, while she suggested there will be a lack of time to strike a comprehensive deal. (The Sun)

FX

In FX markets, the majors mostly consolidated overnight amid a light calendar and as participants await the next developments of the US-China trade saga with the DXY steady after having recovered from the prior day’s trough. The greenback’s transatlantic counterparts were also uneventful with EUR/USD taking a breather following a pullback from resistance ahead of the 1.1100 handle, while the prior day’s polling-related outperformance in GBP/USD also petered out with the pair stuck around the 1.2950 level amid a recent warning from EU's Trade Chief Weyand that UK PM Johnson will either only get a “bare bones” trade deal from Brussels next year or none at all citing a lack of time to strike a comprehensive deal. Elsewhere, USD/JPY was choppy as it failed to make any meaningful recovery from yesterday’s collapse through 109.00, and antipodeans were also subdued with mild pressure from the RBA November Minutes which stated the board is prepared to ease further if needed and agreed a case could be made for a rate cut at that meeting but decided to keep policy steady.

RBA Minutes from November meeting stated the board is prepared to ease further if needed and agreed a case could be made for a rate cut at the meeting but decided rates should be held steady. RBA board recognized negative effects of lower rates on savers and confidence as rate cuts could have a different impact on confidence than in the past, while it saw a case to wait and assess impact of its prior substantial stimulus and agreed an extended period of low rates is needed to achieve targets. (Newswires)

COMMODITIES

Commodities were mixed with WTI crude futures languishing below the USD 57.00/bbl level after the losses in the prior session where the energy complex declined as sentiment was momentarily spooked by reports of Beijing trade pessimism and although stocks eventually recovered, crude prices failed to follow suit. Copper was kept uneventful by the flimsy risk appetite and gold held on to the recent advances which were spurred by yesterday’s early safe-haven buying and USD-pressure, while silver outperformed with prices boosted by a late breakout of the tight range seen throughout most of US and Asia trade.

US total shale region production for December is expected to be +49k BPD to 9.133mln BPD, according to EIA. (Newswires)

GEOPOLITICS

US Secretary of State Pompeo said the US is monitoring the protests in Iran and is deeply concerned by reports of fatalities, while he added that the US is removing its Iran sanctions waiver for Fordow and that US will sanction corrupt individuals stealing Iraqi wealth. (Newswires)

North Korea says US proposed to meet in Sweden next month, according to KCNA citing a North Korean Foreign Ministry official. (Newswires)

Turkish Foreign Minister stated the US & Russia have not completed what is required under the north eastern Syria deals, while he warned that Turkey will launch an operation if the area is not cleared of terrorists. (Newswires)

Yemen's Houthis reportedly seized three ships in the Red Sea, in which one was from Saudi Arabia and 2 said to be from South Korea. (Al Masirah)

US

Treasuries settled modestly higher on Monday, reversing losses from the Asian and European session after negative reports of the state of US-China trade relations hit wires. Although, equity bourses managed to reverse most of their losses, the T-Note remained close to its highs through till settlement. The 10-year yield moved over 2.5bps lower, getting closer to the 1.8% level, whilst the 2-year yield fell by under 2bps, with the less pronounced front-end move reflective of the haven bid on trade concerns, rather than altering expectations of US monetary policy. US T-note (Z9) futures settled 6 ticks higher at 129-10+.

US President Trump tweeted that he told Fed Chair Powell the Fed rate is set too high relative to the interest rates of other competitor countries and that US rates should be lower than all others, while he added too strong USD is hurting manufacturers and growth. (Twitter)

Fed's Rosengren (Voter, Hawkish Dissenter) said we are pretty close to the Fed's inflation target and that the Fed doesn't have as much room as it did before in case of a negative shock, while he calls on fiscal policy in the event of a bad situation. (Newswires)

Fed's Mester (2020 Voter, Hawk) said the US economy is doing well with current growth at around trend rate with current policy well calibrated to the economy and that the Fed is talking about whether or not to have a standing repo facility. Mester also noted negative interest rates are working in Europe better than she would have anticipated although she would be very wary of negative rates in the US because of the different financial systems, while she added that forward guidance in the future may be more tied to economic conditions. (Newswires)

US Senate Majority Leader McConnell said US President Trump is willing to sign a stop-gap funding bill through December 20th to prevent a partial government shutdown at the end of this week. (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