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[PODCAST] EU Open Rundown 25th November 2019

  • Asian equity markets began the week on a positive note with sentiment underpinned by encouraging reports from China
  • China is to increase penalties related to IP theft and will examine lowering the threshold for violators according to fresh government guidelines
  • Hong Kong Pro-democracy candidates achieved a landslide win following a record turnout in Hong Kong District Council elections
  • US President Trump said the China trade deal is coming along very well, while he also commented that an announcement will come "very soon" regarding the Hong Kong bill
  • Datapraxis analysis on YouGov data projected a Conservative majority of 48 seats with a total of 349 seats
  • Looking ahead, German Ifo, ECB’s Mersch

ASIA-PAC

Asian equity markets began the week on a positive note with sentiment underpinned by encouraging reports from the Greater China region in which Beijing released fresh guidelines to increase penalties on IP theft and after protesters eased tensions in Hong Kong for elections where pro-Democracy candidates achieved a landslide victory. ASX 200 (+0.3%) was led higher by the trade sensitive sectors such as tech and materials although financials lagged amid continued losses in Westpac due to the AUSTRAC breaches which prompted its Chairman Maxsted to put CEO Hartzer on notice that he could be fired if the scandal continues to destabilise the reputation of the bank, while Nikkei 225 (+0.7%) was underpinned by a weaker currency and with commodity-related sectors front running the advances. Hang Seng (+1.8%) and Shanghai Comp. (+0.6%) conformed to the optimism after China’s steps to increase penalties on IP theft, which despite being vague in its promise, is still seen as an effort to appease the US side. In addition, Hong Kong was buoyed following the District Council elections where protests quietened to avert the risk of a cancellation and in which the pan-democratic camp won more than six-fold the number of seats than the pro-Beijing establishment, although gains in the mainland were to a lesser extent following a substantial CNY 180bln net liquidity drain by the PBoC. Finally, 10yr JGBs were relatively uneventful as focus centred on riskier assets, but with mild gains seen amid the BoJ’s presence in the market for JPY 890bln of JGBs with varying maturities.

PBoC skipped open market operations for a net daily drain of CNY 180bln. (Newswires) PBoC set CNY mid-point at 7.0397 vs. Exp. 7.0421 (Prev. 7.0306)

China is to increase penalties related to IP theft and will examine lowering the threshold for violators according to fresh government guidelines, while reports added that the promise was vague and local governments will have the responsibility of implementing the changes. (Newswires)

Global Times tweeted that contrary to negative media reports, China and US are very close to a phase one deal and China remains committed to continuing talks for a phase two, or even a phase three deal with the US on equal footing, citing experts close to the government. (Twitter)

US President Trump said the China trade deal is coming along very well, while he also commented that an announcement will come "very soon" regarding the Hong Kong bill. (Newswires)

US National Security Adviser O’Brien said an initial trade agreement with China is still possible before year-end although he added that President Trump will not turn a blind eye to what is happening in Hong Kong or the South China Sea. In related news, a senior White House official said the Dec. 15th additional 15% tariffs are currently scheduled to go into effect on Chinese imports but added that things could change with potential good will if there is a phase one trade deal. (Newswires/Fox)

An ambitious “phase two” trade deal between the US and China is said to look less likely as the two countries struggle to strike a preliminary “phase one” agreement, according to reports citing US and Beijing officials, lawmakers and trade experts. (Newswires)

Hong Kong Pro-democracy candidates achieved a landslide win following a record turnout in Hong Kong District Council elections in which the results showed pan-democratic candidates won 390 seats of the 452 seats, while it was also reported that protests were quiet as protesters decided to ease tensions heading into the election to avoid the risk of a cancellation. (Newswires)

UK/EU

Datapraxis analysis on YouGov data projected a Conservative majority of 48 seats with a total of 349 seats, Labour 213, Lib Dems 14, SNP 49, Plaid Cymru 5, Green Party 1, Speaker 1. (Twitter) Elsewhere, according to Electoral Calculus, using research from five surveys carried out between November 14th-19th, the Conservatives are set to gain a 64-seat majority. (Telegraph)

 

