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[PODCAST] EU Open Rundown 26th November 2019

  • Asian equity markets traded mostly higher after taking impetus from the fresh record levels on Wall Street
  • China and US trade negotiators held a phone call today in which they reached a consensus on solving issues and agreed to keep in contact regarding phase one deal
  • USTR Lighthizer later confirmed the call with China but declined to comment on specifics
  • China's Global Times tweeted that topics in the call may have included tariff removal, agricultural purchase and a possible face-to-face meeting
  • Looking ahead, highlights include German GfK Consumer Sentiment, US Consumer Confidence, New Home Sales-Units, API Weekly Inventories, Fed Discount Rate Minutes, Fed’s Brainard, ECB’s de Guindos, Coeure, Lane, RBA Governor Lowe, supply from the UK]

ASIA-PAC

Asian equity markets traded mostly higher after taking impetus from the fresh record levels on Wall Street where sentiment was underpinned by the US-China trade optimism and a relatively busy day of takeover activity. ASX 200 (+0.8%) was positive in which the energy sector led the broad advances across Australia’s sectors as Caltex registered double-digit percentage gains on reports it received an offer from Couche-Tard and with Westpac finding some relief from the AUSTRAC-related losses after its CEO stepped down and Chairman announced an early retirement, while Nikkei 225 (+0.4%) was lifted by a weaker currency and with M&A also in focus as Hitachi Chemicals surged on a potential takeover by Showa Denko. Hang Seng (+0.1%) and Shanghai Comp. (+0.1%) opened positively on the recent trade optimism although the gains were later trimmed after another substantial liquidity drain by the PBoC and as Alibaba’s debut threatened to shun the regional darlings, while a brief spike in risk appetite attributed to algos reacting to news US and China trade negotiators held a phone call and reached a consensus on solving issues, later faded given the actual lack of fresh solid developments. Finally, 10yr JGBs were pressured in early trade by the lack of safe-haven demand and with participants sidelined heading into the 40yr auction, which eventually showed firmer demand and spurred a rebound in prices.

PBoC skipped open market operations for a net daily drain of CNY 120bln. (Newswires) PBoC set CNY mid-point at 7.0344 vs. Exp. 7.0344 (Prev. 7.0397)

China and US trade negotiators held a phone call today in which they reached a consensus on solving issues and agreed to keep in contact regarding phase one deal. MOFCOM noted the talks were held by Chinese Vice Premier Liu He, USTR Lighthizer and Treasury Secretary Mnuchin, while Chinese Commerce Minister Zhong, PBoC Governor Yi and NDRC Vice Chief Ning also participated in talks. Furthermore, USTR Lighthizer later confirmed the call with China but declined to comment on specifics. (Newswires)

China's Global Times tweeted that topics in the call may have included tariff removal, agricultural purchase and a possible face-to-face meeting citing experts close to trade talks. Furthermore, Global Times later reiterated that China and the US have basically reached broad consensus on a phase one trade deal including the removal of tariffs, although some differences remain over how much tariffs should be rolled back citing experts close to the talks. (Twitter)

China is preparing to focus its attention to strengthening ties with Europe next year amid US trade talks and following the recent signing of the "geographical indication" agreement to protect 100 regionally specific products, according to sources. (SCMP)

China reportedly summoned the US ambassador over Hong Kong interference. (Newswires)

UK/EU

ICM/Reuters UK Election poll: Conservatives 41% (-1), Labour 34% (+2), Lib Dems 13% (Unch.) and Brexit Party 4% (-1). (Newswires)

BBC's Laura Kuenssberg tweeted that Labour's handling of anti-Semitism crisis comes blasting back into the campaign as Chief Rabbi Mirvis suggested that Corbyn is not fit for office and demanded every person vote with their conscience, while ITV’s Brand tweeted that the Chief Rabbi urged people to think carefully before voting Labour and noted that the party’s claim to have dealt with antisemitism is mendacious fiction. (Newswires)

Lord Kerslake, a senior adviser to the Labour Party has suggested that Jeremy Corbyn’s position as head of the party could be up for discussion as part of the price of a pact with the Liberal Democrats and the SNP. (Telegraph)

ECB's Lane said the yield curve plays a key role for the transmission of monetary policy, under both standard and non-standard policy measures, while Lane added the ECB will be in the bond market for a long time and is signalling quantitative tightening but far in the future. (Newswires)

FX

The DXY consolidated following yesterday’s choppy price action with overnight comments from Fed Chair Powell not providing much to spur prices as he reiterated the Fed will respond accordingly if developments cause a material reassessment of the economic outlook and that current monetary policy is likely to remain appropriate as long as economic data is consistent with moderate growth. The greenback’s major counterparts were uneventful with EUR/USD languishing just north of 1.1000 and with GBP/USD rangebound near 1.2900 after conflicting projections in which the latest ICM poll showed a 7-point lead for the Conservatives which is a far cry from the 19-point margin suggested by the recent Opinium survey. USD/JPY reclaimed 109.00 on the improved risk appetite and with the gains momentarily exacerbated by the phone call between US and China trade negotiators, although this was faded shortly after alongside the retracement in stocks, while antipodeans conformed to the humdrum picture seen in the currency space with NZD/USD only briefly supported by better than expected New Zealand Retail Sales data.

New Zealand Retail Sales (Q3) Q/Q 1.6% vs. Exp. 0.5% (Prev. 0.2%). (Newswires)

COMMODITIES

Commodities were lacklustre as they failed to take their cue from the mostly positive risk appetite in which WTI crude futures were contained by resistance around the USD 58.00/bbl level and some analysts even suggested the holiday-shortened week and month-end factors could also be contributing to the recent indecision. Nonetheless, focus for the complex shifts to the upcoming inventory data beginning with the API report due after-hours today. Gold remained subdued overnight with the precious metal weighed by a lack of safe-haven demand and amid an uneventful greenback, while copper conformed to the uneventful tone across the complex not helped by the somewhat flimsy sentiment in China. 

GEOPOLITICS

Iranian-backed Houthis reportedly launched a large-scale attack against Saudi-led coalition forces in Yemen which is said to have left hundreds of casualties including Saudi, Emirati and Sudanese nationals. (MasirahTV/Elinor News)

Russia and Turkey are reportedly to sign the second S-400 missile system regiment contract in 2020. (Ria)

US

T-notes edged higher on Monday despite a strong US equity market performance putting constraint on the bid for havens. Participants also could be cautious on US debt markets given the large Treasury supply this week, although month-end rebalancing out of equities and into Treasuries is also likely providing support. The shape of the curve was little changed at settlement with yields lower between one and two basis points. US T-note futures (Z9) settled 2 ticks higher at 1929-16+.

Fed Chair Powell said Fed would respond if developments cause material reassessment of the outlook and that current monetary policy is likely to remain appropriate as long as economic data is consistent with moderate growth, while he suggested that policymakers’ favourable outlook is founded on strong household spending and that monetary policy is well positioned to support labour market as well as the 2% inflation target. However, Powell also noted yellow flags in the economy including muted inflation and that lower monthly job gains suggests an economy with somewhat less momentum than previously thought. (Newswires)

US President Trump said the USMCA trade agreement is on House Speaker Pelosi's desk and suggested she is incapable of moving it, while he added that Mexico and Canada might pull the deal pretty soon and that if they do pull it, it is her fault and not his. However, there were later comments from Pelosi who said we are within range of a substantially improved US-Mexico-Canada trade agreement and that they need to see the progress in writing from USTR Lighthizer for final review. (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