Opinium UK election poll showed Conservatives at 47% (+3), Labour 28% (Unch.), Lib Dems 12% (-2) and Brexit Party 3% (-3), while Panelbase poll showed Conservatives at 42% (-1), Labour 32% (+2), Lib Dems 14% (-1) and Brexit Party 3% (-2), in surveys both conducted November 20th-22nd. (Guardian/Newswires) YouGov showed Conservatives at 42% (unch), Labour 30% (Unch.), Lib Dems 16% (+1) and Brexit Party 3% (-1), conducted November 21st-22nd. (Twitter)

 

UK PM Johnson launched the Conservative party manifesto in which he pledged to deliver Brexit by January 31 and spend GBP 100bln on infrastructure spending, while the policies included ruling out increases in income tax, National Insurance and VAT for 5 years. (Politico/BBC)

 

UK opposition Labour Party leader Corbyn said he would stay neutral in a 2nd Brexit referendum in an effort to rally support and carry out the will of the people. (Newswires)

 

SNP’s Leader Sturgeon says that they would be willing to support a Labour government if no party achieves a majority, but would not enter a formal coalition; scrapping of the Trident nuclear system would be a ‘red line’. (BBC)

 

Fitch affirmed Austria at 'AA+'; Outlook Positive, affirmed Portugal at 'BBB', Outlook Positive and affirmed Iceland at A; Outlook Stable. (Newswires)

 

FX

DXY was steady and held near last week’s highs, nonetheless, EUR/USD found some respite as the 1.1015 level provided a floor for the currency and GBP/USD partially nursed losses after the latest Opinium poll showed the Conservatives widened their lead to 19 points against the opposition Labour Party, with the Datapraxis analysis on YouGov surveys also projecting the Conservatives are set for a majority win of 48 seats. Elsewhere, USD/JPY was lifted by the risk appetite and broke through several shorter-term DMAs as it closes in on the 200DMA at 108.94, while antipodeans mildly benefitted from the risk appetite and somewhat improved trade optimism due to their high-beta properties and China exposure.

SNB Economist Lenz says that it is too early to tell when the deposit rate will move back above, zero, adding that rates could be cut further, albeit, they cannot fall on an indefinite basis. (Newswires)

S&P affirmed South Africa at BB; Outlook revised to Negative from Stable. (Newswires) COMMODITIES

Commodities were uneventful overnight in which WTI crude futures only marginally benefitted from the positive risk tone as prices were contained by near-term resistance around the USD 58.00/bbl, with a mild reduction of oil rigs in the latest Baker Hughes rig count and some favourable oil-based forecasts for next year by Goldman Sachs doing little to spur prices. Elsewhere, gold was lacklustre around the USD 1460/oz level amid a lack of safe-haven demand and as the greenback held on to recent gains, while copper conformed to the quiet tone in commodities and only eked minimal gains despite the improved US-China trade headlines.

Baker Hughes Rig Count (22 Nov): Oil rigs -3 at 671, natgas rigs unchanged at 129, total rigs -3 at 803. (Newswires) Goldman Sachs sees 2019 WTI prices at USD 56.90/bbl and 2020 at USD 55.50/bbl, while it sees 2020 non-OPEC supply to increase 2.1mln bpd and demand growth of 1.2mln bpd. Goldman Sachs said its 2020 top trade recommendation is long oil-heavy enhanced S&P GSCI Index and that it sees oil returns of 10% next year despite maintaining USD 60/bbl oil forecast, while it affirmed its bullish gold target of USD 1600/oz. (Newswires)

GEOPOLITICS

North Korea leader Kim visited a military site and urged the army to be prepared for regular mobilization, while it was also reported that they will increase war-like drills. (Newswires)

US

 

The T-Plex was lower for the second consecutive week on Friday with losses inspired by upside in the equity complex, with hints from US President Trump that a trade deal with China is "potentially very close". The data slate was also supportive, with a better than expected US Markit PMI, while University of Michigan consumer sentiment data was revised higher, boding well CB gauge of consumer confidence, released next week. Volumes were light, and at settlement, the curve was mixed, with the 2s through 7s higher yields, 10s roughly unchanged, while 30s yields were slightly lower; major curve spreads, however, narrowed by around 1-2bps. US T-note futures (Z9) settled 1 tick lower at 129-14+.

Michael Bloomberg entered the race for the 2020 US Presidential Election as a Democratic Candidate. (Newswires)

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